Operating in A Non-Series State (Part 1)

So, can you safely operate a Series LLC in a state that doesn’t have Series LLC legislation? And, if you have a Series LLC set up in one state and want to register it to do business in another state, can you? The answer is definitely “it depends.”
Taking a Series LLC into another state is pretty straightforward. The first step is to register the Series LLC into that state as a foreign entity. This step needs to happen whether you are intending to operate the Series LLC itself or one of the Cells in that state. As there isn’t a way to register a Cell on its own, you will need to register the entire entity.

In most cases this does not cause a problem. But it can be costly, especially when you are dealing with a state like California, which has very aggressive tax collection policies. California has not enacted Series LLC legislation, but it will accept foreign registration of Series LLCs into the state. However, the Franchise Tax Board (FTB) has also issued a specific ruling on how it will tax Series LLCs.

Where a Series LLC is registered to do business in California, the FTB also requests that the owners voluntarily register each of the Cells. California will then proceed to collect the minimum $800/year franchise fee on the main Series LLC and each registered Cell.

So far California is the only state that we’re aware of that takes such an aggressive stance. However, that’s not to say other states won’t follow suit, especially in today’s shrinking economy, when broke states are looking for anything to keep their budgets afloat.

For this reason, we’ll want to take a close look at your circumstances before recommending you use a Series LLC in California, especially if you aren’t a California resident. You may be much better served by setting up a regular LLC in California to provide those in-state services in a closed entity, rather than opening up a large, complex Series LLC to unnecessary tax.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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