When you hear the words foreign or domestic used to describe an LLC, they are describing the location where the LLC was established and operates. Be aware, however, that these terms only apply to the state level, as LLCs are not formed at the federal level.

For example, if you base your LLC in North Carolina, but you do business in South Carolina, your company would be considered a foreign LLC in the latter state.

Forming a foreign LLC is a common choice for companies whose home state does not possess business-friendly laws. Some states offer LLCs more beneficial tax rates and cost-effective formation options, and establishing an LLC in one of these states can be very advantageous. You should understand that just because you sell to customers or work with a client in a different state, it doesn't mean you need to register your company as a foreign LLC. Generally, you need to have a physical business location in that state before foreign limited liability company registration is required.