What is the difference between a domestic & foreign LLC?
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What is an LLC?
First things first, let’s review what an LLC is.
A Limited Liability Company (LLC) is a type of business structure that combines the benefits of a corporation and a partnership or sole proprietorship. It provides the limited liability protection of a corporation, which means the owners (called "members") are generally not personally liable for the company's debts and liabilities beyond their investment in the business. In other words, their personal assets are protected from business-related obligations.
At the same time, an LLC offers the flexibility and pass-through taxation of a partnership or sole proprietorship. This means that the profits and losses of the LLC "pass-through" the business entity and are reported on the members' individual tax returns. This avoids double taxation, where both the business and its owners are taxed separately.
Domestic vs. Foreign
There are two types of LLCs to understand
Domestic LLC
A domestic LLC is an LLC that is formed and registered in the same state or country where it conducts its business operations. For example, if you start an LLC in California, and the business operates solely within California, it would be considered a domestic LLC in California.
To establish a domestic LLC, you typically must file articles of organization (or a similar document) with the appropriate state or country authorities. The LLC becomes a separate legal entity, distinct from its owners, and enjoys the benefits of limited liability and pass-through taxation within the jurisdiction where it's registered.
Foreign LLC
On the other hand, a foreign LLC is registered and formed in one state or country (its home state or country) but chooses to operate in another state or country. In this context, "foreign" doesn't necessarily mean from another country; it simply refers to operating in a different state or country.
To operate as a foreign LLC, you must go through a "foreign qualification" process in the state or country where you want to do business. This typically involves registering with the appropriate state or country authorities, paying necessary fees, and fulfilling any additional requirements set by the jurisdiction. By obtaining a foreign qualification, the LLC gains permission to legally conduct business in that specific state or country while still being registered and governed by the laws of its home state or country.
When might you need a foreign LLC?
In many cases, photographers who travel to other states to shoot may have to file a foreign LLC AND register for sales tax in that state. Some states will ONLY let you register for sales tax if you have formed a foreign LLC. Each State is different, but we break it all down inside our State by State Sales Tax Guide for Photographers.
[GRAB THE STATE-BY-STATE SALES TAX GUIDE FOR PHOTOGRAPHERS]
Do I need a new Tax ID/EIN for a foreign LLC?
When you register your LLC as a foreign LLC in another state, you are not establishing a separate, new LLC. Instead, you are managing an additional LLC registration in a foreign state. In essence, you still have one primary LLC, referred to as the domestic LLC, which is registered to operate in its home state, and it can also conduct business in other states through foreign LLC registrations.
Even if your LLC is qualified as a foreign LLC in multiple states, it remains one legal entity registered to do business in all those states (in addition to its original home state).
As a result, regardless of the number of foreign LLC qualifications (also known as "LLC authority to transact business") your LLC has, you will only use one Employer Identification Number (EIN) for all federal reporting with the IRS.
It's important to note that a foreign LLC does not require a new EIN to conduct business in another state because it already possesses an EIN. The term "Foreign" indicates that your LLC is permitted to operate in a state other than its initial registration state. According to the IRS, this does not create a new LLC that necessitates a new EIN.
Resources for you 📸
Need help forming a foreign LLC? [We Do That Too! Learn More Now]
Need help figuring out if you need a foreign LLC [Book 30-Minute Consult]