What Is a Domestic Limited Liability Company?

By Jeff Franco J.D./M.A./M.B.A.

The laws of each state and the District of Columbia have the ultimate authority to govern all limited liability companies created within its jurisdiction. States commonly refer to LLCs created within the jurisdiction as domestic LLCs, and entities created outside of the state as foreign LLCs. This distinction has no applicability to international business entities created outside of the United States.

Certificate of Organization

To become a domestic LLC of a jurisdiction, you must provide the jurisdiction with a certificate of organization. The business becomes a legal domestic LLC when the state officially files the certificate. A valid certificate must minimally include the name of the business, the principal office address and the name and address of the agent who has authority to accept legal documents on behalf of the LLC. Commonly, the jurisdiction’s secretary of state office will provide you with access to a database of available business names. You may not register a business name if another legal entity within the state already uses it.

Becoming a Member

Most states will not file the certificate of organization if no member of the LLC exists within 90 days of its delivery to the state office. The co-owners may designate the individuals who are members on the initial certificate of organization. After delivery of the certificate, new members may join by unanimous consent of all current owners or by any other method the operating agreement of the LLC allows. Unless the operating agreement states otherwise, there is no requirement that a prospective member make a monetary or property contribution to the LLC as a prerequisite to becoming a member.

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Fiduciary Duties

Each jurisdiction provides the minimum standard of fiduciary duties members owe the domestic LLC. Commonly, members have an unconditional duty of loyalty to the LLC. This requires that the member always put the interests of the business before their own when conducting business. A member who violates this duty is personally liable for any damage the LLC suffers and for profits the member usurps when using the LLC for personal gain. Members also have an unconditional duty to refrain from acting in a grossly negligent manner. For example, a member who drives a business vehicle after consuming an excess amount of alcoholic beverages is grossly negligent and is personally liable for any accident that ensues.

Foreign LLCs

A foreign LLC may conduct business in any jurisdiction, regardless of the state of formation. However, foreign LLCs must provide each jurisdiction it does business in with a certificate of authority before it can receive the same legal protection as domestic LLCs. Failure to submit the certificate precludes the LLC from utilizing the courts of that state to resolve business disputes with third parties having a connection to that jurisdiction. Restricting access to courts inhibits the LLC from mitigating business risk. In some instances, a prospective defendant of the LLC may have no obligation to appear before another state’s courts.

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References

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Does a Single Member LLC Need to Register to Do Business in Another State?

Organizing your business as an limited liability company provides the owners, known as members, with liability protection offered by state law. When you register your business as an LLC, it gives you legal authority to conduct business in the state in which your register. If your LLC, whether it is a single-member or multi-member LLC, starts transacting business in another state, you typically must register in that state as well. However, not all operations require a business to register, but LLCs that do not register as required can face penalties.

Washington State LLC Laws

Washington State enacted its LLC laws in 1995, called the Washington Limited Liability Company Act. The LLC laws authorize the creation of new LLCs in Washington State and permit LLCs formed in other states to conduct business in Washington State. The corporations division of the secretary of state’s office oversees implementation of the LLC laws. Additionally, the Washington Administrative Code sets forth rules and regulations established by the secretary of state regarding the practices and procedures of the corporations division pertaining to limited liability companies.

Who Is Liable in an LLC?

All jurisdictions within the United States allow business owners to create a limited liability company structure. The most common reason for creating an LLC is for owners to obtain the benefit of limited personal liability. However, the formation of an LLC does not provide owners, who are called members, with an unrestrictive license to avoid personal liability for all activity. Limits on liability are only available for activities within the scope of ordinary business practices.

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