A domestic limited liability company, or LLC, is an entity that runs business operations in the same state where it is registered.
What Is a Domestic Limited Liability Company?
Domestic Limited Liability Company Meaning
A domestic LLC company is an entity that is:
- Formed under state law
- The organization’s members are not personally liable for their debts
- Classified for federal income tax purposes as if it is a sole proprietorship (entity disregarded)
Forming a domestic LLC organization is the simplest way of structuring the business and protecting your personal assets. An LLC offers liability protection of a corporation with the pass-through taxation of a partnership or sole proprietorship.
Foreign Limited Liability Company Meaning
Foreign limited liability companies are entities or corporations that do business in other states besides the home country where the LLC was established.
If you want to register foreign LLCs and run foreign entities, you must:
- Get a certificate of good state from your home state
- Determine your LLC name
- Submit application and statement of information (alone or with the help of an attorney)
Domestic Limited Liability Companies vs. General Partnership
Whether you want to present a new product or service to the market or a business owner who wants to merge with a partner for a new project, you must decide whether to operate a domestic LLC or a partnership.
These two organization types differentiate in a few ways, especially in asset protection and business formation.
LLC Organization
When establishing a limited liability company in your home state, owners must file necessary documentation and articles with the Secretary of State. In case the business entity has two or more owners, they should commit themselves to an operating agreement. All owners and members must pay a filing fee.
A member may be a corporation, individual, a partnership, or a legal entity. Consider legal services to decide which option is better for you.
General Partnership
A general partnership requires two people to get into business together and have equal operating tasks.
Business partners can establish a partnership in multiple ways:
- Implication: When parties don’t have an agreement, the court can settle a business collaboration based on the partners’ behavior. For example, if two or more people conduct business and share the tasks, profits, and losses, the court can declare an official partnership.
- In writing: Outlining legal documents and agreements that detail how both partners run the business creates a partnership. Most states demand filing the articles with the Secretary of State’s office. Check the state law to ensure you are following the requirements.
- Verbal agreement: Business associates can also form an oral agreement to start a collaboration. However, this isn’t the most recommended way, as one associate could deny the company’s existence, and there is no proof of the agreement.
Limited Liability (Asset Protection)
LLC is beneficial to owners because it ensures limited liability, meaning it separates the members’ assets from the business’ assets. LLC protects the owner’s assets, meaning they aren’t susceptible to regulatory affairs or company issues.
General Partnerships and Liability
When forming general partnerships, partners are responsible for the business’s debts and service fees.
If someone files a claim against the company, both partners are accountable, no matter if only one partner is at fault.
Consider legal services and an experienced attorney if you deal with lawsuits and other complications.
Check out our guide to Family LLCs here.
How To Form a Domestic Limited Liability Company
Forming a domestic LLC in the same state you work and live in is simple. Some say the only challenging part is gathering all information to complete the state’s requirements. Some prefer to hire a law firm to structure the company on their behalf, which is a smart option.
Follow the steps below to establish your domestic LLC:
Choose an Appropriate Name and Determine Who Will File the Documents
The first step to forming a domestic limited liability company is to find an appropriate business name. Next, make sure the name represents your products and services and is easy to remember.
Next, you should decide whether you will self-file or file with the help of a corporate lawyer.
Having an experienced lawyer always makes things easier. Filing articles, annual reports, and other information will go smoother when you have a law firm by your side.
Organize Documents
It is essential to organize all files that define management, capital contributions, and voting rights.
If necessary, construct the agreements with the help of an attorney or a specialized team of tech gurus, entrepreneurs, and business-savvy professionals. Drafting and filing documentation is imperative in all 50 states.
Make the First Management Decisions
One of the first major decisions you will have to make is who will run the domestic limited liability company.
Some decide to run the entity themselves, but you can also hire experts to do this.
Once you’ve formed and filed everything, make sure your entity is in compliance with all state rules and laws surrounding your industry.
Benefits of Running a Domestic Limited Liability Company
Domestic LLC offers these benefits to small businesses:
- Pass-through taxation
- Flexibility
- Increased credibility
- Tax options
- Access to business credits and loans
Pass-Through Taxation
All Domestic LLC profits go directly to the owner, who reports the profits on the tax returns. All LLC profits are taxed once.
Tax Options
Your LLC can be taxed as an S-corporation or C-corporation. You can discuss this with your attorney and decide how to pay your taxes and fees. Learn how to start a corporation.
Credibility
Forming your new business as a domestic limited liability company brings extra credibility. Domestic LLCs are more formal business structures than sole proprietorships.
Flexibility
You can structure the ownership of your organization in:
- Single-member LLC
- Multi-member LLC
If a domestic limited liability company has two or more partners, it is treated as a partnership unless a classification election is made to run like a corporation. If the company doesn’t make a classification election, a disregarded entity will apply. The election for a disregarded entity is made using Form 8832.
However, if the company has employees for employment tax purposes, the LLC will be treated as a corporation.
Access to Loans
Once you have filed and formed an LLC, your local business can start building a credit history, which will help you get loans and credit in the future.
Forming a Domestic Limited Liability Company With Help From the Experts
The Go Vitru team consists of knowledgeable entrepreneurs, experienced and business-savvy professionals, and tech masters. We dedicate ourselves to helping businesses and local customers interested in starting limited liability companies.
We understand how challenging it is to start and operate an LLC, so rest assured, we will get your business right from the start and maximize your advantages.
Our goal is to help more people to start their businesses, attract customers, and achieve their entrepreneurship dreams.