Home >>Domestic LLC vs. Foreign LLC: What's the Difference?
Deal Alert! Northwest will form your LLC for $39 ( 60% discount).See detials
Domestic LLC vs. Foreign LLC: Understanding the Differences
| Concept | Domestic LLC | Foreign LLC |
|---|---|---|
| Definition | An LLC formed and operating within its home state. | An LLC formed in one state but registered to do business in another state. |
| Registration | Only needs to register in its home state. | Must register in each state where it does business, outside its formation state. |
| Ownership | No implications on ownership; owned by U.S. residents or entities. | Same as Domestic LLC; not necessarily owned by non-U.S. residents. |
| Legal Implications | Limited to business activities within its home state. | Can legally operate in multiple states once registered as a Foreign LLC. |
| Examples | An LLC formed in Florida that operates solely in Florida. | A Florida LLC operating in Georgia, registered as a Foreign LLC in Georgia. |
What is a Foreign LLC?
A Foreign LLC refers to a company formed in one state but operating in another, necessitating registration in the latter state. It is not synonymous with companies formed outside the U.S.
Does Foreign LLC Mean It's Owned by a Foreigner?
The term "Foreign LLC" does not imply foreign ownership. It simply indicates the LLC operates outside its formation state. For non-U.S. resident ownership, the IRS might refer to it as a "foreign-owned LLC."
What is a Domestic LLC?
A Domestic LLC is established in its home state and conducts business only there. If it operates in another state without registering as a Foreign LLC, it's considered illegal activity.
Do I Need to Register as a Foreign LLC in Every State?
Not necessarily. Registration is required only in states where you conduct business activities, not merely where you have customers.You can get more about it here: What is the best state to form an LLC 2024.
Key Terms: Foreign vs. Domestic LLC
Terms like "register" and "qualify" apply to Foreign LLCs, whereas "form" and "create" apply to Domestic LLCs. Using the correct terminology is crucial when dealing with state officials or accountants.
Need Assistance with Foreign LLC Registration?
If you need help with registration, services like NorthWest ($39 + state fee) offer convenient options for managing the process efficiently.
For detailed fees and requirements, refer to our Foreign LLC Fees by State table.
Real-World Examples
Case 1: Out-of-State Operations with a Domestic LLC
Background:
Sarah, a business owner with an LLC in Illinois, has two partners. Originally, all partners resided in Illinois, but they have since moved to other states. Most clients are still based in Illinois.
Situation:
Sarah wants to keep the LLC in Illinois, where they have a physical address and a registered agent, but wonders if they need to register as a Foreign LLC in Arizona, Massachusetts, and Wisconsin, where the partners now live.
Challenge:
Deciding whether to maintain the Illinois LLC as a Domestic entity while ensuring compliance in states where business activities or presence may warrant a Foreign LLC registration.
Solution:
Sarah can keep the LLC in Illinois as a Domestic LLC since that is where the primary business activities occur. Registering as a Foreign LLC in the states where the partners have moved may be necessary if they are conducting business activities there. It’s essential to evaluate what constitutes “doing business” in those states.
Now:
The partners are assessing the business activities in each state to determine if Foreign LLC registration is required, and consulting legal advice for state-specific requirements.
Case 2: International Ownership and Online Operations
Background:
Joy, living in Europe, plans to start an online LLC in Florida.
Situation:
Joy is uncertain about the steps needed to create an online LLC in the U.S., including registering in Florida, obtaining an EIN, and applying for an ITIN.
Challenge:
Navigating the process of setting up a U.S. LLC as a non-resident and understanding the roles of different registrations and applications.
Solution:
Joy should form a Florida LLC through SunBiz (the Florida Department of State), apply for an EIN through the IRS, and then consider an ITIN application if necessary. USPTO is not involved in LLC formation.
Now:
Joy is proceeding with forming the LLC in Florida and will apply for the EIN after approval. Considering consulting a professional service like Doola for assistance with the process.
Case 3: Operating a Domestic LLC from Abroad
Background:
Michael, a U.S. citizen residing in Germany, owns a Michigan-based LLC. He plans to release a mobile app with in-app purchases.
Situation:
Michael wants to know if he can release the app and earn profit through the LLC while living abroad.
Challenge:
Understanding the legal and tax implications of operating a U.S. LLC from Germany, especially concerning international business operations and compliance.
Solution:
Michael can operate the app through his Michigan LLC and earn income. He should continue filing taxes in the U.S. and Germany and consult with an accountant to ensure compliance with international tax laws.
Now:
Michael is working with an accountant to manage his tax obligations in both countries while running the LLC from abroad.
Case 4: Domestic vs. Foreign LLC for Online Sales
Background:
Jen owns a trademark and wants to start an online company selling goods from Kansas but can’t use her trademark name for an LLC in Kansas.
Situation:
Jen considers forming a domestic LLC in Nevada and wonders if she needs to register it as a Foreign LLC in Kansas.
Challenge:
Finding a way to use her desired business name legally and manage operations efficiently between two states.
Solution:
Jen can register the LLC in Kansas under a different name and use a DBA that matches her trademark. Alternatively, forming an LLC in another state and registering it as a Foreign LLC in Kansas is an option, but requires additional compliance.
Now:
Jen is deciding between using a DBA or forming the LLC in another state, aiming for a balance between business identity and legal compliance.
Case 5: Multi-State Operations with Real Estate Investments
Background:
Bruce, based in Arizona, is investing in real estate across multiple states (AZ, NV, CA).
Situation:
Bruce wonders if he needs to file as a Foreign LLC in Nevada and California for his real estate operations while his Domestic LLC is in Arizona.
Challenge:
Determining the correct LLC structure for real estate investments across multiple states, each with its own regulations.
Solution:
Consult with a real estate attorney to explore different structuring options, like a single LLC registered as a Foreign LLC in each state or setting up individual LLCs for each property state.
Now:
Bruce is consulting with a real estate attorney to establish the most efficient and compliant structure for his investments across multiple states.
