Limited Liability Company (LLC) – Domestic vs. Foreign

What is an LLC?

An LLC or a Limited Liability Company is a type of business that you can form when you start a business. This is the least complex form of business and still protects your personal assets. Also, anyone starting a business can incorporate the business as an LLC, as there is no limit on how many members can be in an LLC. However, this form of business is very popular among businesses with one to three members who are not trying to grow the business too much or raising any cash.

Advantages of an LLC:

• Better Credibility –  Your customers, lenders, suppliers etc. may look at you more favorably when your business is an LLC.

• Legal Protection – If you do business as an LLC, your personal assets are safe from business debt and lawsuits. Customers, vendors, creditors etc. can take legal actions against your business, but they can’t come after your personal assets like your home, cars etc.

• Pass-through Taxes – An LLC is a pass-through entity, which means it does not have to pay or file taxes. The business owners report income/loss on their personal tax return (on schedule C), which means they avoid double taxation.

• Unlimited number of Members – As mentioned above, there is no limit on how many members an LLC has, but if it only has one owner, then it will be taxed as a sole proprietorship. An LLC can file Form 8832, Entity Classification Election, if it wants to be taxed as a Corporation. Once an LLC has elected to be taxed as a corporation, it can file Form 2552, Election by a Small Business Corporation to elect tax treatment as an S Corporation.

Domestic vs. Foreign LLC.

Domestic LLC is an LLC that was incorporated in the state it is doing business in. For example, a business that was organized as an LLC in Georgia and is also doing business in Georgia is a Domestic LLC.

On the other hand, a business that was incorporated in one state, but does business in another state is called a Foreign LLC.

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