Comparing Foreign and Domestic Limited Liability Corporations

businessmen forming a domestic LLC

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 A limited liability company (LLC) is formed by registering with a state. But what if an LLC does business in several states? How does the LLC register in each state? There are two kinds of LLC registrations: Registration as a domestic LLC and registration as a foreign LLC. This article will explain the difference. 

What 'Doing Business' Means

In order to know if you must register an LLC in a different state, you need to know the meaning of the term "doing business." In general, you are doing business in a state if: 

  • You have a business bank account in the state
  • You sell in the state through a distributor, an agent, or a manufacturer's representative
  • You have an office, manufacturing or distribution facility, or retail store in the state[/br]
  • You own real property or personal property in the state
  • You transact business or holding meetings in the state.

The Definition of a Domestic LLC

A domestic limited liability company (LLC) is a limited liability company or corporation that is operating in the state where it was organized. In many states, there is no specific designation for a domestic LLC. In other words, if you are forming an LLC in the state where you first are doing business, and this is the only state where you are doing business as an LLC, you are forming a domestic LLC. 

The Definition of a Foreign LLC 

The opposite of a domestic LLC or corporation is a foreign LLC or corporation, which is operating in a different state from the state in which it was organized. There is no such thing as an LLC formed in a foreign country that would be recognized by a U.S. state. 

The term "foreign" just means that the primary location of the business is outside the state. For example, if you have an LLC in Ohio and you are selling products in Indiana, you must register as a Foreign LLC in that state. And if you are doing business in several states, you must register in each state where you are doing business. The first state where you are doing business is the domestic LLC; all succeeding states are registered as foreign LLC's. If you don't register, you are subject to fines and penalties from that state.

Obviously, if you have a store, an office, a warehouse, or a distribution facility in a state, you are doing business in the state. But even something as simple as having a bank account or mailing address in a state can be considered to be "doing business" in that state. Each state wants to know who is doing business in their state. Yes, I'm sure it's for taxing, as well as for consumer issues. Here are a couple more tips.

  • Complete your LLC registration in your "home" state first, and get the official documents from the state. You may need copies for other states.
  • Use the term "LLC" or "Limited Company" in your LLC name, even if it is not required in your state. Some states do require the name to include these terms, and you don't want to have different names in different states.