How to form an LLC in Delaware
Delaware is one of the best places for starting a company. After most pandemic-related restrictions were lifted, the state saw an unprecedented recovery, with thousands of limited liability companies (LLCs) launched in a short period. These organizations now enjoy tremendous benefits, such as limited liability protection and minimal startup requirements.
There’s no reason you should miss out on the perks if you want to set up an LLC of your own. Keep reading for our in-depth tutorial on how to form an LLC in Delaware.
- Forming a Delaware LLC provides limited liability protection and flexibility in management structure.
- The main steps to launch a Delaware LLC are filing formation documents, appointing a registered agent, and obtaining an EIN.
- Block Advisors Business Formation can simplify the process of starting a Delaware LLC.
Get limited liability protection with a Delaware LLC
What is an LLC?
An LLC, or limited liability company, is a business structure consisting of one or multiple business owners, also known as members. Its main feature is in its name — limited liability. In simple terms, members may be protected from personal liability for business debts and claims.
For instance, if the organization can’t repay a bank or another lender, the lender generally won’t be able to go after the owners’ personal assets unless specific circumstances apply, such as if the owners personally guaranteed the debt. Only the property owned by the enterprise is at stake in many cases.
Another characteristic of LLCs is pass-through taxation— all the income the business generates is passed through to its members for income tax purposes. Each member is allocated their share of income that they then report on their personal returns. It’s important to note that LLCs get to choose how they are taxed, so if pass-through taxation isn’t advantageous, the LLC can elect to be taxed differently.
Whether you live in Delaware, plan to move there, or are interested in setting up an LLC in another state, a Delaware LLC formation may make a lot of sense. Here are some of the benefits of setting up a Delaware LLC, some of which may not apply in other states:
Delaware doesn’t restrict you to just one LLC management structure. You (and your members) can choose to manage your company yourself or outsource the job to professional managers.
Another great thing about launching an LLC in Delaware is the ability to create a series LLC. A series LLC is a business entity with multiple LLCs in its structure, as permitted by the Delaware Secretary of State. You can establish different owners for each series.
A key selling point of starting a Delaware LLC is that you can take steps to protect your personal assets from company debts or lawsuits. In many cases, creditors only have the ability to go after the property owned by your organization, leaving your personal possessions intact. It’s important to note that limited liability protection is a benefit of forming an LLC in other states; this is not unique to Delaware.
Unlike many states, the Delaware Chancery Court uses experienced judges, not juries, to resolve business disputes under a well-established legal framework. This not only allows legal disputes to be resolved more quickly but provides more informed and predictable outcomes for business disputes.
When setting up an LLC, some states require you to publicly disclose personal information, such as your name and street address. That’s not the case in Delaware. When submitting your articles of formation, only your LLC business name and registered agent information is publicly disclosed.
It’s important to note that while Delaware doesn’t collect this information, beginning in 2024, FinCEN will be collecting owner information in accordance with the Corporate Transparency Act, though disclosure of this information will be limited.
How to start a Delaware LLC
Starting a Delaware LLC involves choosing and reserving your business name, filing your certificate of formation, designating your registered agent, and obtaining an EIN. While the process may seem daunting, forming an LLC in Delaware provides unparalleled benefits that make the effort worthwhile.
To ensure your LLC startup goes smoothly, consider enlisting the help of a service like Block Advisors Business Formation that can guide you through each requirement. With the right guidance, you can have your Delaware LLC up and running quickly. However, if you prefer a DIY approach to your LLC, here is an overview of the process.
Whether you want to establish a multi or single-member LLC, the first thing on your schedule should be to come up with a company name. After all, you need something that strikes a chord with your target audience from the get-go. Keep the following tips in mind when naming your enterprise:
- The business name of your LLC should be relevant to your identity and target market
- Your LLC name should be catchy and memorable
- The name should be easy to spell, allowing people to find your company faster
After coming up with a creative name, does this mean your work in that department is done? No — Delaware naming conventions are also at play:
- Your entity name must contain the terms limited liability company, limited company, or an abbreviation like LLC. It can’t include corporation, incorporated, or other terms that may make others believe you’re a corporation
- Your new business name must not contain the name of a bank or any banking-related wording the Delaware Banking Commissioner hasn’t approved
- Your LLC name application should contain a translation of any non-English words
Since the state of Delaware has all these regulations, it must have a way of checking name availability, right? It does, and you can find it on the Division of Corporations website. Simply choose the type of organization you’re setting up (LLC, in this case) and enter the desired name.
The name search tool will tell you if any other organization is using the name. If not, you should be able to use your desired entity name.
If you’re not quite ready to set up your LLC, you can opt to reserve the business name right away. A name reservation keeps other organizations from using your desired name. Reserving your name with the Delaware Division of Corporations is simple:
- Download and complete the name reservation form
- Submit the reservation to the address in the upper part of your cover memo
Delaware Division of Corporations
401 Federal Street — Suite 4
Dover, DE 19901
- Pay a $75 state filing fee.
You may also choose to file a fictitious or doing-business-as (DBA) name. Also known as a trade or assumed name, it’s a pseudonym different from the official name used in your articles of organization.
A DBA is beneficial for several reasons:
- Provides flexibility: Operate under a different name while maintaining the entity structure.
- Simplifies branding: Create a distinct and memorable brand name without formal entity changes.
The procedure to file for a DBA in Delaware is also straightforward:
- Download and fill out the Registration of Trade, Business & Fictitious Name Certificate form.
- Send the form to your county clerk.
- Pay $25 per name in each county you wish to register.
All that remains now is to wait. The state will take some time to process your request and approve your business and trade names.
Once your Delaware LLC name is good to go, the next step is to submit your Certificate of Formation. When launching an LLC, the Delaware Division of Corporations requires you to file a Certificate of Formation, which is just another name for Articles of Organization.
There are two ways to file your Certificate of Formation. If you prefer the online method, visit this Delaware government website and create a One Stop account. Head to your filing documents, choose “Certificate of Formation,” and follow the on-screen instructions to fill out and submit the paperwork.
Another option is to mail your Certificate of Formation:
- Download and fill out the Certificate of Formation.
- Send the document to:
Delaware Division of Corporations
401 Federal Street — Suite 4
Dover, DE 19901
- Include the $200 fee if you’re a foreign LLC or a $90 fee if you’re a home state (domestic) LLC.
If you opt for the second option, be sure to only use the official form. Other, unauthorized documents may require unnecessary information for malicious purposes. To avoid this risk, check if your Certificate of Formation only has these details:
- Name of your LLC
- Your registered office street address
- City and Zip code
- Name of your registered agent
Notice that we mentioned “registered agent” as part of your Certificate of Formation. What is this role, and what are the responsibilities of the person fulfilling it?
In simple terms, a registered agent of your Delaware LLC is the person who receives service of process on your behalf. The Division of Corporations mandates your LLC (and other organizations) to appoint one, whether multi-member or single-member LLC.
A registered agent can have a variety of duties:
- Accepting service of process
- Serving as the point of contact for the state of Delaware
- Receiving state tax reminders, including annual franchise tax, income tax, sales tax, and gross receipt tax notifications
- Receiving state and federal tax forms and other documents (e.g., legal action notices)
When you look at these responsibilities, you may think: “That’s easy. I can do all that on my own.” However, keep in mind that a registered agent must be available for official correspondence during regular business hours, all year long, and must publicly disclose their name and address. If your business keeps you away from your business location frequently, if you don’t want to publicly disclose your name and address, or you don’t want to receive official documents at your business location (to maintain privacy or avoid disruption for example), it will be challenging to be your own registered agent.
For many business owners, a registered agent service is a great alternative. A third-party registered agent can take on the work for you, which offers many benefits:
- Staying present during regular business hours, so you don’t have to
- Receiving sensitive files privately
- Keeping your private information away from prying eyes
While Delaware doesn’t formally require one, your business’s Operating Agreement is just as important as any other paper you may produce during the lifespan of your LLC. According to the U.S. Small Business Administration, it helps provide limited liability protection by clearly stating that you’re an LLC. It also delegates responsibilities, so that all members understand their duties from day one.
The basic elements of an LLC Operating Agreement include:
- Organization — Your ownership structure, purpose, members, and date of establishment
- Management — Rights and voting power to which each member is entitled
- Capital — The money contributed to the company by each entrepreneur
- Distributions — How profits are distributed to your members
- Membership changes and dissolution — The way you change members and dissolve the organization
- Taxation—How the LLC chooses to be taxed for federal and state purposes.
In most cases, your Delaware LLC can’t receive a business license without meeting specific requirements, one of which is obtaining an EIN. An EIN for your LLC is there for gross receipt taxes and other tax purposes, serving as the IRS identification number that allows this organization to recognize you when you pay your LLC taxes.
To apply for an EIN, simply visit the IRS online platform. Follow the provided instructions to submit your EIN request.
Setting up a Delaware business may take a while, but the effort is well worth it. Once your organization is underway, you can benefit from limited liability protection as well as unmatched flexibility and easier compliance.
Block Advisors Business Formation can help you get started quickly, usually in just 10 minutes. You give us the information we need and we’ll prepare your documents and make filing easy so you focus on running your business.
Navigating your options
As you think through your options, it’s important to consider your personal situation and the needs of your business. This article is intended to be informative, but it is not legal advice or a substitute for legal advice. A business attorney can help you understand your specific circumstances and guide your decisions. Likewise, the Delaware Division of Corporations offers resources for small business owners, including online information that may help you decide on the best options – and possible requirements – for your specific circumstances.
Forming an LLC in Delaware? We’ve got you covered
Delaware has a well-established legal framework that can lead to fast and reliable court dispute resolution. Like other states, Delaware also offers limited liability protection.
The cost of setting up a Delaware limited liability company depends on the size of the company you want to start, location, and many other factors. There are also filing fees, ranging from $50 to $200, depending on the documents you’re submitting.
Unlike sole proprietorships and partnerships, Delaware LLCs allow you to separate personal assets from business assets while also letting you choose the most suitable management structure.
One of the biggest difference is that C corporations raise capital by selling stock shares, whereas LLCs have no stock. Members raise capital by bringing in a certain amount of money. Management structure guidelines, tax treatment, and required business formalities are also key differences.
You need a suitable company name, registered agent, and business formation documents. After registration, you’ll need to get an EIN.
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