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How to Form an LLC in Delaware

Posted on by darion

Many entrepreneurs choose to form a limited liability company (LLC) in Delaware because of the state’s reputation for business-friendly laws. This is largely because its legal system makes it easy for companies to start, grow, and operate without unnecessary red tape. Additionally, there are no sales taxes and a low franchise tax, which translates into higher profits for startups.

One of the reasons entrepreneurs prefer to form their businesses in Delaware is that it has a well-established corporate law that clarifies and protects the rights of companies. Another significant advantage is that unlike many other jurisdictions where business disputes take years to resolve, the Delaware Court of Chancery specializes in corporate law and offers quick resolutions to conflicts in this area. Additionally, filing can be completed extremely quickly, allowing entrepreneurs to start their businesses as quickly as possible.

This step-by-step guide will take you through the key steps required to forming an LLC in Delaware successfully. This includes everything from giving your business a unique name to filing all the appropriate paperwork, as well as ensuring compliance with state laws for beginners and experienced entrepreneurs looking to form a Delaware LLC.

Step 1: Choose a Name for Your LLC

Naming Guidelines

Your LLC name must include the words “Limited Liability Company,” “LLC,” or “LLC” so that anyone who sees it will recognize its structure.

Adopting a name that creates confusion between different entities registered under state law could result in legal liability, so you should conduct due diligence when selecting such a name.

Care should be taken to ensure that names are not misleading or indicate different types of business entities, as this may cause legal problems.

Tips for choosing a name

Choose a name that represents your brand and is easy to remember; this will help grab the attention of potential customers when they come across your catchy name.

Check to see if the name you want is available on the Delaware Division of Corporations website. It would be wise to have alternative options ready in case the first one is taken.

Step 2: Appoint a Registered Agent

What is a Registered Agent?

The Registered Agent is responsible for receiving all legal documents, such as court filings and other official communications from the government on behalf of your LLC.

Delaware Registered Agent Requirements

The physical address of the Registered Agent must be in the State of Delaware. A PO Box address is not acceptable.

Make sure your agent is available during standard business hours to ensure important documents are delivered promptly.

Step 3: Submit a certificate of incorporation

How to fold

Prepare a Certificate of Incorporation document that officially establishes the LLC and file it with the Delaware Division of Corporations.

The most important information to include in this certificate is your name, principal place of business including city and postal code, name and address of the registered agent (optional but recommended for clarity).

Filing online, mailing, or hand-delivering to the Division of Corporations can also work if you want to send them your Certificate Of Formation. Filing online often results in a faster processing time than other filing methods.

Application fees

The non-refundable application fee for a certificate of incorporation is $90 plus additional costs that may change over time.

STEP 4: CREATE AN OPERATING AGREEMENT

What is an operating agreement?

The operating agreement is a key document that explains the management structure and operating systems of your LLC. It covers the roles of members and managers, how profits and losses are shared, how decisions are made, and how to add or replace a member.

Is this required?

While not mandatory in Delaware, an operating agreement is usually highly recommended. It clarifies operations, sets expectations among members, and can help prevent future disputes.

STEP 5: GET EIN

What is EIN?

An Employer Identification Number (EIN) is a special number issued by the IRS for tax purposes. It works like a business version of a Social Security number and is used in a variety of business activities.

How to Get an EIN

File online at the IRS website – the process is simple and efficient.

Alternatively, Form SS-4 can be mailed or faxed if you prefer the traditional method of filing or if you wish to apply for an international EIN.

Step 6: Comply with Delaware’s Annual Franchise Tax Requirements

What is the annual franchise tax?

Every Delaware LLC must pay an annual franchise tax, which is treated as a payment for the right to do business in the state.

Submission and payment

This tax is a flat fee of $300 (subject to change), making it relatively lower compared to other states. This makes Delaware a favorable place for businesses.

To avoid penalties, remember to file and pay your franchise tax by June 1st each year. Remind yourself to do so so you don’t forget.

Step 7 (Optional): Register for State Taxes and Licenses

State taxes

If your LLC plans to sell goods or hire employees, there may be requirements to register to pay applicable state taxes, such as sales tax. This step ensures compliance with state tax laws and avoids any legal issues.

Business Licenses

Depending on the type of business you are running and where it is located, specific local or state business licenses may be required. It is important to check with the Delaware Division of Revenue as well as your local jurisdiction to determine what licenses/permits are required.

Why Choose Delaware as Your LLC Home?

When entrepreneurs think about forming an LLC (Limited Liability Company), one name often stands out – Delaware. Here’s why:

Business-friendly legal framework

Strong legal protection

One reason many people choose Delaware to form their businesses is that it has a well-developed legal framework that provides strong protections for owners. The Court of Chancery, in particular, has a reputation for expertise in business law, which can lead to faster case resolution times, clearer precedents, and reduced liability risk for your LLC.

Management flexibility

Delaware LLCs offer a lot of flexibility in management. You can have member-managed or manager-managed structures. Additionally, Delaware law allows for custom operating agreements that can be tailored to your company’s specific needs and goals.

Favorable tax structure

No state income tax for Delaware corporations

The state has no corporate income tax for companies operating outside of Delaware. This feature results in significant tax savings that attract many entrepreneurs.

No sales tax

Another advantage is that Delaware does not charge sales tax. This is very beneficial if you intend to sell products or services through your LLC.

Privacy benefits

Owner anonymity

Unlike many other states, Delaware incorporation documents do not have to include the names of LLC members. This adds an extra layer of protection for business owners who want to remain private when it comes to the public eye.

National and international reputation

Business credibility

There’s a certain prestige to having an LLC in Delaware; more than half of all U.S. public companies and 63% of the Fortune 500 are headquartered there. As such, this reputation can lend credibility to your business both domestically and internationally.

Simplified process

Easy to install and maintain

Delaware has a simple process for forming an LLC; it offers online filing options, among other things, that make things easier. Other than paying a modest franchise tax and filing an annual report, annual maintenance is relatively easy compared to other states.

Speed ​​and efficiency

A Delaware LLC can be formed very quickly, sometimes within 24 hours. For entrepreneurs who want to get started without any delays, this is a huge advantage.

Access to venture capital

Drawing investors

Many venture capitalists and investors prefer to work with Delaware entities because of the favorable legal environment. If you are looking to raise capital, becoming a Delaware LLC can make your company more attractive to potential investors.

Application

There are various important steps that need to be taken when forming an LLC in Delaware, such as choosing a name, appointing a registered agent, and more. By using this comprehensive guide, you will be in the right position to properly form your LLC in Delaware and prepare for the competition in the marketplace.