LLC for purchasing bank notes - what state?

Question

Hi everyone!  I am currently forming a NM LLC, but live in NY.  Let's say I purchase (performing or non performing) bank notes from a lender in Illinois.  Do I then register my LLC in Illinois?

I've looked for this information on the web, but can't find anything about this small, but important detail....  Thanks!

Lisa Caro · Answer

Ok, thanks for this Chris!

Chris Martin · Answer

@Lisa Caro that is the way I read the document as well. I am a layman, though, and not trained in legal matters.

I must say, though, I know nothing of NM laws regarding recovery in the event of default. Some states, like mine, have lender requirements for processing annual statements, etc., and what class of borrowers (e.g. active military) are exempt from civil action. I would encourage you to discuss your business with someone who knows NM laws and business practices.

Lisa Caro · Answer

@Chris Martin Thank you so much.

I moved B, D, K to the bottom* since I really don't think they apply to the purchase of banknotes, but I would just like to be sure of the rest of the document's language.

From my understanding of this document, an out of state Investment LLC would NOT need to file in NM as a foreign LLC, for example, if the LLC purchases reperforming banknotes.

It also sounds like even foreclosing on a home of the non performing banknote would not require filing as a foreign LLC in that state.  Would you agree?  Apologies for my confusion, but this seems like an important step before purchasing banknotes through an LLC, and I'm trying to get this right...

"The following activities of a foreign limited liability company do NOT constitute transacting business within the meaning of the New Mexico Limited Liability Company Act:

a. maintaining, defending or settling any proceeding;

c. maintaining bank accounts;

e. selling through independent contractors;

f. soliciting or obtaining orders whether by mail or through employees or agents or otherwise, if the orders require acceptance outside New Mexico before they become contracts;

g. creating as borrower or lender or acquiring indebtedness or mortgages or other security interests in real or personal property;

h. securing or collecting debts or enforcing rights in property securing debts;

i. investing in or acquiring, in transactions outside New Mexico, royalties and other nonoperating mineral interests; executing division orders, contracts of sale and other instruments incidental to

the ownership of such nonoperating mineral interests; and, in general, owning, without more, real or personal property;

j. conducting an isolated transaction that is completed within thirty days and that is not one in the course of repeated transactions of a like nature;

------------Nor shall a foreign limited liability company be considered to be transacting business in New Mexico solely because it:

1) owns a controlling interest in a corporation or a foreign corporation that transacts business in New Mexico;

2) is a limited partner of a limited partnership or foreign limited partnership that is transacting business in New Mexico; or

3) is a member or manager of a limited liability company or foreign limited liability company that is transacting business in New Mexico.

----------------------------------------

* as per note above:

b. holding meetings of its members or carrying on any other activities concerning its internal affairs;

d. maintaining offices or agencies for the transfer, exchange and registration of the foreign limited liability company’s own securities or interests or appointing and maintaining trustees or depositories with respect to those securities or interests;

k. transacting business in interstate commerce"

Chris Martin · Answer

@Lisa Caro See http://www.sos.state.nm.us/uploads/Files/Corporations/fllc-i.pdf for details on requirements of NM Foreign LLCs, specifically the 'exemptions' from "doing business" in NM. For others in BP Nation wondering about other states, many states have similar wording and similar exemptions Just make sure you have clarity from whatever state's Secretary of State corporations division office.

Lisa Caro · Answer

@Vincent Incopero hello again! (hopefully I'm tagging you correctly this time, sorry!!)

Just checking in to see if I've understood your advice correctly? It sounds like purchasing a RPN for a mortgage in IL for example, would need to be registered with IL's secretary of state, even if:

- I live (and file my taxes) in NY

- and my LLC was formed in NM.

It seems kind of costly for a person then to invest in RPNs all over the US for example, if he/she then has to register the investment LLC in each of those states where the mortgages/loans were originally initiated.  But maybe that is indeed the protocol... Sorry if this is a amateur question, I'm still learning...!

Vincent Incopero

Lisa Caro · Answer

Thank you Vincent.  So purchasing the non-performing notes does not require registry in IL, but when the borrower starts making new payments to me, then this is considered business (requiring registry) - is that right?  If that is the case, it seems like there is no situation where I don't have to register the LLC in-state, since I can't imagine not ever collecting something at some point (payments / foreclosure)..  Is there any situation where it makes sense to purchase notes but not register the LLC in the state where the asset is?

I apologize for my late reply - I didn't get a notification, so I'll have to check my settings.

Vincent Incopero · Answer

Your business is acquiring non-performing notes, not selling lemonade or real estate in Illinois.  Your core business is not conducted in illinois, you are merely acquiring inventory (notes) from Illinois.  Based on that information alone, I would say that it is not necessary to register in IL.

If however you want to or intend to take legal action on the notes (ie. foreclose or collect), you should register as a foreign LLC with the foreign state's secretary of state as you would be engaged in business outside of the LLC's state (probably the state where the property, and possibly the borrower are located).

Lisa Caro · Answer

So I have found this blurb online:  "Do you have to register your LLC in your home state? Answer: It depends. If the LLC is used simply to hold property or for your online-only business, with no employees and no local brick-and-mortar presence, then probably not. Seek professional advice on this."

It sounds like I would not need to register the LLC with the Secretary of State in Illinois, or anywhere else for that matter.  The logic being the note is owned, not the actual property...

It would be helpful if anyone in the know could confirm.  Thanks so much,