If your cooperative or limited cooperative association (LCA) is transacting business outside its state of formation, it likely needs to register as a “foreign entity” in that other state. While this is a standard requirement for LLCs and corporations, LCAs and cooperatives face additional complexities due to the varied and often unfamiliar cooperative statutes across states. These complexities become especially apparent when trying to comply with foreign entity registration requirements—an area where nuance, and even subjectivity, can frustrate even the most prepared clients.
Each state interprets “doing business” differently, but generally, having employees, offices, or substantial commercial activity in a state triggers the registration requirement. The challenge for cooperatives is that many states are unfamiliar with LCA or cooperative entity types, or interpret their statutes through the lens of traditional for-profit business forms. This leads to rejection or delay in applications—sometimes for seemingly arbitrary reasons like the use of “Cooperative” or “LCA” in the name, punctuation, or the lack of a common suffix like “Inc.” or “LLC.”
We’ve recently helped clients navigate this maze in several states. In Pennsylvania, the Department of State initially rejected a foreign LCA registration, explaining that foreign entities may not use the phrase “cooperative” when registering, nor can foreign entities even register as cooperatives at all. To register in PA, we had to register the organization as a foreign business corporation and conform to the state’s corporation name formatting requirements by including one of many corporate name designators in the name we used for registration purposes in that state (for example “inc.”, “company”, “association”, etc.).
In New York, the Division of Corporations rejects foreign corporation or LLC applications for foreign cooperatives because the NY Cooperative Corporation Law does not provide for foreign cooperative registration. Consequently, there is no foreign filing that will be approved. We use a strategic workaround in NY involving a subsidiary LLC registered to do business in NY, or even have clients apply for payroll and sales tax licenses without a NY registration altogether. We have been in regular contact with the NY Law Department about this issue for years.
In Oregon, despite that the state uses an online portal for registering foreign entities, the portal does not have an option for foreign cooperatives (or similar associations), and we were informed by the state that cooperatives cannot be registered using the business corporation option in the online portal. Accordingly, we were instructed to complete a paper form to register the cooperative as a foreign business corporation, and mail or fax the form to their office (since it could not be completed online) which likely takes a week or two to process. Further, and despite the state’s progressive stance on cooperatives, after we submitted filings, we encountered human review delays and rejection for mere discrepancies in punctuation, requiring resubmitting (i.e., re-mailing or re-faxing) signed documents.
Texas, on the other hand, while the state has a cooperative association act, it has precarious filing forms for cooperatives, whether in-state or out-of-state. Those forms are combined with the nonprofit corporation forms. It requires the cooperative to have the term “cooperative” or its abbreviation as part of the name of the coop and also requires the names of the directors and officers to be disclosed in the filing, neither of which are typically required in all states.
Michigan refused to register an LCA, reasoning that because their state’s corporate statutes do not provide for a limited cooperative association equivalent, a foreign LCA could not be registered to do business in that state. When we tried to interrogate why a foreign LCA could not fit into the state’s conception of a “cooperative association” (which is referred to in the state’s corporate statutes), the state stopped corresponding, despite our good faith efforts to find out more information. Ultimately, we could not complete the registration.
Illinois requires foreign LCAs to register as a foreign LLC. The registration process involves conforming to the state’s name formatting requirements by including one of many name designators in the name used for registration purposes in that state (for example “inc.”, “company”, “association”, etc.).
Tennessee requires foreign entities to make quarterly wage reports and pay state employment taxes. If a business generates revenue in Tennessee or has clients residing there, registration is likely required. Additionally, foreign entities cannot bring a lawsuit in Tennessee if they are not registered and may be liable for penalties and past fees.
In Ohio, despite a robust cooperative practice, the state does not have a specific form for foreign cooperatives, so foreign entities need to choose a form among foreign corporations and foreign limited liability companies, based on how the cooperative is structured in the state of origin.
In California, we have advised taking a few different approaches, and at times registering LCAs or foreign cooperatives as foreign unincorporated associations in California. Filing fees for foreign registration in California are unusually high.
Despite the bureaucratic friction, foreign registration is necessary to ensure legal standing, enter contracts, comply with employment regulations, avail the cooperative of legal protection in the state, and maintain the limited liability of your cooperative’s members. We encourage cooperative clients to budget time and legal support for this process, and to anticipate that “routine” applications may require extra advocacy. At Jason Wiener PC, we’re well-versed in navigating these state-by-state idiosyncrasies and can help your cooperative expand with confidence.
