Fully internet-based business: where do I register and why?

Asked by: Craig M.  — 24 April, 2012

Some friends and I have started a group to develop software to be distributed exclusively over the internet – no physical media will be stocked unless we use a publisher. I live in Florida and there are members living in Minnesota, Oregon, Georgia, and Ohio. Do I have to register (not incorporate) the LLC with each state where employees would exist (for income tax purposes) or do I have to register in all 50 states since we would theoretically sell to all states? I’m not exactly sure how it works with it being a fully internet-based business with no “offices”. Do I have to obtain a license to do business in all 50 states if it’s an internet business? Seems rather cumbersome (and expensive) if that’s the case.

Answered by: admin  — 24 April, 2012

Dear Craig,

First of all you do not need to register your company in all 50 states. In fact, to start you might choose any state as your state of formation (for example many online businesses incorporate or organize in Delaware or Wyoming). Then, as your business grows and you start open offices and hire W-2 employees (not contractors though) you would need to file for authority to do business in those states where you will have physical presence (its also called “foreign qualification” or “forming foreign entity“).

As far as income taxes go, LLC is a pass through entity, so you and your partners would receive member distributions from your company’s profits (or losses) and then file your individual taxes on those and other profits in your respective states. I would recommend you to consult an accountant to learn more how to deduct your business expenses and how the income tax issue would be handled with members spread all over the country.

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