A domestic LLC is a business operating in the same state where it was created. It files its Articles of Organization as a Limited Liability Company.

What Is an LLC?

LLC is the abbreviation for limited liability company. It's a business structure that has the advantages of pass-through taxation and limited liability. It has the positive benefits of partnerships, sole proprietorships, and corporations in this way.

To form an LLC, you'll have to draft Articles of Organization, register the document with your state, and pay the required filing fees.

Each state has its own rules and guidelines. The types of companies that can't operate as LLCs include the following: 

  • Insurance companies
  • Banks
  • Trusts

Some states don't allow professionals like lawyers and doctors to form LLCs.

What Is a Domestic LLC?

A domestic LLC is a business entity that files its Articles of Organization as a limited liability company.

A valid certificate of organization must include the following: 

  • The business name
  • Principal office address
  • Name and address of the authorized party who accepts legal documents on the LLC's behalf

You can check the availability of your desired business name at your Secretary of State office. You can't register a business name that's already being used in the state.

Members of an LLC aren't personally liable for the company debts. Most states don't have an “official” designation of a domestic LLC. If you create an LLC in the state where you first start to do business and this remains the only state where you do business as an LLC, this is considered a domestic LLC.

For federal income tax purposes, a domestic LLC is classified as a sole proprietorship, partnership, or corporation. If your LLC has employees, it will be classified as a corporation for employment tax purposes.

LLCs with just one owner are classified as sole proprietorships. You can change this designation if you elect to have it classified as a corporation. A domestic LLC with two or more owners is classified as a partnership, but you can elect for it to be classified as a corporation.

If you don't make a classification choice, a default will be chosen for you. It will either be a single-member LLC (disregarded entity) or multi-member LLC (partnership). You can use IRS Form 8832 to make your own classification election.

Different rules for classification may apply, depending on the situation, such as for insurance companies, banks, and nonprofit LLC organizations.

Becoming a Member of a Domestic LLC

To have your certificate of organization filed with the state, you need to list who your company's members are within 90 days of delivering this document to the state. Most state offices won't file your certificate until they know who the members are.

After your certificate is delivered, your company may accept new members if current owners agree unanimously to accept them. You can also use whichever acceptance method is outlined in your operating agreement.

A prospective member isn't required to make a contribution (such as property or monetary) to become a member unless your operating agreement states this as a requirement.

What Does "Doing Business" Mean?

It's important to know if you're actually “doing business” in a state. If you are, you must register your company in that state. The phrase “doing business” applies to the following:

  • You sell in that state through an agent, a distributor, or a manufacturer's representative.
  • You have a business bank account there.
  • You have a manufacturing facility, distribution facility, office, or retail storefront there.  
  • You own personal business property or “real property” (such as factories, warehouses, and other business buildings).
  • You hold business meetings or conduct business there.

A domestic LLC may be classified as different business structures, depending on the number of owners and employees. As long as you keep your LLC operating solely in the same state where it was formed, it remains a domestic LLC. If you decide to do business in other states, make sure you follow all rules and guidelines to keep your company in compliance in all states where you're registered.

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