I wanted to form a llc in a state with a cheaper filing fee–I’m in Pennsylvania. Is this legal, and will I have a problem operating in Pennsylvania if the llc was formed out of state? This is for a property management company.
– Michelle, Pennsylvania
Yes, it is legal to form an LLC out of state.
In Pennsylvania (as in most states), an out of state LLC (called a foreign corporation) is permitted to do the following:
§ 4122. Excluded activities.
1. Maintaining or defending any action or administrative or arbitration proceeding or effecting the settlement thereof or the settlement of claims or disputes.
2. Holding meetings of its directors or shareholders or carrying on other activities concerning its internal affairs.
3. Maintaining bank accounts.
4. Maintaining offices or agencies for the transfer, exchange and registration of its securities or appointing and maintaining trustees or depositaries with relation to its securities.
5. Effecting sales through independent contractors.
6. Soliciting or procuring orders, whether by mail or through employees or agents or otherwise, and maintaining offices therefor, where the orders require acceptance without this Commonwealth before becoming binding contracts.
7. Creating as borrower or lender, acquiring or incurring, obligations or mortgages or other security interests in real or personal property.
8. Securing or collecting debts or enforcing any rights in property securing them.
9. Transacting any business in interstate or foreign commerce.
10. Conducting an isolated transaction completed within a period of 30 days and not int he course of a number of repeated transactions of like nature.
11. Inspecting, appraising and acquiring real estate and mortgages and other liens thereon and personal property and security interests therein, and holding, leasing, conveying and transferring them, as fiduciary or otherwise.
Foreign corporations are also permitted to:
§ 4143. General powers and duties of nonqualified foreign corporations.
(a) Acquisition of real and personal property.-Every nonqualified foreign business corporation may acquire, hold, mortgage, lease and transfer real and personal property in this Commonwealth in the same manner and subject to the same limitations as a qualified foreign business corporation.
What is the penalty for doing business in PA as a foreign corporation?
§ 4141. Penalty for doing business without certificate of authority.
(a) Right to bring actions or proceedings suspended.-A nonqualified foreign business corporation doing business in this Commonwealth within the meaning of Subchapter B (relating to qualification) shall not be permitted to maintain any action or proceeding in any court of this Commonwealth until the corporation has obtained a certificate of authority. Nor, except as provided in subsection (b), shall any action or proceeding be maintained in any court of this Commonwealth by any successor or assignee of the corporation on any right, claim or demand arising out of the doing of business by the corporation in this Commonwealth until a certificate of authority has been obtained by the corporation or by a corporation that has acquired all or substantially all of its assets.
In other words, you can’t sue in a PA court if you’re a foreign corporation acting without a certificate of authority.
I would check with PA attorney to see if the exception under 4143 includes property management activities. He or she could probably quickly find some PA caselaw on that issue.