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jackcmp

Will we have to register our Wyoming LLC as foreign entity in North Carolina and/or Ontario, Canada for an online business?

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A friend and I would like to form an LLC for our website business, and register it in Wyoming (being easy to setup, cheap, and have no income tax on the corporate level, and for limited liability protection). We live respectively in North Carolina and Ontario, Canada. 

We do not have offices and work from home in parallel to our day job. 

The revenues will be based on ads and other online-only activities. 

It is not clear to us in which circumstances an LLC must be registered as foreign entity where the members live or work. 

I do not know if our online business (website worked on from 2 different home locations, with ads revenues) applies to the NC law 17 NCAC 05C .0102 DOING BUSINESS DEFINED found here: 
http://reports.oah.state.nc.us/ncac/title%2017%20-%20revenue/chapter%2005%20-%20corporate%20franchise,%20income,%20and%20insurance%20taxes/subchapter%20c/17%20ncac%2005c%20.0102.pdf

And same question for the Ontario equivalent: 
http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90e27_e.htm

A Wyoming LLC seems like a good option for our case, only if we don't have to register a foreign entity in our 2 respective states (is that even possible?). 

Also, we would like to avoid having to change everything if one of us moves to a different state. 

Thank you.

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This is not the kind of question or legal issue you should be posting to an online legal forum for answers. Whether or not you rely on the information provided, it is apparent that you are a sophisticated individual based on the breadth and scope of your question and analysis. I have clients who have had similar problems and I would remiss if I didn't tell you that you should invest the time and money in dealing with competent counsel.

 

While I would encourage you to speak to attorney(s) in respective states to advise you on applicable case law as it pertains to your business, without applying facts to law, salient questions from my experience would be:

 

Who do you seek to engage in your business transactions?

Are you strictly B2B, B2C, B2D, etc.?

 

I see one of you lives in Canada so you would be wise to seek counsel there as well. This is the best information I can provide you as a California attorney.

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Thanks for the quick reply.

 

I am posting this question here to see if other people that have created an online business and registered it out of their home state had to also register it as a foreign entity in their home state.

I will indeed ask attorneys licensed in these 2 states. I wanted to get general advice, warning or notes for people or lawyers that have dealt with this kind of situation.

 

The sources of revenues for the website that this business is about are:

- ads revenue (google adsense and equivalents)

- affiliate links (like amazon affiliate program that pays the website an "advertising fee" (a percentage) of the item a consumer bought to them).

 

As it comes to my mind now, does selling a service (like a VIP access to a website) constitute doing business in the state of the person who pays for such service?

For example, is Netflix "doing business" in Alaska if an Alaska resident buys a subscription to their website/service (which is strictly online)?

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A friend and I would like to form an LLC for our website business, and register it in Wyoming (being easy to setup, cheap, and have no income tax on the corporate level, and for limited liability protection). We live respectively in North Carolina and Ontario, Canada.

 

Understand, however, that the LLC would still be subject to income tax in every state in which it derives income and has the necessary nexus to be subject to tax in that state. As you are located in NC and will apparently be participating in managing the LLC from that state, the LLC would be considered to have an office in that state and thus there would certainly be sufficient nexus to subject the LLC to tax in that state. In short, forming the LLC in Wyoming (or any other state without an income tax) does not bring the tax savings a lot of people think it does. Your management activity would also likely be considered an office for the purpose of requiring the LLC to register as a foreign entity in NC as well. Thus, you may end up paying to register the company in NC and WY, imposing a more fees on your business than if you just organized in NC.

 

I am not familiar enough with Canadian law to say how things would be treated there. 

 

I agree with the prior response that you should consult a business attorney in NC and Ontario for advise, and I'd add that you should consult tax professionals in both places as well.

 

For the U.S. tax professional, I strongly suggest a tax lawyer familiar with the U.S. withholding rules and tax treatment of income to foreign owners of U.S. businesses entities. A U.S. entity that has a foreign owner will have a more complex federal income tax situation because there are special withholding rules to ensure the foreign owners pay their income tax on the U.S. source income that is derived from the business. Failure to comply with those withholding rules can result in large fines, potential personal liability for the U.S. person who should have done the withholding (which may put you on the hook for it if it's not done), and in the  most egregious cases, criminal prosecution. Also, Canada may view the LLC differently than the U.S. does, and that creates complications as well that you need to consider if you want to keep the tax burden as low as possible. Unfortunately, the tax situation, both at the U.S. state level and the federal level, may not be really simple for this sort of business. 

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