This is Part 4 in a multi-part series about my journey to incorporation as an LLC as a military spouse entrepreneur stationed overseas. I hope that by documenting this journey publicly, I can help other spouses navigate the waters more smoothly, and that I can raise awareness about policies that make entrepreneurship (a concept that is often viewed as the best solution to the military spouse employment conundrum) more challenging for the military spouse than for his or her civilian counterpart. Read Part 1, Part 2, and Part 3 in this series.
It’s been months since my last post on incorporating my business as an LLC while stationed overseas as a military spouse entrepreneur, and I think it’s time to update you on my progress.
Establishing a Home-Based Business on Our Military Installation
One of the requirements of doing business overseas as a military spouse is that you register your home-based business (HBB) with your military installation’s HBB office. I was worried that if I started down the path of registering my LLC without first registering on my local military installation, that it could create problems for me here. With that in mind, I pressed pause on my LLC work and got started establishing my HBB.
There are a number of steps that you have to follow in order to establish your HBB, and those steps are not the same across all overseas military duty stations. From one overseas host nation to the next, internation trade agreements play a major role in termining whether spouses of U.S. Armed Services are allowed to operate home businesses at all, and if they are, those trade agreements regulate exactly how those business can operate.
Within a single host nation (for example, within Germany), international trade regulations apply to all military spouse business owners. The regulations affecting how you do business a military spouse on your local military installation, however, are not the same from one OCONUS duty station to the next. From Wiesbaden to Stuttgart to USAG Bavaria, each OCONUS military garrison sets its own HBB regulations.
The exact regulations and procedures for establishing your OCONUS HBB will vary from one duty station to the next, with what type of business you plan to operate, with how much money you expect to earn, and with how you plan to market your products or services.
The military side of the HBB registration process usually just takes a few weeks’ times. Part of that process on our installation, however, is registering a business with the local German authorities. The German business registration process costs about €25 and takes 2-3 weeks. Note: Depending on how much income your business earns, you may be required to pay German taxes in addition to U.S. taxes.
Read more: Registering My Business in Germany
Altogether, my German business registration cost €25 and took about a month. My HBB registration process included the German business registration requirement, so once I completed the German registration, it took about another month for me to receive approval from our installation to operate my HBB. From start to finish, I spent about three months, including time to translate documents, fill out forms, etc.
With my German business registration and my HBB registration behind me, I was ready to tackle (again) my ambitions of incorporating my freelance business as an LLC in the United States.
Picking Up Where I Left Off
In Part 3 of my Journey to Incorporation, I explained that I’d contacted three organizations for help understanding military spouse business incorporation from overseas duty stations: The Military Spouse Business Association, In Gear Career, and SCORE.
Two out of the three organizations — MSBA and SCORE — have been very helpful to me. Each organization was able to put me in touch with a pro-bono attorney to answer my questions.
Help from MSBA’s Pro Bono Attorneys
The attorney MSBA connected me with also happens to be a military spouse. She offered big-picture insights via email, but was clear with me that she’s only licensed and able to practice law in California. She offered to help point me in the right direction, though, and her emails did exactly that.
Here’s an excerpt from our email exchange:
Me to Her:
After almost two years of freelancing, it’s time to incorporate. My workload is steady, so I think the LLC path is sustainable for me. Also, I want to ensure that our personal assets are protected against any possible future legal tussles with clients.
My big conundrum is that I’m unsure where to incorporate. Here’s why:
My home state is MO, but my residency is CO. That’s where my husband was stationed when I moved to be with and marry him.
His home of record and state of residence is AZ. As an active duty service member, he’s allowed to maintain AZ as his residence throughout his military career, with a few exceptions. The Military Spouse Residency Relief Act (MSRRA) could allow me that same benefit if the Army were ever to station us in AZ. That’s not yet happened for us.
We have approximately one more year left in Germany, and during that time, I’ll have to maintain CO residency. When the Army moves us back to the USA next summer, though, I’ll need to change my residency to reflect our next duty station (his residency will not need to change).
Do I need to incorporate in CO now, and then incorporate as a foreign corporation in whatever state we’re assigned to on our return from Germany next summer? Do I have any other options?
Her to Me:
Ok, so there are a lot of moving parts here, but you can really choose to form your business entity in almost any state. It’s the typical lawyer answer of “it depends.” Some states have residency requirements, some have higher filing fees (or registration fees), and some have higher taxes. Once you form your company, you then have to register it in any states where you conduct business so that they can cash in on you via sales tax, business tax, etc.. So for example, you could create your entity in Delaware (very friendly to businesses) and then register it as a foreign entity in CO, get a business license, etc. and pay CO fees and taxes. Of course, this is a VERY broad overview and there are a lot of additional intricacies, exceptions, etc.
She went on to recommend making a chart of pros and cons, expenses, and other nuances of business incorporation in whatever states I was considering incorporating my LLC. Once I chose a state, she recommended contacting an attorney practicing in that state to help me navigate the details of business incorporation there.
Two Big Questions
My emails with the California attorney left me with two big, practical questions as a business owner, both of which have direct financial ramifications for my business:
Question 1: If we PCSing (on average) every 18 months, how much time will foreign incorporation take away from income-generating business activities with each PCS (on top of the time the PCS itself takes away from income-generating client work)? What is the literal cost of change for me, as a business owner, when I’m required to PCS and establish foreign business incorporation repeatedly over the next 10 years until my husband’s retirement?
Question 2: What will the accumulated cost be, over 10 years of PCSs and foreign business incorporations, of attorney fees, alone? Not to mention the state fees to incorporate as a foreign corporation and the likelihood of owing LLC taxes in multiple states.
My Concerns Reinforced by the SCORE Pro Bono Attorney
My financial and legal concerns were reinforced by my communications with a pro-bono attorney (retired) and MBA named Mark who I was connected with through the SCORE mentorship program.
In one of my first email exchanges with the SCORE attorney, he said basically the same thing the first attorney did:
“Melissa – You have a dilemma. If you incorporate in a state, but get moved to another state technically you have to incorporate in that state as a foreign corporation because that is where you are doing business.”
Through our exchanges, Mark and I realized that overseas military spouses really do have a predicament where business incorporation from overseas is concerned. The irony? That for many military spouses, entrepreneurship and self-employment are just about the only ways to maintain career focus once they leave the U.S.
Taking On a Crusade
When Mark and I realized that there might not be a straightforward answer to my questions about business incorporation as a military spouse from overseas, he suggested something that I’d already considered: taking on legislative change.
In his words, “I will continue to help you and if you want to take on a crusade.I have some ideas on how I would do it if I was in your sneakers (I was a runner also).”
Did You Know? I Ran My Way Through My Husband’s 2012 Deployment
Business incorporation is a complicated area of law. While each individual state handles its own business incorporation policies and state tax law, there are federal regulations at play, as well. To make real change for military spouses, we need two things:
- At least one U.S. State that’s willing to lead the way in making business incorporation faster and less expensive for active duty military spouses, including waiving the requirement to have a physical address or agent in the state.
- Interstate cooperation or federal legislation that waives the requirement for military spouse-owned businesses to re-incorporate or incorporate as a foreign corporation with each PCS across state lines.
What Happens Next
What happens next is, well…it’s already happening. Over the weekend, I talked with another military spouse in Japan who’s facing the same business incorporation costs, questions, and confusion that I encountered here in Germany. Our messages back and forth re-kindled my desire not just to establish my own LLC, but to make this process easier for other military families.
Mark and I exchanged a flurry of emails. I contacted a close friend and professional colleague in Jefferson City, Missouri who has a number of professional connections in the state capital. In under 48 hours, I had an email in my inbox from a Missouri State Senator and Army veteran’s chief of staff.
The senator’s research team had already started exploring the issue, and his chief of staff wanted to know if I had ideas about how Missouri could help solve it. I have no idea how far we’ll be able to drive this ball down the court, but I’m committed now to trying to make change.
Share Your Story
If you’ve struggled with the financial burdens, tax issues, or legal confusion surrounding business incorporation as a military spouse, I’d really love to hear from you. The more stories I can gather from other spouses, the more anecdotal evidence I can present to legislators alongside hard data and military spouse employment and entrepreneurship statistics.
Help me lead this crusade forward by sharing your experiences with me. Leave a public comment here on my blog, or — if you’d prefer to communicate privately — feel free to message me through my Facebook Page or to email me at MilliGFunk1 (at) Yahoo (dot) com.