Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
Typically, there are two main classifications of a limited liability company; a foreign LLC and a domestic LLC. In this article, we will be taking a more in-depth look at what a domestic LLC is, how to form one, and more. Let’s get started.
What Is a Domestic LLC?
A domestic LLC is a business that operates in the state where it was formed or registered as an LLC by filing its articles of organization with the secretary of state.
This means that if you create an LLC in a particular state and perform business activities in that state, that becomes a domestic LLC.
Like any regular LLC, members of a domestic limited liability company are typically not personally liable or responsible for the company’s debts, as long as they do not pierce the corporate veil.
Is a Domestic LLC the Same Thing as an LLC?
Yes, a domestic LLC is practically the same thing as an LLC because they are formed to serve the same purpose; to protect the owners from taking responsibility for the company’s debts and legal liabilities. A domestic LLC is just a subcategory of an LLC.
Domestic LLC vs. Foreign LLC
Like we have mentioned, a domestic LLC is a business that operates in the same state it was registered as an LLC.
A foreign LLC is a business that operates outside the state where it was registered as an LLC. For example, if you register your company as an LLC in Delaware and run your business in New Mexico, it will be considered as a foreign LLC in New Mexico.
Experts recommend registering your company as a foreign limited company in any new states you do business in. This is because not doing so can damage your liability protection or corporate veil.
However, most entrepreneurs are often confused about what “conducting or doing business” means. So, what makes you qualify to file for a foreign qualification in other states? Or what does the term “doing business” mean?
Well, “doing business” can have a pretty broad definition. It could be:
- Selling your products or services in that state either through your manufacturer’s representative, agent, or distributor.
- Have a functioning retail outlet, business office, distribution, or manufacturing facility in that state.
- Have a bank account with a bank located in that state.
- Hold important meetings in that state.
- Own a personal or real estate property in that state.
How to Form a Domestic LLC
Forming a domestic limited liability company is a straightforward process. However, fulfilling all the requirements needed to register your business as a domestic LLC can be challenging.
That is why it is essential to hire a corporate attorney or an LLC formation service to do the paperwork for you and guide you through the process. If you need a recommendation, head over to our best LLC service guide for our research. However, you can still handle this on your own.
Here is a step-by-step guide on how to create a domestic LLC.
Step One: Choose a Name for Your Limited Liability Company
This is a vital step in the process of creating an LLC. For starters, it is a primary requirement by the government. It is also a way of giving life to your company.
Choosing the right name for your company will help your potential customers identify and remember your business easily. It also makes your company stand out from other companies in that industry and gives it an identity.
While choosing your LLC’s name, make sure that it is legal. Every state has a set of rules to be followed when selecting a name for a limited liability company.
One of the main rules is that the name indicates that the business is a limited liability company. You can either include the abbreviations “LLC” or the term “limited liability company.”
Many states also have a list of words that cannot be included in an LLC’s name. Some of the restricted words include “insurance” and “bank,” to name a few.
Most states also require entrepreneurs to choose original names for their LLCs. This means that it should be unique from any other registered limited liability company in that state. Fortunately, some states like Delaware allow people to reserve their proposed LLC name before registering.
Step Two: Choose a Registered Agent or Corporate Lawyer
Some entrepreneurs prefer registering their LLCs by themselves. While it does save you money, it can be an overwhelming process. There are several services available that can help you form a domestic limited liability company.
Hiring a corporate attorney is an excellent option because apart from helping you with all the legal paperwork regarding the registration procedure, a lawyer will give you valuable advice throughout the process.
For example, they could help you determine whether or not an LLC is the correct business entity for you. They could also help you draft the perfect operation agreement that represents the interests of all the members of your LLC.
Hiring a registered agent service is a good option, especially if you are looking for an affordable way to register your business as a domestic LLC.
Most LLC formation services can do all the legal paperwork for you at a fraction of what a corporate lawyer would charge.
They also provide helpful legal advice throughout the process. What’s more, some of them have a 100% money-back guarantee if you are not satisfied with their services.
Step Three: File the LLC Formation Documents
Filing your LLC formation documents (also known as articles of organization) in your preferred state’s legislature is very important. This is because it will allow you to obtain an employer identification number (EIN), a bank account, among other privileges.
Your articles of organization should include:
- Your proposed company name
- The purpose of your business
- The main location of your business
- The name and address of your registered agent
- Structure of your business
Filing your articles of organization is mandatory for every state failure to which your business will not be registered as an LLC. You will also be required to pay a filing fee, but this depends on the state you are registering in.
Step Four: Make Important Business Management Decisions
Making the right management decisions regarding your company will help you create the perfect atmosphere your business needs to succeed. Deciding who will actively manage the business is probably one of the most important decisions you will make.
This is because it determines how well your company will do and how smoothly things will run in the business.
Other decisions such as whether or not to expand your operations and how the company’s finances will be handled will also determine the success of your domestic LLC.
Step Five: Filing Annual Reports
Filing annual reports is a legal requirement in most states failure to which your business will receive a penalty. Experts recommend keeping your company’s financial records organized to make the annual report filing procedure easy.
Related column: Corporate record keeping
The Last Word
A domestic limited liability company is a great option to get your business off the ground, especially if you are operating locally. Fortunately, the process of forming such an entity is straightforward and uncomplicated. However, if you aren’t sure which option is best for you or how to set everything up correctly, it is best to consult an attorney or LLC formation service.
Filed under: Advice Columns