Several states including Delaware, Wyoming, and Nevada are popular states for incorporation and limited liability company formation for privacy and taxation reasons. But what if the corporation or LLC will actually be transacting business in Florida and not in its state of incorporation/formation?
Under Florida law, such LLCs or corporations (known as foreign LLCs or corporations, collectively foreign entities) may not transact business in Florida until they obtain a certificate of authority from Florida’s Department of State. Over the years, I have encountered several foreign entities that have not obtained this certificate even though they were clearly a business operating in Florida. In one case, the entity could not file an breach of contract lawsuit until it had received its certificate of authority and paid a fine.
Both incorporation and limited liability formation in all states is relatively simple and typically carried out by a non-attorney. As for Florida, the failure of the foreign corporation to early-on obtain a Florida certificate of authority is generally the result of unfamiliarity with the law by non-lawyers.
According to Florida law, both foreign corporations and limited liability companies must not transact business in Florida until it obtains a certificate of authority from the Department of State. See §607.1501 of the Florida Corporations Statute and §605.0905 of the Florida Revised LLC Act. Neither statute provides guidance as to what constitutes “transacting business.” Both statutes do, however, provide a non-exhaustive list of activities which do not constitute “transacting business” such as:
- holding managers’ meetings or members’ meetings (LLC) or board of directors/shareholders meetings (corporation);
- maintaining bank accounts;
- collecting on debts or enforcing mortgages;
- transacting business in interstate commerce;
- conducting an isolated transaction that is completed within 30 days and that is not one in the course of repeated transactions of a like nature;
- owning or controlling a subsidiary corporation or LLC incorporated in or transacting business in Florida;
- owning real estate or personal property located in Florida that produces no income (the statutes make a specific exception for income-producing property).
As for “transacting business,” the following activities are examples of transactions that likely require registration:
- Having a physical presence in the state such as a business office, warehouse, or store;
- Having employees or payroll in Florida;
- Applying for and obtaining a business license in Florida.
Are there any ramifications if a foreign entity needs a certificate of authority to transact business, but does not get one? Legally, the entity may not file a lawsuit in a Florida court, and if a lawsuit is filed, the court may stay the proceeding until the unregistered foreign entity obtains a certificate of authority. The unregistered entity may, however, defend the lawsuit. In addition, any contracts executed by the unregistered entity are still valid, notwithstanding the lack of a certificate of authority. By transacting business in Florida without a certificate, the entity is deemed as a matter of law to have appointed the Secretary of State as the company’s agent for service of process. Finally, the entity is liable to the Secretary of State for civil penalties for each year (or part thereof) that it operates without a certificate of authority.
Practically speaking, an entity that is conducting its business operations within Florida, entering into contracts executed in Florida with other Florida entities or Florida residents, and/or is earning money in Florida from Florida businesses/residents should register the foreign entity in Florida. Florida banks and financial institutions may also prefer, even require, that the foreign entity be registered as a Florida foreign entity.
The forms for registering a foreign corporation or LLC are relatively straight forward. Note that you must provide a Certificate of Existence, no more than 90 days old, from the original state of entity formation. A Florida registered agent is required. You are also required to list the date that your entity first started transacting business in Florida. If you have been conducting business as a foreign corporation before obtaining a certificate authority, you may be responsible for any back Florida Corporate Income Tax and a penalty.
If you are registered corporation, you will be subject to Florida Corporate Income Tax based on Florida-specific adjustments for corporations doing business outside of Florida. LLCs themselves do not pay income taxes, only their members do. Florida is one of the few states which does not have a state income tax for individuals. Accordingly, Florida LLC members will not owe state income tax on their LLC earnings. Some states, but not Florida, impose a separate fee on LLCs for the privilege of doing business in the state.
Finally, note that the foreign corporation or LLC must have a name distinguishable from other companies already registered in Florida. Otherwise, the registrant will be required to register an alternative name to use within the state for a foreign corporation/LLC Florida qualification action.
THANK YOU FOR YOUR INTEREST IN THIS BLOG. AS USUAL, THE CONTENT IS NOT LEGAL ADVICE & IS PROVIDED SOLELY FOR INFORMATIONAL PURPOSES.
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