The state of Delaware is usually regarded to be the ideal state in which to establish a limited liability company (LLC) because to the many benefits that it offers to both small enterprises and major organizations. If you are considering starting a Delaware LLC, check out the Diamond State. Despite the fact that the First State provides the majority of its benefits for the establishment of companies, there are still advantages for establishing a limited liability company there.
For instance, Delaware is home to specialized business courts that have been responsible for producing the most extensive body of business case law in the whole nation. If you do decide to incorporate in the future, you will be doing so in the state that is home to more than two-thirds of all firms in the United States. This is due to the fact that the state provides a number of tax perks that are advantageous to corporations.
The Step-by-Step Guide to Establishing Your Delaware Limited Liability Company
Whether you decide to organize your Delaware limited liability company (LLC) on your own or choose for the more convenient option of using a business formation service, it is important that you be acquainted with the process of forming a Delaware LLC. Are you unsure about whether or not a limited liability company is the most suitable entity for you? Using our guide that compares different business structures, you will be able to choose the most suitable option for your company.
Step 1: Name Your Delaware LLC
The first step in the process of incorporating a limited liability company (LLC) in Delaware is to register the name of your LLC with the Delaware Division of Corporations. Your Delaware limited liability company (LLC) must have a name that is unique and ends with “Limited Liability Company” or an abbreviation of that phrase (for example, “L.L.C.”). You are able to utilize the LLC lookup tool provided by the Division of Corporation to check whether or not the name of your LLC is available. In addition, you are required to provide a translation of your company name along with your file if it contains any terms that are not in the English language.
In a limited liability company, you might not include the following terms or phrases:
- In the absence of authorization from the Delaware Banking Commission or any other regulatory authority, any reference to the words “bank” or “medical” or any variant of these words may give the impression that your limited liability company is a bank or medical institution.
- The Secretary of State of Delaware has determined that some words are regarded to be offensive, racial, or otherwise unsuitable.
- It is important to avoid using phrases like “Incorporated,” “Inc.” or any other wording that might lead people to believe that you are a corporation or anything other than a limited liability company.
- Words or acronyms that might lead to confusion between your Delaware limited liability company and a government agency (for instance, “NSA” or “IRS”)
It is essential to have a clear understanding that even if your business name is accessible, it could not be in accordance with the regulations governing trademarks at the state and federal levels. Before you decide to register a limited liability company (LLC) in Delaware, you may want to do some extra research, and it could be beneficial to contact with an attorney to verify that you follow to the regulations.
To make use of a DBA in Delaware
You will need to decide whether you want to do business under the name you have selected for your Delaware limited liability company (LLC) or if you would prefer to utilize a “doing business as” (DBA) fictitious name after you have gone through the process of searching for a Delaware LLC name. You may wish to use a formal name for your limited liability company (LLC) if your firm specialized in more than one area. This name is often the last name of the founding member(s) in order to reduce the likelihood of confusion. Following that, you will be able to register DBA names for each individual company. On the other hand, you are required to register such DBAs with the relevant Delaware county in where you are doing business.
To be more specific, you are required to pay the $25 charge and submit a notarized Registration of Trade, Business, and Fictitious Name Certificate form to each Superior Court in which you do business. You may submit this form in person or sent to the court.
Step 2: Designate a Registered Agent
Designating a person or business entity to serve as your registered agent is the next stage in the process of forming a limited liability company in the state of Delaware. On behalf of your limited liability company (LLC), a registered agent is responsible for receiving legal paperwork such as service of process and other official documents.
The sole criteria for a registered agent for a limited liability company (LLC) in Delaware are that the agent must be a resident of Delaware and have a real street address inside the state. This is in contrast to the limitations that many other jurisdictions put upon potential registered agents. There are limited liability companies (LLCs) that opt to have a member serve as the registered agent, but the majority of them choose to use a third party that is not affiliated with the LLC.
You may utilize a list of registered agents that Delaware has compiled for you to use, or you can use a service that is available online. When you use an online formation provider to create a limited liability company (LLC), you will often be provided a registered agent service. This service may assist you in maintaining organization while you are establishing your Delaware limited liability company.
Step 3: File Your Delaware Certificate of Formation
Next to form your Delaware LLC, the individual organizing the LLC needs to file a certificate of formation, commonly referred to as “articles of organization.” Filing this document is how the secretary of state will validate your business and index important information about your company. The certification must contain the following information:
- Your LLC’s name
- The registered agent’s name and address
- The name and signature of the authorized person completing the form
- Cover page
Although you may choose to leave it blank, the cover page element gives you the opportunity to include certain conditions and restrictions in your formation documents. This provision, which is unique to Delaware, allows LLCs to establish limited liability protections that are separate from the parent organization (if applicable).
| Form to File | Delaware Certificate of Formation |
| How to File | Online: One-Stop Mail: Delaware Division of Corporations 401 Federal Street — Suite 4 Dover, DE 19901 |
| Filing Fee | $90 (current as of November 2022) |
Foreign LLCs Operating in Delaware
If you already have an LLC in a different state, you’ll need to register your business within Delaware to carry out business activities. Rather than filing a certificate of formation like a new LLC would, you’ll need to file a certificate of registration of a foreign limited liability company. You’ll also need to provide a certificate of existence from the LLC’s home state and pay a $200 filing fee. Many other states will also refer to this document as a certificate of good standing.
| Form to File | Foreign Qualification |
| How to File | Online: e-filing Mail: Delaware Division of Corporations 401 Federal Street — Suite 4 Dover, DE 19901 |
| Filing Fee | $200 (current as of November 2022) |
Step 4: Draft an Operating Agreement
This step is perhaps the most important when learning how to start an LLC. Delaware is one of five states that requires the creation of an LLC operating agreement where there is more than one member of the company. Delaware LLC laws don’t require formal submission of this agreement to the state, but when you register your company with the state you agree to have one in place which governs your company. Delaware doesn’t require single-member LLCs to draft operating agreements, but it’s typically in your best interest to create one anyway.
The operating agreement for LLCs is a legally enforceable contract that outlines how the LLC will be run and the specific rights and obligations of each member. This document also defines the LLC as a separate business entity, distinct from any personal dealings. As such, the operating agreement goes a long way in protecting personal assets from company liabilities.
Common LLC operating agreement elements include:
- Classes of interests. Different classes of members may have different rights with respect to the LLC’s operations (voting rights, etc.)
- Management. Indicate whether the LLC is managed by a board, one member, several members, an appointed manager, etc.
- Fiduciary duties. Fiduciary duties may be imposed by default unless you specify any modifications or limitations
- Profits and distributions. How profits and losses are allocated among the members and other related details
- Transfer of interest. You may choose to outline the rules and stipulations for members seeking to transfer their interest (or withdraw entirely) in the LLC
- Raising money and adding members. This would spell out how the LLC would raise new funds and bring in new members
- Dissolution. The conditions that would trigger the cancellation of the LLC and the process for doing so
Step 5. Obtain an Employer Identification Number (EIN)
If your LLC has more than one member or employees, it will be required to obtain a Federal Tax ID number, also known as an employer identification number (EIN) from the Internal Revenue Service (IRS). This one-of-a-kind 9-digit number is mostly used for tax purposes, but may be required to engage in other important business activities such as:
- Hiring employees
- Opening a business bank account
- Doing business with vendors
- Getting a business loan
For the reasons above, even single-member LLCs should consider applying for an EIN especially since the application is free, fast and easy to do online. As soon as you hit submit your number will be assigned to your Delaware LLC. The state will also assign a 7-digit number to new businesses that will be used for state tax purposes and other LLC applications.
If you’re a single-member LLC and you don’t choose to get an EIN, you’ll need to use your personal Social Security number on legal documents requiring an EIN. Instead of putting your personal information at risk, get an EIN to add an extra layer of security.
The Cost of Forming an LLC in Delaware
Creating an LLC in Delaware has benefits, such as legitimacy and investor appeal. However, business owners should prepare for some upfront and recurring costs. To establish a Delaware LLC, a $110 Certificate of Formation is required. You’ll need to pay an additional $50 if you want a certified copy of your document. You can pay another $50 for the state to process your document within 24 hours. The state will even process your paperwork that day for an extra $100. Additionally, getting a state business license will cost $75 for the first location per year and $25 for each additional location per year.
All LLCs must appoint a registered agent inside the state, which normally costs a few hundred dollars annually. Multiple brands offer registered agent services. LegalZoom is one of them — as your registered agent, the company will alert you whenever it receives important mail on your behalf, and the company will forward critical mail and legal notices to your business. Legal Zoom charges $249/year for registered agent services. ZenBusiness can also be your registered agent. The company will receive any notices for your brand and scan and upload documents to an online dashboard for you to view. The company will also alert you via mail regarding which legal notices need your attention. Using ZenBusiness will cost you $199/year. Swyftfilings — which offers alerts, monitoring, and privacy protection — charges $149/quarter for its registered agent services.
A more cost-effective option is NorthWest, which provides typical registered agent services but also offers free limited mail forwarding, security and corporate guides that you can call to get answers to your questions. NorthWest charges $125/year to be your LLC’s registered agent. Incfile is a slightly cheaper option. The company’s registered agent services are free for the first year if you form your LLC with Incfile. Then, you have to pay $119/year. Incfile services include alerting you whenever it receives documents about your business, automatically forwarding your mail and providing a dashboard to host your business essentials.
Delaware’s annual franchise tax, which starts at $300 yearly and rises depending on total authorized capital, is the largest ongoing expense. However, Delaware LLCs can lower tax and regulatory obligations as the business scales due to the lack of a state tax on pass-through income and the flexibility of corporate laws.
Pros and Cons of Forming an LLC in Delaware
Pros
- No state income tax on pass-through earnings
- Minimal reporting and disclosure requirements
- High credibility for investors
Cons
- Delaware charges LLCs an annual tax based on total authorized capital, starting at $300 per year
- Need to appoint a Delaware registered agent, which is an additional cost
Maintain Your Delaware LLC
After taking the time and effort to start your business you’ll want to do all you can to maintain your Delaware LLC. There are licensing requirements that must be satisfied to keep it active, and you’ll need to pay all required taxes to stay in business. On top of that, you should maintain good business practice to protect your LLC if it should ever come into hard times.
No Annual Report Requirement
Unlike other state’s laws on maintaining an LLC, Delaware does not require an annual reporting to be filed to keep an LLC active. In other states, this filing is an opportunity for LLCs to make updates to contact information to keep the record of their LLC active. Since Delaware doesn’t have annual reporting mandates, you’ll need to inform the state when information changes using other methods.
For example, when your registered agent changes or their address changes you’ll need to alert the state by submitting a form and paying the $50 filing fee. If any other modifications need to be made in any other sections in your certificate of formation, you’ll need to file an amendment and pay the $50 fee.
Complying with Tax Requirements
All Delaware LLCs (foreign and domestic) are required to pay a $300 state tax each year. The tax for the prior year is due by June 1. If you fail to pay on time, you’ll face a $200 fine and a 1.5% interest charge per month on the unpaid tax and fine.
Your LLC’s other tax requirements will depend on how your LLC chooses to be taxed. You can keep the LLC taxation structure (ordinary pass-through entity), or you can elect to have your LLC treated as an s-corp or c-corp.
With an ordinary pass-through structure, your LLC’s member(s) will pay income taxes on the money the company makes for that tax cycle. Delaware has a graduated tax rate that changes year-to-year.
LLC vs. S-corp
Both LLCs and S-corps are pass-through tax entities. This means the income of the LLC is passed through to the members or employees, in other words, the LLC itself does not pay taxes on the income it earns.
The difference is that as an S-corp the members will be employees of the business and will be paid by the LLC in salary and the rest will be considered a dividend. This can save the member/employees a significant amount in taxes. However, it is only available under a specific set of circumstances set by the IRS.
LLC vs. C-corp
A C-corp, or c-corporation, is technically a corporate entity, and to gain all the benefits of a corporation an LLC must incorporate. An LLC can elect to be treated as a corporation for tax purposes only, but this is not usually a beneficial move and might end up costing the LLC more in taxes rather than serving as a tax reduction. C-corps pay taxes once on income as a company and then shareholders pay an additional investment income tax on their dividends from the C-corp.
Opening a Business Bank Account
Opening a bank account and a business credit card for your LLC should be one of the first moves you make after your certificate of formation is approved and your operating agreement is in place. Holding your Delaware LLC assets in a separate account from your personal assets is an important step in securing the liability offered by the LLC structure.
That way, if your LLC faces debt or is sued by a party seeking payment if they win, they can only touch the assets in the business account. The personal account will be protected by the limited liability feature of an LLC.
Getting Business Insurance
Business insurance for an LLC is just as important as auto insurance is for your car. The type of insurance and the coverage you’ll need depends on the type of business you have.
For example, an LLC that operates remotely and provides an online service might not need to get full property coverage on their “office space.” However, if the company is selling products that are susceptible to defects, the insurance covering product liability is going to be very important.
Obtaining a Business License
Next you’ll need to apply for LLC business licensure. Delaware requires LLCs to acquire a business license from the Delaware Department of Revenue, which is not the case in many other states.
Simply create a “One Stop” account and fill out the online forms to do so. Filing fees range from $75 for the first location and $25 for each additional location annually, and take 10 days to process. You will also receive a temporary 60-day license when you file at One Stop.
Some Delaware cities and counties also require you to obtain a business license. Determine if your jurisdiction requires an operating license with your local government agency. If you are operating as a licensed professional within Delaware, you must obtain a license from the Delaware Division of Professional Regulations.
Hiring Employees
If you’re thinking about hiring employees for your Delaware LLC, there are some requirements in place to ensure you’re complying with state regulations. If you hire employees, you’ll need to do the following:
- Get your EIN
- Request completion of employee eligibility form (to ensure your employees are eligible to work and have a confirmed identity)
- Set up a process for tax collection and payment
- Have workers’ compensation insurance
- Report new hires within 20 days of hiring
Ways to Start a Delaware LLC
There are three main paths you can take when you get a Delaware LLC. You should choose the path that works best for your business, which will depend on the time you have, the amount of money you want to spend and the complexity of your business structure.
DIY
Like many things, you can choose to form your Delaware LLC yourself. This is a good option for those who have time and patience to complete the filing. While this option will only cost you the filing fee, it may end up being more time-consuming than you bargained for. Also, if you make a mistake, you’ll be responsible for correcting your filing and paying any additional fees charged by the state for processing.
Even if you choose to DIY some of the formation process, you can always use an LLC service for some of the other LLC requirements (e.g., registered agent services, EIN application, operating agreement creation).
LLC Formation Service
If you’re looking for a fast and easy filing process — look no further. Using an online formation service is an excellent choice for entrepreneurs at any point in the Delaware LLC formation process. Incfile, ZenBusiness, Swyft Filings, Northwest Registered Agent and LegalZoom LLC services are all reliable and accurate platforms known for their customizable pricing packages and useful add-on features. With many services you’ll get help every step along the way and the option to chat with an expert if you have any questions. This is a popular choice because it gives you the peace of mind that DIY lacks at a far better price point than the final option. In fact, many of the above-named services will only charge you the same state fees which you would be required to pay if you were to form your business yourself.
Hiring an Attorney
Costing anywhere from $150 to over $1000 per hour (depending on where you’re located), the most expensive path is hiring a business attorney to form your LLC. Business owners that will want to change their tax status, who have financial ties with outside investors or have complex accounting structures might choose to see an attorney when learning how to start an LLC. A simple “LLC lawyer near me” search should find the best local business attorneys in your area. For most businesses the LLC formation service path will be the best option for creating an LLC.
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The Bottom Line: Forming an LLC in Delaware
You can quickly create an LLC in Delaware by following a few simple steps. The state offers a wealth of tools, including step-by-step instructions and sample forms to make paperwork easier. Further streamline the process by investigating top LLC formation providers.
Frequently Asked Questions about Delaware LLC Formation
What does LLC stand for?
LLC is an acronym for “limited liability company.” The basic LLC definition is a business entity with the flexible tax structure of a proprietorship or partnership and the liability protection feature of a corporation.
Why are Delaware LLCs better?
Delaware is considered one of the most business-friendly states in the union, with regularly updated laws intended to help businesses thrive. The creation and operation of Delaware LLCs is governed by the state’s Limited Liability Company Act, which includes a flexible provision allowing LLCs more contractual freedom to form (and define) certain relationships in operating agreements.
Referred to as the “freedom of contract,” this provision allows LLCs to significantly alter duties owed by LLC members to the LLC and other members. While this can create efficiencies for a business, it also opens the door to abuse by owners. For instance, the operating agreement for a Delaware LLC may waive certain members’ “fiduciary” duties, whereas states like California mandate certain default protections and duties for LLC members.
However, several other states have followed suit with similar contractual freedom rules for LLCs, so it’s not as unique to Delaware as it once was.
One key benefit of forming an LLC in Delaware is greater asset protection. In fact, the only way a creditor may seize an LLC’s assets is by obtaining a “charging order,” which is best described as a court-granted lien. Also, Delaware law doesn’t impose meetings or voting requirements on LLCs, while the startup requirements in general are minimal.
Finally, Delaware offers more privacy than many other states. As an LLC, you aren’t required to disclose the name of the owner to the state, but you are still required to have a registered agent and a designated contact person.
Can I register my business in Delaware if I don’t live there?
Absolutely, as a non-resident you can still start a Delaware LLC. The state only requires that you maintain a registered agent with a physical office within the state. This is so the state can easily get in contact with the LLC.
If you are creating an LLC in Delaware but will conduct business within a different state, you should check with that state’s laws regarding licensing and taxes to make sure you remain compliant. Some states may even require your LLC to be registered as a foreign LLC to conduct business there.
How much does it cost for an LLC in Delaware?
The total cost for an LLC will depend on the type of business you have. The filing fee for the certificate of formation is $90 and the required business licensure will vary depending on the cities in which you are conducting business.
How long does it take to get an LLC in Delaware?
After filing your certificate of formation, you should expect to wait about 3-4 days to receive approval along with your business identification number.
Do LLCs in Delaware pay taxes?
LLC taxes will depend on how the LLC elects to be taxed. If the LLC maintains its pass-through status, then the member(s) of the LLC will need to pay income tax on the money earned by the LLC. This is in addition to paying the $300 Annual Franchise Tax each year which is due June 1.
Does Delaware require a physical address for LLCs?
Delaware doesn’t require an entity to be physically within the state to conduct business there so long as it is registered within the state and has a registered agent that is physically within the state and accessible.
Thus, a virtual address for LLC purposes (address where the LLC receives mail and provides to those in which it conducts business) would be helpful to maintain a professional look for potential customers and business partners.
What is a Sole Proprietorship vs. LLC vs. Corporation?
A sole proprietorship is owned by a single individual who takes all the business’s profits, debts and liability. A sole proprietor doesn’t need to officially file anything with the state to exist. An LLC is an entity that’s controlled by a single member or any number of members.
An LLC will take all the liability of the business, but the income is passed through to the members who claim their share of the LLC income each year on personal tax returns. To exist, you must file a certificate of formation with the state.
A corporation, also called a C-corp, is owned by shareholders. This entity takes all the liability, income and debt of the business. Shareholders are paid a dividend of the business’s earnings on a regular basis. Corporations pay a corporate tax on their income and the shareholders pay investment income tax on their dividends from the corporation.
Can I start a series LLC in Delaware?
Yes, you can start a series LLC. Delaware is one of a few states that recognizes this entity and allows creation through its LLC laws. A series LLC is an entity that houses other smaller entities within it. The smaller entities can be LLCs, corporations or any other business structures.
Under this structure, each individual entity within the series is responsible for its own liability, holds its own accounts and is governed by its own operating agreement. Creating a series LLC as opposed to an ordinary LLC can provide an additional layer of liability protection.
For example, a series LLC, “Big LLC,” holds “LLC 1,” “LLC 2” and “LLC 3.” LLC 3 is sued and loses. Only the holdings of LLC 3 are susceptible to collection by the party that won the lawsuit. However, if all holdings were kept under Big LLC and not within smaller entities, then all the holdings would be susceptible to collection.
