LandInvestors.com Forums **Ask A Question** Business license for each state?

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    Benjamin Harris
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    Post count: 42

    Do I need a business license or be registered for each state that I flip land in? What experiences have you had with that?

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  • Kevin Farrell
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    Post count: 1642
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    Most states require you to register as a foreign entity doing business in that state if your LLC is not organized in that state. Most of us do not do that. However, if I was to be sued in CA where I am selling land, I would not have the protection of my LLC because it is not a registered entity. My LLC does not exist in CA. The law suit would be directed at me personally and all of my personal assets would be at risk.

    My personal opinion is that when dealing with small vacant parcels the risks are not significant. Now that I am selling properties for over $20K regularly, I am rethinking this issue.

    I am not an attorney.
    My advice is worth slightly less than you paid for it.
    I may not know what I am doing.
    Talk to an attorney when necessary.

    Kevin Farrell - Moderator
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    Tal Freibergs
    Participant
    Post count: 17

    I’ve been wondering about this myself. Even in sales under $5,000 it seems to me that the annual fee is a tiny percentage of your profits compared to the pain that could be caused by one lawsuit being filed. I don’t understand why so many want to take this risk. In my opinion it takes only one good deal to cover the annual cost, so why break the law?

    Kyle Bryant
    Participant
    Post count: 71

    Registering your LLC in each state does not protect you in any way from a lawsuit being filed against you. Yes, most states do require you to register as a foreign entity when doing business in that state. However, I don’t think that a failure to do so exposes your personal assets to liability when it is your LLC doing the business.

    For example, suppose I have a Texas LLC that is buying and selling land in CA. Suppose I also failed to register my Texas LLC as a foreign entity doing business in CA. Then let’s say someone in CA sues my Texas LLC in CA for a deal gone south. What happens? Most likely, CA has a statute that says whenever you have a foreign business doing business in CA, but is not registered, the CA secretary of state becomes the agent for service of process. Then the Secretary of State accepts service of the suit on your behalf and forwards it to the address listed in whichever state the LLC is registered.

    It is quite common in my state (TX) that out-of-state businesses get sued in Texas, but they are not registered as foreign entities. In those cases, we send the lawsuit to the Texas Secretary of State, who then sends certified mail to the corporate address in whatever state. No personal assets exposed. But I guess it could be totally different in California; those guys are weird.

    Kevin Farrell
    Moderator
    Post count: 1642
    ProAdvanced

    Kyle – I am not sure if you are an attorney or not. I am definitely not an attorney. My attorney has explained to me that if I am doing business in another state AND if I don’t have my LLC registered there, then in the event of a law suit, my LLC in my home state is not recognized. POOF – it doesn’t exist and I am considered an individual doing business in that state. If I am sued for damages my personal assets are not protected by my LLC.

    Almost all states have a requirement to register your LLC when doing business there.

    We can all take different levels of risk in this business but we should know exactly what the risks are. Talk to an attorney about this if you are not sure.

    Kevin Farrell - Moderator
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    Shawn Swisher
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    Post count: 64
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    What Kevin said is exactly what I have always heard. I’m NOT an attorney but as I understand it, if you are not registered in a state you do business in, then as far as that state is concerned, your LLC does not exist. It goes the same for your home state. For example, my LLC is registered in TN but if I stop paying my annual LLC fees to the state, the state administratively dissolves my LLC and it no longer exists, even if I continue to do business under that name. So, if I get sued in any state I operate in and my LLC is not currently registered there, then I don’t get the personal liability protection the LLC gives me. Again, I am NOT an attorney so don’t take this as legal advice but as I understand it, operating in any state which you are not registered to do business in will allow someone to “pierce the veil” of the LLC should they bring a lawsuit against you.

    It should be noted that each state typically has exceptions so you need to take a look at those before making a decision. I’ve seen some states say that simply buying and selling real estate does not constitute “doing business” as long as there isn’t any income being produced (such as rent).

    "Buy land, they're not making it anymore." -Mark Twain
    Shawn Swisher
    Participant
    Post count: 64
    Pro

    This question has me doing some additional research on the topic. I found this from NOLO.com which might help:

    What Happens if You Don’t Register?
    If your LLC transacts business in California without authority, it cannot bring a lawsuit in the state. However, not being registered does not prevent your LLC from defending a lawsuit in California. Also, a member or manager of the LLC is not liable for the LLC’s debts, obligations, and other liabilities solely because the company transacted business in California without a certificate of registration.

    If that information is correct, it sounds like your LLC not being registered prevents you from filing a lawsuit in the state but does not prevent your LLC from defending itself. It also sounds like the LLC protection remains in place for the members. That’s good news if accurate, but I have heard the opposite elsewhere.

    Then I found this from the Florida Secretary of State:

    Failure to properly register a foreign entity can lead to the revocation or unavailability of certain rights or privileges including the ability to maintain a lawsuit in the State. In addition, failure to file can lead to a civil fine or an injunctive action brought by the Secretary of State to restrain the further transaction of business.

    Moral of the story is get your advice from an experienced attorney before making business decisions! πŸ™‚

    "Buy land, they're not making it anymore." -Mark Twain
    Kyle Bryant
    Participant
    Post count: 71

    I’m an attorney licensed in Texas, and I practice business litigation. I’ve never heard of having your personal assets liable *just* because you didn’t register your LLC in another state. In Texas, not having your foreign LLC registered in Texas doesn’t automatically make the liability protection go poof; it just means you have to jump through some extra hoops to protect yourself.

    But each state is different! And I could be wrong, which is why I’m trying to get out of the legal business!

    Kevin Farrell
    Moderator
    Post count: 1642
    ProAdvanced

    Kyle – thanks for the follow up on this topic. This is a complicated issue since each state will handle it differently. So far, I just have my LLC in Indiana and I operate in several states without registering my LLC in those states. That is the risk that I have chosen to take at this time.

    Kevin Farrell - Moderator
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    Schedule a 30 minute call - https://calendly.com/kevin-629

    Kyle Bryant
    Participant
    Post count: 71

    Kevin – I agree…even if you’re just looking in Texas, 5 lawyers will tell you 5 different things. All things considered, I think it’s a reasonable risk to take in not registering your LLC in every state you flip land.

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