The limited liability company becomes an increasingly popular American business entity with each passing year.
In fact, thousands of LLCs are formed across the country every day — through DIY methods or using an affordable online service like LegalZoom. Perhaps as a result of this popularity, we find that our readers pose far more questions about the LLC than any other business structure.
One of those questions is what the difference is between domestic and foreign LLCs.
We wrote this article to describe the attributes of the domestic limited liability company, and we hope that we’re able to answer your questions about this business entity along the way. If you’ve ever wondered about any aspect of the domestic LLC, you’ve come to the right place!
What Is an LLC?
To begin, let’s quickly run down what the limited liability company is. The LLC occupies the middle ground between flexible entities like sole proprietorships and general partnerships, and the formalities of a corporation.
Like the sole proprietorship and general partnership, an LLC has “pass-through” taxation, which means that you don’t pay corporate income tax ― instead, the LLC’s owners claim profits and/or losses on their own personal returns.
Similar to a corporation, LLC owners receive limited personal liability, which prevents creditors from pursuing your personal assets (like your car, house, personal bank accounts, etc.) if they sue your business.
What Is a Domestic LLC?
There are two main types of limited liability companies, which are the domestic LLC and the foreign LLC.
A foreign LLC is not a company located outside the country, but rather a business based in any state other than your home state, and you’ll need a foreign qualification in order to run one in compliant fashion. As for the domestic LLC, this is a business that is based in your home state.
One interesting wrinkle when it comes to these two types of limited liability company is that you need to open a domestic LLC in your home state before you can register a foreign LLC elsewhere. In this way, the domestic LLC is by far the more common of these two business entities.
How Is a Domestic LLC Formed?
The formation process for domestic limited liability companies starts with a document that’s usually referred to as the articles of organization.
In this document, you’ll need to compile some commonly requested information for your state government. While the specific requests vary a bit depending on which state you’re forming in, you’ll usually need to include at least the following info:
- Name and street address of your business
- The industry your company operates in
- Name and street address of your registered agent or registered agent service
- Identities of your LLC’s owners
When your articles of organization are complete, you can file them with your state government ― usually with the Secretary of State’s office. Each state has an LLC formation fee that you’ll need to pay, which can vary from around $50 all the way up to several hundred dollars.
In addition, some states have further requirements to get your business formed in a compliant manner, like publishing proof of your formation in a local newspaper.
Can You Hire Someone to Form Your Domestic LLC?
If you’re not interested in handling your own formation process, there are certainly some options available to you.
Some entrepreneurs like to hire a business attorney to form their limited liability companies, which is a great way to ensure that every step of your formation is completed in a timely and accurate manner. The downside of hiring a lawyer is that their fees are sometimes very high for this service, and the LLC is a simple enough business entity that the expertise of an attorney isn’t always necessary.
Your other choice is to hire an online business formation service to form your LLC. With this option, you still receive a high degree of peace of mind because your limited liability company is professionally formed, and you also save quite a bit of money as opposed to an attorney’s fees.
If you’re interested in hiring a business formation service, we recommend checking out options like Northwest or Zen Business. If you’d rather just get a quick glimpse of our top three options, let’s break them down right here:
- Northwest Registered Agent ($225): For $225, Northwest will form your LLC and include a full year of their premium registered agent services. They also have next-level personalized customer support that makes Northwest one of our favorite companies in this industry. (Read our full review)
- Zen Business ($39): Zen Business undercuts Northwest’s price tag, while also offering a free year of registered agent service. While Zen Business doesn’t have the same level of customization for their customer service as Northwest does, they do have thousands of fantastic customer reviews available online, which can be quite the advantage depending on your preferences. (Read our full review)
- LegalZoom ($79): LegalZoom can’t match Northwest or Zen Business when it comes to bang for buck, and they don’t include any registered agent service with their LLC formation packages either. However, LegalZoom has a massive customer volume and impressive brand power, so if you want to use the most popular service available, LegalZoom is worth a look. (Read our full review)
The domestic limited liability company isn’t too complicated to get a grasp on, as it is simply the type of LLC that you form in your home state. Without a domestic LLC, you cannot form a foreign LLC in any other state, so make sure you take care of this before you get ahead of yourself with expansion plans.
The process for forming a domestic LLC is fairly straightforward, but if you’d rather have some assistance, we recommend hiring a business formation service. These companies still have plenty of expertise, while also saving you quite a bit of money compared to hiring a lawyer.
We hope this article helped answer your tough questions, and we wish you and your new domestic LLC the best!