Delaware is one of the best states to form an LLC. The evidence of this can be seen in the Fortune 500 companies list, where more than 60% of fortunes are incorporated in Delaware. The business-friendly climate and solid legal system of the state attract new business. The Limited Liability Company Act and the Delaware General Corporation Law are the foundation of Delaware’s strong legal system.
LLC is a hybrid structure that merges the benefits of a corporation and a partnership. It protects personal assets from business liabilities by separating them.
Let us first see why Delaware is a good state for LLC.
The benefits of setting up an LLC in Delaware are stated below:
- No out-of-state income tax for foreign LLC
- Series LLC formation is allowed
- A separate court, known as the Court of Chancery, hears only business disputes
- Low filing cost and franchise tax
- Tax benefits
- Flexible management structure
Create a Delaware LLC in five easy steps:
Step 1: Choose a Name for your Delaware LLC
Select a name for your Delaware LLC that complies with the Delaware state regulations. The name must deliver the same purpose as that stated in your Certificate of Formation and is easily accessible to the public.
Consider the below points:
- The name must include “Limited Liability Company” or any of its abbreviations such as “L.L.C.,” or “LLC,” with or without periods.
- The name must be distinctive on the record with the Delaware Secretary of State.
- The name must not imply a government organization by including words such as State Department, FBI, etc.
- The name cannot include state prohibited or restricted words such as health center, attorney, etc., unless a licensed individual such as a physician or a lawyer is a member of your LLC or your LLC has permission to function as such.
- To confirm the desired name is available, do a business name database search with the Delaware Department of State: Division of Corporations. This will ensure there is no deceptive similarity among any two entities in the state.
- Look for the availability of a web domain for your business. This is not mandatory but advisable.
FAQs
- How can I reserve a name for my Delaware LLC?
You can reserve a name for your LLC in Delaware by filing an Application for Reservation of Limited Liability Company Name, or you can do it immediately by using the online Name Reservation Site. The name gets reserved for 120 days, and the filing fee is $75.
- How can I register a fictitious name?
You can register a fictitious name or a trade name by filing the Registration of Trade, Business & Fictitious Name Certificate with the clerk of the Superior Court in Delaware. The filing fee is $25.
Step 2: Appoint a Registered Agent
All the LLCs in Delaware are expected to have a registered agent. A registered agent is an individual who is a resident of Delaware or is a business entity authorized to transact business in the state. To qualify as a registered agent, the entity or the individual must have an in-state street address (PO Box as the only address is not considered).
A registered agent is authorized to accept legal notices, tax reforms, and service of processes on behalf of your business. A registered agent acts as the connecting bridge between your company and the Delaware state. Here is a list of Delaware registered agents
Perks of having a registered agent for Delaware LLC:
- Available during business hours
- Accepts legal notices and lawsuits on behalf of your LLC
FAQ
- Can a person from my LLC become a registered agent?
Yes, anybody from your Limited Liability Company can become a registered agent, including yourself, if they fulfill all that is required.
Step 3: File a Certificate of Formation for your Delaware LLC
The Certificate of Formation officially registers your LLC with the Delaware Department of State. This certificate ensures the LLC was legally formed and is an officially recognized entity in the state. This can be filed online or via mail. The state no longer accepts filings via fax.
There is a $90 filing fee, payable to the Department of State (nonrefundable). Expedited service can be requested.
The Certificate of Formation requires the following information:
- The name of the LLC
- The name and address of the registered agent located in Delaware
- Execution block – Signature of an authorized person
Apply online in a PDF document: Certificate of Formation of a Limited Liability Company
Apply via postal mail: Download Certificate of Formation of a Limited Liability Company form
A cover sheet with your name and contact details will be required while filing via mail. Download a PDF fillable cover sheet.
Mail to:
Delaware Division of Corporations
401 Federal Street
Suite 4
Dover, DE 19901
FAQs
- How much does a Delaware LLC cost?
An annual franchise tax of $200 is to be paid before the first of June every year in addition to the one-time filing fee of $90.
- What is the processing time for Delaware LLC formation?
The Delaware LLC takes 2-4 weeks to process an LLC. This may vary according to the service requested.
- What is a foreign LLC? How to register a foreign LLC?
An LLC that has spread its presence from its domestic state to other states is known as a foreign LLC in those states.
To register as a foreign LLC, you must file the Certificate of Registration of Foreign Limited Liability Company with the Delaware Division of Corporations. A Certificate of Good Standing is to be attached along with the certificate of registration of a foreign LLC. The filing fee is $200.
- How to get a Certificate of Status/Good Standing?
A Certificate of Status or a Certificate of Good Standing states that your LLC is compliant with the home-state regulations. You can get a Certificate of Status online, via mail, or in-person from the Delaware Divisions of Corporations. The cost for a short form of Certificate of Status is $50, and for a long form of Certificate of Status is $175.
Certificate of Status:
Download form to apply via mail, or in-person
Mail to:
Division of Corporations
401 Federal Street
Suite 4
Dover, DE 19901
Step 4: Drafting a Delaware LLC Operating Agreement
An operating agreement states the ownership and management structure of an LLC. Delaware does not ask for an operating agreement, but it is highly advisable to have one. This document states the governing principles of an LLC, such as the rights and responsibilities of its members, asset distribution, profits and loss allocations, etc.
A well-crafted operating agreement leaves no room for functional discrepancy. Every member must have a copy of this signed agreement with them. This agreement is flexible and gives enough wiggle room for any amendment.
An operating agreement can include the following points:
- Membership interest
- Voting rights
- Capital contributions
- Dissolution process
FAQ
- What is a membership interest?
Membership interest states the ownership of a member, which includes the right to vote, profit and asset allocation, and the decision-making right.
Step 5: Get an EIN
Employer Identification Number (EIN) is a unique nine-digit number allocated by the IRS. The IRS uses this number to legally recognize your company and to keep business tax records.
An EIN enables you to keep your Social Security Number private since it separates your personal and business accounts. With access to your SSN, the chances of identity theft rise.
Applying for an EIN is free and can be done online or via mail, or by fax.
EIN is beneficial for your company because of a lot of reasons. You can open a business bank account, get access to a business credit card, apply for business licenses and loans, and it lets you file and manage taxes.
Apply for EIN online
Apply via mail or fax: Application for EIN
Mail to: Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935
FAQs
- How much time does it take to get an EIN?
If you file online, the number gets assigned immediately. The mail-in process takes about four to eight weeks, whereas the fax arrives in four to seven business days.
- Do LLCs pay taxes in Delaware? If so, which tax structure should I choose for my LLC?
Yes, LLCs are liable to pay taxes in Delaware. By the IRS, LLCs are taxed as a sole proprietorship for a single-member LLC and as a partnership for multi-member LLC, unless opted for some other option. Accordingly, the IRS will tell you about the tax options available for your LLC.
LLCs registered as partnerships must file Delaware Form 300. Whereas, LLCs registered as corporations must file either Delaware Form 1100 or Form 1100S. Refer to the business tax forms, for a brief idea of tax options available.
There are a lot of details to consider before selecting the tax status for your LLC. Speaking to a tax professional is recommended before making the final call.
- What is a franchise tax?
LLCs in Delaware are not required to file an annual report. However, they must pay an annual franchise tax of $300 every year with the Delaware Division of Corporations. The due date is 1st June. This is necessary to keep your company in compliance with the state, and can be filed online.
You will be liable to a $200 penalty if you fail to file this tax before the due date. An additional penalty of 1.5% is charged for every month if this tax remains unpaid.
- Which license and permits are required for business in Delaware?
Based on the type and location of your business, you need one or more business licenses and permits to operate in Delaware. You can file for a business license online or via mail.
File online or file the CRA form (Combined Registration Application for state of Delaware Business License and/or withholding agent).
Your business must conform to the zoning requirements with the county and/or city (or town) in which it is situated. Read the instructions mentioned in the CRA form carefully.
How to Dissolve an LLC in Delaware
Refer to your operating agreement to dissolve your LLC, the structural proceedings for dissolution must be mentioned in it. If not, follow the below procedure:
- Approval of the members – Hold a voting process for the affirmative or written consent of the qualifying members as per agreement. Record the votes for dissolution and fix a date for the dissolution process.
- Winding up
After dissolution, your LLC remains active to wrap up the final activities of your business. The Delaware LLC Act states the following wind up tasks that has to be completed:
- Closing business tax accounts – Your LLC has various active tax accounts in the state. Pay off all the debts to successfully close every tax account.
- Paying off remaining franchise tax
- Canceling every license and permit
- Notifying creditors
- Disposing property of LLC
- Distribution of remaining assets among creditors and members
- Discharging liabilities of the LLC
For details, refer to the Limited Liability Company Act for dissolution
- File Certificate of Cancellation – File Certificate of Cancellation of a Limited Liability Company and cover letter with the Delaware Division of Corporations.
Following details will be required:
- Name of the LLC
- Date of filing of the Certificate of Formation of the LLC
- Name and signature of an authorized person
The filing fee is $200, payable to the Secretary of State. An optional certified copy may be requested for an additional $50. Expedited service can also be requested. The duration of the process will depend on the type of service chosen.
File online: Certificate of Cancellation (additional cover sheet need not be filed)
File via mail: Download Certificate of Cancellation form
Download a PDF fillable cover sheet.
Mail to:
Delaware Division of Corporations
401 Federal Street – Suite 4
Dover, DE 19901
FAQ
- How to cancel a foreign LLC?
To cancel a foreign LLC, file the Certificate of Cancellation of a Foreign Limited Liability Company. The filing amount is the same as a domestic LLC, that is, $200.
Details required for cancellation are:
- The name under which the foreign LLC is doing business in Delaware
- Date of filing of Certificate of Registration of the foreign LLC
- (Optional) The effective date of cancellation
- Address where service of processes can be forwarded
- Name and signature of an authorized person
- Date of cancellation
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