Forming a Delaware LLC is a popular choice for entrepreneurs and businesses across the U.S. and internationally due to Delaware’s favorable legal framework, business-friendly court system, and flexibility for LLC structures. The process of forming a Delaware LLC can be straightforward if you understand the essential steps and requirements. Here’s what you need to know to get started.
Why Choose Delaware for Your LLC?
Delaware is renowned for its pro-business laws, particularly for LLCs, which offer flexibility in management, ownership, and tax structures. Delaware’s Chancery Court, specializing in business law, makes legal proceedings more efficient by focusing on corporate matters without jury involvement. Additionally, Delaware LLCs do not need to pay state income tax if they do not conduct business within Delaware, a major perk for many out-of-state companies. The privacy afforded to LLC owner’s members is another benefit, as Delaware does not require names to be listed in formation documents.
Steps to Forming Your Delaware LLC
Choose a Name for Your LLC: Your LLC’s name must be unique and distinguishable from other business entities registered in Delaware. You can search the availability of your desired name on the Delaware Secretary of State’s website. Also, the name must include LLC, L.L.C., or Limited Liability Company to comply with state law.
Appoint a Registered Agent: Every Delaware LLC is required to have a registered agent, who is responsible for receiving legal documents on behalf of your LLC. This agent must be physically located in Delaware. You can either appoint a professional registered agent service or an individual with a Delaware address. Many businesses opt for professional services, especially if they are not physically located in the state.
File the Certificate of Formation: The Certificate of Formation is the official document that creates your LLC in Delaware. You can file it online or by mail with the Delaware Division of Corporations. The filing fee is currently 90, and the document requires basic information such as your LLC’s name and the registered agent’s details. Unlike in many states, Delaware’s formation document does not require you to list the LLC’s members or managers.
Create an Operating Agreement: While Delaware does not require LLCs to have an operating agreement, it is highly recommended to create one. This internal document outlines the structure, roles, and responsibilities of the LLC’s members and managers, as well as how profits, losses, and ownership stakes will be distributed. It provides a clear roadmap for managing the company and can prevent conflicts down the line.
Obtain an EIN Employer Identification Number: If your LLC has more than one member or hires employees, you will need an EIN from the IRS for tax purposes. Even if it is a single-member LLC, obtaining an EIN is still advisable as it separates your personal and business finances, making tax filing easier.
Comply with Delaware’s Annual Franchise Tax: All Delaware LLCs must pay an annual franchise tax of 300, regardless of business activity or income. The tax is due by June 1 each year, and failing to pay on time can result in penalties or loss of good standing.