In order to buy, register, and insure a vehicle in the United States, you need a presence here. But what if you're traveling, visiting friends/family, or in the US on a work assignment?
A limited liability company (LLC) can act as your presence in the US, allowing you to buy, register and insure a vehicle here.
So what is an LLC, why should you consider registering a vehicle to one, how is one formed and maintained, and what obligations come with one?
A limited liability company is a flexible legal entity used for many purposes in the United States
Imagine you are starting a cafe and want a legal entity to sign a lease, open a bank account, and hire employees.
Now imagine you own a rental property and don't want to be sued personally if someone slips and falls on a slippery patch.
Now imagine you're a club manager and need to collect member dues without mixing them with your own funds.
In each of these scenarios, you would want to set up a legal entity that is separate from yourself. But before the 1970's, you would have to form a corporation or a partnership.
But corporations and partnerships are cumbersome - they must issue stock, hold annual general meetings, and pay hefty annual fees.
Beginning in the 1970's, States began to create laws that allowed for a more lightweight, flexible legal entity: the LLC. LLC's are cheap and easy to set up, don't require stock issuances, and require only minimal annual reporting.
Today, LLC's are used for all sorts of purposes - they control operational businesses, they facilitate joint financial accounts, and they hold assets.
Why should you form an LLC to buy/register/insure a vehicle in the United States?
In order to buy, register, and insure a vehicle in the US, you need a presence (i.e., a non-PO box address) here. If you don't have one, an LLC can act as your presence in the US.
An LLC is a distinct legal entity, which has some advantages when it comes to vehicle ownership. If you register your vehicle at a host's address (i.e., the house of family or friends, or an AirBnB host), your affairs may become entangled with theirs. For example, if someone sues your host, your vehicle may be pulled into the lawsuit. Or if you cause an accident whose damages exceed the limits of your insurance policy, your host may be pulled into the lawsuit.
But there's a more practical reason to form an LLC to buy, register, and insure a vehicle: you get to choose the best vehicle registration jurisdiction for you.
All US States are not equal when it comes to registering a vehicle. Nineteen states and Washington D.C., require a local driver's license to register a vehicle, and nine more require proof of residence to register a vehicle. So even if you have a host in the US, you may not be able to register a vehicle at their address.
Furthermore, sales taxes on vehicles vary widely from state to state. Sales taxes on autos are levied where a vehicle is registered, not where it is purchased. So, forming an LLC and registering your vehicle in a state with low sales taxes could save you hundreds (or thousands) of dollars.
The great state of Montana does not require a Montana driver's license to register a vehicle, and sales taxes on autos are 0%. Furthermore, the state doesn't require any inspections to register a vehicle, so vehicles don't have to physically enter Montana to be registered here.
So, in short, if you're thinking about buying a vehicle in the US as an international visitor, you should consider forming a Montana LLC:
To keep your affairs separate from those of your host,
To register your vehicle in the state with the least registration restrictions, and
To register your vehicle where registration is cheapest.
How are LLC's formed?
You need two things to form an LLC in a particular state:
An address in that state, and
A registered agent in that state
A registered agent is a business or person designated to receive "service of process" in the event of a lawsuit or summons. In other words, an LLC's registered agent is the party that the state can reliably contact for legal matters.
Many legal services companies (e.g., LegalZoom, IncFile) offer address and registered agent services as a package. With their services, you can set up an LLC (or a corporation, or many other types of legal entities) within a few days.
What do I get when I form an LLC?
When you form an LLC, you will receive Articles of Formation and a Certification Letter from the state in which the LLC is formed.
These documents serve as proof of your LLC's existence, allowing you to open a bank account, conduct business on behalf of your company, or register a vehicle.
LLC Certification Letter Example
LLC Articles of Organization Example
What are the obligations of an LLC owner?
Most states' laws simply require an LLC to file an annual report that updates ownership and registered agent information. If neither of these change during the year, the annual report is a "check-the-box" exercise.
Legal services companies are happy to check the box on your behalf for a small fee.
What are the tax impacts of owning an LLC?
Income tax on an LLC (or any other legal entity or individual) is due to the extent that the LLC generates income.
LLC's that only hold assets (such as a vehicle) and don't generate any income don't create any income tax impacts.
If an LLC were to generate income, its income and losses would be consolidated with those of the its owner on a single income tax filing.
This contrasts with the tax treatment for corporations, which must report income and losses separately from its owners by default.
Some states (including California, New York, and Texas) levy a "franchise tax" on LLC's based on the LLC's income, assets, the number of owners, or a combination of these.
Montana does not levy a franchise tax.
How are LLC's terminated?
An LLC can be terminated (i.e., wound down, dissolved or closed) in one of two ways:
Voluntary dissolution - an LLC's owners can file (or ask their registered agent to file) Articles of Termination with the state, or
Involuntary dissolution - an LLC's owners can choose not to file an annual report by the state's filing deadline. After a grace period (usually six months) has passed without receiving a filing, the state will terminate the LLC automatically.
So if you're an international visitor to the United States, and are thinking buying a vehicle, consider forming an LLC. It is a lightweight, flexible legal entity that will keep your affairs separate from those of your host, allow you to avoid certain states' burdensome registration requirements, and potentially save you a good deal of money.