Hi.
This is Lee Phillips.
I'm an attorney, and I'm doing a series on formalities
in corporations and LLCs.
You have to do this formality things in order
to make sure that the corporate shield holds and protects you
from what happens, the liabilities within the company.
One of the things that you need to worry about is, are you're
doing business in more than one state.
And I see this very frequently, where the folks will set up
an LLC, and then they will do business in another state,
and they never bothered to go and register
that LLC in the state, or register the corporation
that they have in the second state.
This is particularly something I see in the real estate
investing industry.
We've got a corporation, and the people set it up in Nevada,
for all reasons, not.
They set it up in Nevada, and then they
buy the real estate in Ohio and Illinois, and the Midwest,
or Florida or someplace.
That company, the Nevada company,
needs to be registered in each state where
you're doing business.
And this goes to the question of which state
do I put my LLC or my corporation in,
and that's another video.
But if you were actually doing business.
And doing business is really the snakey definition.
If you're doing business in the state,
then your company, your LLC, your corporation,
or your limited partnership, or your partnership,
needs to be registered in that state.
That means you have to pay all the state filing fees.
If you're in California, that's $850 a year.
And by the way, California has a real weird definition
of what is doing business.
If you are a California citizen and you own more than 25%
of a company, that company is deemed
to be doing business in California, even if it has
nothing to do with California.
The sheer fact that you are a California resident
and you own a chunk of another company in a different state,
California says that state-- or that company
is now doing business in California.
They want their $850.
And if you don't pay it, they have
a little [? bippy ?] of $3,000 a year penalty.
Love California.
At any rate, the question is what is doing business.
Certainly owning property would be doing business,
or selling items direct would be doing business.
Now, you're on the internet, you're
selling items in every state.
So far, the states have not imposed sales taxes.
That's coming.
And they haven't imposed that this is doing business
in the state on internet sales and the supply of products
over the internet to a specific state.
I suspect that will be coming also.
That means it's going to be a nightmare.
You'll have to register in all 50 states
and pay the state fees.
You can't make any money.
It won't work.
So maybe it isn't coming, I don't know.
It's going to collapse the whole system if they do that.
At any rate, if you don't register in the state,
then when you're in that state doing business
and the tenant slips and falls or there's a problem,
and you get sued, the company gets sued.
But that company isn't a citizen of that state.
You must be doing business in that state as an individual.
You don't have to register to do the business in the state.
So that is one way that we can pierce the corporate veil,
is to say, hey, hey,hey.
You didn't follow the formalities.
You didn't recognize-- this state doesn't recognize you
as an entity.
Yeah, somebody is doing business here,
but it isn't the corporation.
It must be the individual.
And you can lose your liability shield quite easily that way.
So that's one of the formalities you
need to make sure that you're playing the game with.
And by the way, if you don't register in that state,
your tenant's in the unit and you
try to evict them, who cares.
You don't have any rights in that state.
The owner of the property, the corporation or the LLC,
has no rights in the state.
They have no protection by the state.
You're just hanging out there.
So it's a critical issue.
Make sure you register in each state
where you're doing business.
And like I say, doing business is kind of a snakey definition.