i really need this answered.. 'foreign entity' or not?

[HomerJ]

the short: Has anyone here that formed an LLC for their domaining business that formed the LLC in another state then also been required to register your LLC as a 'foreign entity' within the state in which you reside?


the long: I have formed an LLC in the state of Delaware. As I understand, the state in which i now reside (not Delaware)requires a regular business to file with the Secretary of State (S.o.S.) as a foreign entitiy if they are to 'transact business' in the state. I just want to be clear that this actually applies to a domaining business, and whether I am actually "transacting business" in the state by domaining. after all, the business essentially has no phsyical presence, other than me working from my home computer, and no tangible phsyical assets; there are no employees or payroll, there is no tax on the sale of domain names, and no permits needed. The only thing I would need to do is to open a business checking account here in my town. Other than that everything will be conducted in cyberspace so to speak. Part of the trouble is that my state's S.o.S. website says that they cannot define what counts as 'transacting business', they only provide a list of what would "not" count as transacting business in the state. :?:

I am uncertain because I have been getting different answers from different people about this question, and the two main reasons I want to be certain about this as a requirement are: 1) that I will lose privacy protection, which was a definate advantage of the Delaware LLC, as personal conatact information does not become public record in Delaware, whereas were I to file here in my home state as a foriegn entity, my name and address would be a matter of public record, I may be able to use a registered agent to protect my address, though this would add to the cost of doing business, and in any event my name would still be on file anyway. 2) the cost to register the paperwork is $750.

I don't want to circumvent state laws, especially not if it would compromise my limited liability in the long run, but obviously this is only something i would do if it is necessary by law to do,. But it is very difficult to find any info on business law and tax law that pertain to owning a domaining business, which i see as different from, say, owning a restaurant, where it is not as though having an online presence for me is an extension of having a regualr 'brick and mortar' type business.

For example, say if I moved to Alabama next week, and then decided to move to Arkansas a month later. Without knowing specific state laws, is it a reasonable assumption then that I be required to file in any state simply because I am living there, when all I am really doing in terms of business will be selling domain names through paypal, and maintaining a couple of websites from my computer at home, and collecting ad revenue? Is there a question of tangibility here in regards to "transacting business", whatever that means, or am I just making moot points?

Lastly, some have said that all I might need is to do is to register a D.B.A with the state. could that be so?

 

[Theo]

That's why it's prudent to form a corporation at the state of your primary business activity & residence. However, a lawyer can give you specific answers.

 

[Domagon]

One thing you wrote certainly caught my eye... "there is no tax on the sale of domain names" ... at the Federal level there certainly is; typically as a capital gain / loss, but depends on the exact nature of the domain business and accounting method used...

Anyways, I assume you are referring to state / local level where there often isn't any tax directly levied on a domain name sale.

However, at some point I assume you intend to get money out of your business by paying yourself a salary or whatever - that's going to be taxed for sure by the Feds and most likely by the state you physically reside in and/or by Delaware.

There rarely any real advantages of incorporating in Delaware, etc anymore; unlike many years ago - furthermore, any savings, if any, will likely be eaten up by all the extra paperwork, professional fees, wasted time, etc.

Ponder this ... where do you physically spend most of your time working on your domaining business? If it's in your home state, then that's likely where you should incorporate.

Ron

 

[HomerJ]

thanks for the input. you are right, i was only referring to state tax, and as i checked with the comptroller there is no sales tax on domain names. I understand what you are saying about federal tax and federal income taxes etc.

also, just to make clear, the deed is already done, i have already formed, and the specific advantage i was looking for was to form a Series LLC, only now available in five states, of which one is Delaware. However it was not explained to me aforehand that i might be required to file also in my home state. this may possibly have affected my decision had i known, but whatever as now i only need to answer the above question. as i said, there is a dearth of legal advice, or otherwise there is so much mixed signals from different sources that its hard to strain it into the what is actually correct and true info, and what is misinfo.

someone should start a free legal advice hotline, probably be a NPO i guess but could probably still be lucrative with how many people i swear would use it!

 

[Theo]

someone should start a free legal advice hotline, probably be a NPO i guess but could probably still be lucrative with how many people i swear would use it!

From my understanding John Berryhill's sleeping pattern would qualify him for a 24/7 legal advice hotline expert

 

[Domagon]

Series LLCs ... I learn something new everyday

http://www.assetprotectionbook.com/series_llc.htm

I see this making sense in various situatons, though it seems overly complicated - and not without risk, since regular LLCs themselves are a relatively new legal construct.

Anyways, I assume you have more than a domain business then and/or have various partners involved, etc...

If only a domain business run by you, then I'm not seeing any advantages of Series LLC over a regular LLC ... and depending on the amount / method one chooses to get money out of the business, heck a S-Corp might even make more sense.

In short, IF it's only a domain name business operated by you, then it's likely better, easier, cheaper to simply incorporate anew in your homestate and go on from there.

Ron

 

[NameMatters]

Continuing the sales tax topic, is there any state that has 'sales tax' on the domain sales?

thanks,

 

[HomerJ]

thanks Ron, in fact i do have another venture in the works, and 2 or 3 more under the table. i figure if i can hatch these babies successfully over the next few years, having them all under one umbrella will actually save me time, hassle, paperwork, and money in the long run. this was my main reason for wanting the Series. as far as risk, two things to consider are: the series structure has never been contested in the courts yet, there eventually will be a first case to set precedent, and secondly: in what i feel would be the unlikely event that the first case to trial does fall in favor of the claimant and against the series, i could at that time, if i thought it prudent, choose to break off any or all of the series' and turn them each into proper LLCs of their own.

in any event, i would love for Mr. Berryhill to weigh in on the subject, if inclined. and i appreciate everyone's elses input as well. suprising though that no domainers here 1have ever been in my shoes w/ the out of state/foreign entity question..

Continuing the sales tax topic, is there any state that has 'sales tax' on the domain sales?

thanks,

to be sure just make a call to your city's comptroller or county clerks office. i expect though that the blanket answer is 'no', as i don't think most people, including accountants and government agencies, still wouldn't know what a domaining business was.

 

[Domagon]

I did a quick read of some of your other posts here - it appears you're just starting out ...

My view is to get your business running for awhile and if it becomes something of any significance, then incorporate.

On a related note, one can't rely on city officials for legal advice, especially if it's on anything unusual / different than what they typically deal with.

NameMatters- Sales tax on domains - not aware of any state / locality that levies such a tax, but doesn't mean none do; context of how a domain is marketed (ie. as a commodity, as a piece of virtual property, as intellectual property, etc) could affect how its viewed by a taxing authority.

Ron

 

[HomerJ]

My view is to get your business running for awhile and if it becomes something of any significance, then incorporate.

Ron

that is not my view since if you start a business and begin profiting before you are properly formed into a business then you risk ramifications of negating any future liability protection since a competent lawyer can pierce your corporate veil in a heartbeat if he finds that what is now your business asset was at one time a personal asset from which you benefited financially.

i may be wrong, (i don't think that i am, but i may be), but for instance, if you sold microsofy.com for $xx,xxx before you were incorporated/LLC'd, i believe Microsoft (on behalf of one of these new anti-cybersquatting coalitions no doubt) could potentially sue you years later, and go after your personal assets, house, car etc. if they wanted to.

idk, am i looking too hard into this? :worried: i just thought i should do everything legit.

once again i do appreciate the advice, but i really wish for just a simple and direct answer to my question and i am specifically looking for others who have done this before to either confirm or disconfirm. don't want this post to go on 5 different tangents none of which answers my question :worried:

 

[Domagon]

that is not my view since if you start a business and begin profiting before you are properly formed into a business then you risk ramifications of negating any future liability protection since a competent lawyer can pierce your corporate veil in a heartbeat if he finds that what is now your business asset was at one time a personal asset from which you benefited financially.

And being incorporated first magically eliminates such risks - here's a question to ponder: Who is going to possess the controlling interest of the company? -if you, then you're likely not as protected as you think ... perhaps you already figured that? ... and thus maybe some of your motivation to incorporate "anonymously" in Delaware.

In regards to my previous comment abouting waiting - many entrepreneurs start businesses first and then later incorporate when their business is large enough to justify doing so.

i may be wrong, (i don't think that i am, but i may be), but for instance, if you sold microsofy.com for $xx,xxx before you were incorporated/LLC'd, i believe Microsoft (on behalf of one of these new anti-cybersquatting coalitions no doubt) could potentially sue you years later, and go after your personal assets, house, car etc. if they wanted to.

Simple solution is don't buy obvious "problem" domains. The "typo" business can be profitable, but comes with some risk - by and large such risk simply being "losing" some domains occasionally due to C&Ds, UDRPs, etc.

If you are not buying such "typo" domains of TMs, etc, then there's relatively little to no risk to worry about in regards to domaining, let alone mitigate through complicated corporate structures.

once again i do appreciate the advice, but i really wish for just a simple and direct answer to my question and i am specifically looking for others who have done this before to either confirm or disconfirm. don't want this post to go on 5 different tangents none of which answers my question :worried:

Your "question" (which itself wasn't that simple, since it took up much of a page and contained much detail) can't be easily answered - for it it could be, it would have been answered by now...

Anyways, if you are that worried and willing to spend $xxx+ here and there in your incorporation quest, why not at least spend $xxx first on hiring an attorney experienced in such matters ... forums are ok for general questions / opinions, but honestly is not the venue for getting detailed legal advice - you've seen some names of experienced attorneys that frequent here...

Setup a consultation regarding corporate structure / mitigating risks ... and if your funds allow, also contact an accountant (CPA preferrably) to determine the precise tax consequences of the various corporate structures.

Ron

 

[Dave Zan]

Just for entertainment:

http://www.avivadirectory.com/domain-law/

Skip 1 and 2.

 

[HomerJ]

ok, since i'm new here i don't want to get off on the wrong foot with anyone. Don, i can tell you are an intelligent guy from the way you form your statements, and i respect you for that.

i think your first comment was uncalled for, although i'm frankly still unsure what you were trying to say. why wouldnt i be protected? and i shouldnt have to defend my right to privacy, it doesn't necessarily mean i'm trying to 'get away with something'.

as for the rest of it, you are mostly right. i should have consulted with a lawyer before making this decision. i apoligize if it seems like i stormed in here demanding answers. the majority of things i read, such as the link Dave Zan posted, have lead me to believe that 'LLC'ing is a necessity. i was prepared to spend $xxx to 'LLC', and for roughly the same price i could do it in delaware or my home state, and once again, from the plethora of literature i had researched (eg, also the above article), I thought delaware was a better choice, not realizing that i might then pay to about triple the cost to also filing in my home state, which is what i am now trying to figure out.

once again, thank you for your input, and i am sorry if we are getting off on the wrong foot. i don't mean to be abrasive to you or anyone here. just trying to get some answers. i will look into consulting professional advice.

 

[Theo]

Actually Arizona corporations have benefits over Delaware ones (look it up) however unless one needs an almost bulletproof corporate shield it's always better to incorporate in their home state.