What Is a Domestic LLC? How to Choose the Right State to Incorporate

A domestic LLC is any LLC that operates solely in the same state in which it was formed. What does "domestic" mean in an LLC? It means just that — a business that is operated in the "home" state of the business owner. An LLC owner can register and operate their business in any state but may eventually wish to domesticate.

Here, we'll explain why an owner might wish to domesticate their existing LLC, the process involved, and the ways in which domestic LLCs are unique from both general LLCs and foreign qualifications.

Why Domesticate Your LLC?

You may want to domesticate your LLC if you are planning to move to a different state or if you originally formed your business in a state where you do not reside. Here are some more reasons to consider domesticating an LLC:

You formed your business in a state that isn’t where you reside, or you’re moving to another state and you want to do any of the following:

• You want to base your business there.
• You want to keep business relationships.
• You want to have the same business bank account.
• You want to keep your business credit rating.
• You don’t want to start a brand-new LLC.
• You don’t want to file foreign qualification.

LLC Domestication: The Process

First off: If you're forming your LLC in the state where you currently reside, you're automatically considered a domestic LLC, and no domestication process is required.

There are, however, numerous circumstances in which you might benefit from converting an existing LLC to a domestic LLC in either your state of residence or a new state.

Interested in starting the domestication process? Here's how:

1. Determine Whether Your State Allows Domestication

Not every state permits LLC domestication. In those that do, you must go through your Secretary of State or business formation agency to complete the process. When researching your current or future state's policies on LLC domestication, remember that it may be referred to as either "domestication" or "conversion."

If your state is among those that do not permit domestication, you still have a couple of options, including:

• Seeking a foreign qualification in the new state, or
• Dissolving the existing LLC and forming a new one.

Domestication is often the simplest process for owners moving their LLCs to a new state. If this option is available to you, it's usually the best choice.

2. Amend Your Articles of Organization

The good news with LLC domestication is that you can keep some aspects of your existing business, like your Employer Identification Number (EIN), business bank account, and credit rating. However, because you'll be operating in a state different from the one wherein your business was registered, you'll need to update the business address.

That might mean securing a virtual address if you don't have an office or brick-and-mortar location in the new state. Once you have an address, you'll file Articles of Amendment for your LLC, which will show your new "home" state for your domestic LLC.

3. Secure a Certificate of Good Standing

A Certificate of Good Standing acts as proof that your business has been compliant and met all requirements and regulations in the state in which it was formed. In order to file for domestication, you will need to obtain this certificate before taking the next step.

4. File for Domestication

Once you have your Certificate of Good Standing and a business address for your new state, you can file your Articles of Domestication (or "conversion" in some states). You'll need to file these documents in the state in which you want to domesticate your LLC.

Many states offer online filing for domestication or conversion, but some require that you file in person. As with business formation, fees and timelines vary between states, so it's best to check with the state's business formation agency before you get started.

5. Dissolve the LLC in Your Former State

Your final step is to dissolve your existing LLC. This lets your previous state know that you will no longer be operating there, and it means your LLC is free to operate within your new state.

Once you file your dissolution, you'll need to provide documentation as evidence to your new state. You can keep your EIN, bank account, business name, etc., but your new home state will be changed from this point forward.

Domestic LLCs vs. General LLCs

What's the difference between a domestic LLC and a general LLC? "General LLC" is a way to describe all standard LLCs. When forming an LLC in your home state, a domestic LLC is standard. In this way, all domestic LLCs are general LLCs...but not all general LLCs are domestic ones.

What is an example of a domestic LLC?

Let's say you're planning to open a hair salon. You live in Indiana, and you've leased a space with a valid street address. When you form your business, you register the LLC in Indiana, and you use the address of your salon location. For now, you don't plan to expand or conduct business in any state other than Indiana.

You've formed a domestic LLC.

Here's another example: You own a consulting business in Oregon, but you conduct business online and have clients in different locations. Based on tax favorability, you decided to form your LLC in Delaware. Now, you want to secure an office space and operate exclusively from your home state. In this case, you'll need to file for LLC domestication.

But what if you formed a business you want to keep in one state while still conducting business in another state? That's when you may need foreign qualification.

Domestic LLCs vs. Foreign Qualification

Foreign qualification is a filing that allows you to conduct business in a state that's different from the one you originally registered your business in. There are a couple of scenarios in which you might need a foreign qualification. You can use one to grow and expand your business to new locations, or you can use one if you're going to move to a new state and want to ensure your business can operate legally.

Foreign qualification can be extremely useful, especially if you're in a state or moving to a state that doesn't allow LLC domestication. However, remember that if you're using foreign qualification to grow your business and expand to new states, you'll need to maintain ongoing compliance and file taxes in each state.

How to Choose the Best State for Incorporation

There are many factors at play when choosing which state to start your business. As a business owner, you have the freedom to form your business in any state you wish. However, most of the time, it makes more business sense to form in the state where you currently reside, creating an automatic domestic LLC.

But there are reasons to form outside your home state, including tax considerations, small business climate, state government incentives, and more.

Here are some of the steps you can take to decide where to form your LLC:

• Research LLCs in your home state and other possible states.
• Check filing times to determine how long it will take to get your LLC up and running in different locations.
• Analyze costs and find out how much you would need to file in your home state or other states.
• Look into tax considerations. Find out why Delaware is considered a tax-friendly state, and learn why other states are noted as the best places to start an LLC.

What to Know About Moving Your LLC to Another State

If you're moving your LLC to another state, there are many factors to consider. You could follow the steps here to domesticate your existing LLC in the new state, but if you're looking to grow your business, you might opt for foreign qualification instead.

Wherever you wish to start your new business, Bizee is here to help. Our $0 + state fee LLC is a perfect choice, whether you're planning on starting a domestic LLC in your home state or looking outside your local area. We can also help with filing Articles of Amendment, dissolution, and foreign qualification, so when you're ready to transition or grow your business, you've got the expert support you need.