Can you have LLC members living in multiple states? Yes you can, but there are some considerations you’ll need to keep in mind. The practice of running an LLC with members in multiple states has become more common as remote work is increasingly utilized. But to do so successfully, you’ll need to conduct some research and comply with the rules and regulations of each member’s state.
Before we take a deeper dive into the logistics of a multi-state LLC, let me give you a refresher on the role of members within this type of business entity.
What Are LLC Members?
Members of an LLC are the owners of the business. You could have a single-member LLC, in which you are the sole owner, or a multi-member LLC, which has two or more owners. Unless your LLC is taxed as an S Corporation, which has a membership limit of 100, there is no limit to the number of members it can have.
Most states don’t restrict ownership within an LLC, so members can be individuals, other LLCs, Corporations, or even foreign businesses. Some types of businesses, however, such as banks and insurance companies, normally are not permitted to be members of LLCs.
Members are not typically considered to be employees of their LLC. Unless an LLC elects to be taxed as a Corporation instead of a Sole Proprietorship or Partnership, members normally receive a percentage of the company’s profits based on their percentage of ownership instead of a salary or hourly wage, and pay income taxes based on their individual tax rate. Because they are considered self-employed, LLC members also must pay both the employer and employee shares of Social Security and Medicare taxes, known as the self-employment tax. In 2025, those taxes totaled 15.3% of earnings.
Member-managed vs. Manager-managed
LLCs can be member-managed or manager-managed. In a member-managed LLC, all the owners have equal rights in running the day-to-day operations of the business. In a manager-managed LLC, either one or more of its members – but not all members – run the business, or an outside professional is hired to run it.
Most entrepreneurs form LLCs with the goal of running them, meaning that member-managed businesses are much more common than manager-managed. Also, member-managed is the default management option in most states, so if you plan to start a manager-managed LLC, you’ll need to inform the state of your decision.
There are advantages and disadvantages to each of these management structures. A professional manager may be a better choice for a very large LLC, as giving each member equal rights in running the business can be cumbersome. Also, investors may be more likely to get involved with an LLC that’s manager-managed, as they perceive it as being a more professional operation than a member-run business.
Most entrepreneurs, however, are reluctant to hand over the operations of their business to someone else – even if it’s other members, as running a business is the reason they started the LLC in the first place.
The Importance of the LLC Operating Agreement
The owners of an LLC should adhere to the terms of the business’ Operating Agreement, which is a document that spells out how the business will operate, based on the needs and wishes of its members. While an Operating Agreement is not required by law in most states, it’s a vital document because it clearly establishes the business as an LLC, assuring that members have protection from personal liability. An LLC Operating Agreement serves as a legal boundary between the LLC and its owners, reducing the responsibility of the owners for business debt or liability.
It also protects the business from being subject to state laws that may be enacted by default if there is no Operating Agreement in place. The laws governing LLCs put in place by many states are vague and general and may not be in the best interests of your company. For instance, voting rights and profit sharing are generally tied to ownership percentage unless otherwise stated in an Operating Agreement. A state, however, could rule that all LLC members have equal voting rights, with no regard for how much capital each has invested. Many states also stipulate that all profits are shared equally among members, regardless of capital contribution.
An Operating Agreement addresses a host of issues and serves a variety of purposes. It can solidify verbal agreements, helping to avoid miscommunications, and allows owners to outline the rules of succession for their business. It includes information about all members, states how the LLC is managed, how it will be taxed, and outlines how members are compensated and how they vote.
The agreement should cover how capital contributions are handled, what bookkeeping method is employed, how membership is withdrawn or transferred, and how the LLC will be dissolved, if applicable. If there are designated officers, their roles should be clearly defined in the document.
As you can see, an Operating Agreement covers a lot of territory and should be written with care. You can draft an agreement on your own or seek outside help. Templates are available online, but be discerning, as this document is extremely important for your business. The agreement must be signed by every member, with each member getting a copy. Store the original with the LLC’s corporate records, and update the document as necessary, such as when adding members or adding products or services to your business.
Choosing a Formation State for an LLC
An LLC that has members in multiple states will need to choose a formation state. The LLC will be considered a domestic LLC in its formation state and must register as a foreign LLC in every other state where members are located.
While it’s generally considered best to form your LLC in your home state, having members in multiple states opens the door to choosing the state that offers the best conditions for privacy and legal protections, tax code, economic incentives, market opportunities, and other factors. Remember that regulations regarding LLCs vary significantly from state to state, and some states are considered more “business friendly” than others.
You’ll have a lot to think about when choosing a formation state, but maybe we can help you by passing along information from the personal finance company WalletHub, which compared all 50 states across 25 key indicators of startup success to determine the best states to start and grow a small business. WalletHub’s 2025 study focused on business environment, access to resources, and business costs.
Based on overall rank, the top 10 states to start a small business are:
- Florida
- Georgia
- Utah
- Texas
- Idaho
- Oklahoma
- Nevada
- Colorado
- Arizona
- Kentucky
Learn more about which states ranked highest for having the strongest business environment, greatest access to resources, and the lowest business costs.
And, according to WalletHub, based on overall rank these states were rated worst for starting a business:
- Maryland
- Alaska
- New Jersey
- Connecticut
- Rhode Island
Before deciding where to register as a domestic LLC, you should research and understand all the requirements of each state you’re considering. Some states do not levy income tax or a franchise tax, which is a fee that LLC owners must pay each year for the privilege of having their companies located there. Consider the pros and cons of each state before making your decision.
Registering as a Foreign LLC
While registering as a domestic LLC in Florida – which received WalletHub’s highest overall ranking – could offer some advantages, you’ll still need to register the business as a foreign LLC in the states of other members if you’ll be conducting business in there.
It’s important to understand that the definition of “conducting business” varies from state to state, but generally, you’d need to register as a foreign LLC if the business meets any of these criteria:
- Has employees working in the state
- Has a physical presence there, such as a retail shop, office, or warehouse
- Holds in-person meetings with clients or customers there
- Generates a certain level of economic activity or income in the state
A business that meets those criteria is generally considered to have nexus in the state and will need to foreign qualify there. You’ll also have to register for payroll in that state if you have any employee and find a registered agent, which is a person or entity designated to receive legal correspondence on behalf of the LLC.
Most states require you to file for a Certificate of Authority, which is a document issued by the Secretary of State that authorizes your LLC to do business in a state other than your formation state. The name of this document varies from state to state, with other names including Application for Registration, Application for Authority, or Qualification Certificate.
You’ll need to provide certain information and pay a fee to each state in which you’ll be conducting business. You’ll also need to make sure you obtain any permits or licenses that may be required by local or state government and adhere to all tax laws.
Having to register your business as a foreign LLC and making sure it remains compliant isn’t always a simple process, but it’s vital that you do so. Failing to register your LLC in every state where business is conducted or not adhering to the state’s laws, reporting requirements, and tax rules can result in serious consequences, including fines, late fees, legal issues, and others.
Tax Considerations for Multi-State LLCs
An LLC with members in multiple states will have to pay special attention to both federal and state taxes to remain compliant and avoid unnecessary penalties. Tax rules vary from state to state and tax laws are prone to change, meaning you’re responsible for keeping up with those changes.
Federal Taxes
On the federal level, the IRS defaults to taxing a single-member LLC as a Sole Proprietorship and a multi-member LLC as a Partnership. Both types of LLC, however, can elect to be classified as a C Corporation, or if it meets certain qualifications, an S Corporation, for tax purposes. There are advantages and disadvantages as being taxed as a Corporation, and I’d recommend that you seek advice from a tax professional if you’re considering doing so.
LLCs with more than one member that choose the default taxation option are taxed as Partnerships and subject to pass-through taxation. An LLC that is taxed as a Partnership must file a 1065 Partnership Return, which helps the IRS determine how the profits of the business should be divided among members. Profits or losses, however, are passed through to members, who report on Form 1040, the individual tax return, and pay according to their individual tax rates.
And as mentioned previously, because they are considered self-employed, members also must pay self-employment taxes.
Many LLCs choose to be taxed as Partnerships because it simplifies the tax process and avoids the double taxation that Corporations are subject to. A Corporation typically pays income taxes on its profits, after which shareholders who received distributions from those profits must pay tax on the same money when filing their personal tax returns.
If an LLC operates in several states, it must file tax returns in every state where it has nexus, not just in the state of formation. Members generally report LLC income in the state where they work – not the formation state – using their personal tax returns; however, members may be required to file individual tax returns in multiple states.
If an LLC operates in several states, it must file tax returns in every state where it has nexus, not
State Taxes
State taxes can be complicated for an LLC that has members in multiple states because, as I’ve mentioned, each state has its own rules regarding nexus and how it taxes businesses within the state.
Most, but not all, states impose sales and income taxes. Some states, as you read earlier, have a franchise tax, sometimes known as capital stock tax. You’ll need to know the specific tax rules of each state your LLC operates in, and also be aware of any local taxes, which vary according to your municipality. And if your LLC has employees, you’ll need to comply with state employment tax requirements.
An LLC that must pay tax in multiple states generally doesn’t have to pay tax on the same income in every state. Using a method known as apportionment, you can assign a portion of your LLC’s income to a particular state to determine how much tax you’ll need to pay there.
The laws for calculating apportionment vary from state to state, however, so you’ll need to determine how it should be done. Most states use one of these apportionment formulas:
- The three-factor formula. This is an equally weighted formula that takes payroll, property, and sales into account equally.
- A sales weighted three-factor formula. This formula also considers payroll, property, and sales, but gives sales a greater weight. The sales-weighted formula is more common than the equally weighted version.
- The single-sales-factor formula. Taxes are based solely on a company’s sales within a state.
While calculating state taxes is complicated, you can make it easier by tracking your LLC’s income by state. Generate a list of customers, how much income each one generated, and where they are located. This income tracking can help avoid paying too much or too little taxes.
Remaining Compliant in Every State
As you can see, operating an LLC with partners in multiple states can be a complex undertaking that requires frequent monitoring and diligence. It is feasible, however, and can be advantageous to you and other members if you take the time and effort to get the business properly registered and pay attention to all the rules and regulations of each state in which you’re located.
Because laws vary significantly from state to state, I’d recommend that you seek professional help when getting your LLC started, even if you plan to run it entirely on your own once it’s up and running. Assuring that you’re starting off on the right foot can increase confidence among all members at a time when it’s needed most.
