Delaware is the leading destination for starting LLCs in the US. The reason companies select Delaware is that the state offers an outstanding environment for conducting operations. You get the same tax advantages and asset protection as corporations. At the same time, operating an LLC is often simpler and more flexible.
But starting a Delaware LLC can be tricky, especially if you’re establishing your first company and not fully aware of state law. To help you set up your business faster, we’ve come up with a guide on how to set up an LLC in Delaware. We’ll also go through the most significant benefits available to the owner.
How Does Setting Up an LLC in Delaware Work?
This is what you need to do to start a Delaware LLC:
Name Your Business
Selecting a name for your company is the first step in starting an LLC. Make sure that the name adheres to the state’s naming requirements and that potential clients can easily find it.
As for the specific demands in this state, the main one is that your company’s name must contain the abbreviation ‘LLC’ or the full phrase ‘limited liability company.’ Moreover, the name can’t include words that may make it easy to confuse your business with government agencies (State Department, Treasury, FBI, etc.). Finally, it must be distinct from other limited liability companies, partnerships, limited partnerships, and corporations.
Choose an Entity Type
When selecting your entity, the best bet is to reach out to a certified public accountant or company formation attorney familiar with the state law to receive sound advice on the type that best fits your needs.
Get Your Registered Agent
Delaware law obligates companies to have a Registered Agent. This person may be a business entity or individual resident authorized to conduct business in the state. Also, your agent’s address must be in Delaware.
Reserve Your Name
While this isn’t mandatory, reserving your company name guarantees that it’s held on your behalf for up to 120 days. If you want to register an LLC in Delaware online, it may be a good idea to reserve your name on the internet, too. The fee for this is $75.
File an LLC Certificate
Also known as a Certificate of Formation, you’ll need to file this with the Delaware Department of State in person or by mail.
LLC certificates are legal documents that officially form a business. When filling one, you’ll need to enter your LLC’s name, registered agent, the services offered, and pay the filing fee.
Obtain a Certificate of Good Standing
Some institutions may require you to provide a certificate of good standing or a copy of your entity filing. To determine whether you need this or additional details to set up your business account, check with the relevant financial institution.
Create an Operating Agreement
This is another procedure that’s not obligatory, but creating an LLC operating agreement is highly recommended. Operating agreements are legal documents that specify the operating procedures and ownership of an LLC. They are important because they ensure that all the owners are in agreement and lower the risk of conflict.
Get Your LLC Employer Identification Number (EIN)
The EIN is a nine-digit number assigned by the IRS to facilitate the identification of businesses for taxation purposes. Basically, this is the Social Security number for companies. It’s also known as Federal Tax Identification Number (FTIN) or Federal Employer Identification Number (FEIN).
Companies need an EIN to open business bank accounts, hire employees, and file state and federal taxes. If your sole proprietorship already has an EIN, the IRS mandates that you obtain a new one when you’re converting it to an LLC. You can get it for free by mail or online with the IRS.
Open Your Business Account
Once you’re formed your entity, you should set up a checking account for your business. This is how you’ll separate personal from the company’s assets, ensuring asset protection. Furthermore, having a business account makes tax filing and accounting much easier.
What Are the Benefits of Filing an LLC in Delaware?
There are many reasons filing an LLC in Delaware is popular among Americans. Here are the advantages on offer:
Few Legal Formalities
The greatest benefit of setting up a Delaware LLC may be that the state mandates little maintenance. As a result, the state is considered friendly to small businesses.
Delaware LLCs don’t have to issue an annual report. But they are subject to a $300 annual tax due June 1 in-person or online. In addition, there are fewer administrative formalities and less paperwork than a corporation. An LLC doesn’t have to schedule annual board of directors or shareholders meetings. All in all, LLCs are generally simpler entities.
Starting Your Business Is Secure and Straightforward
Setting up an LLC in Delaware is far simpler than in any other state. According to the Division of Corporations, the formation documents require a tiny bit of information. This expedites the creation and helps keep your personal information and identity secure. Given that forming a Delaware LLC doesn’t require the owner to supply most of their personal details, their identity won’t show up in public records.
If you hire a trusted registered agent, the only contact information that can be easily obtained from the formation document will be the agent’s address. You can get as much privacy protection as sanctioned by law.
Additionally, don’t forget that LLCs in Delaware don’t need annual reports. This means that even after forming your LLC, your personal details will still be secure.
Robust Business Laws
Another attractive feature of starting your Delaware LLC is that the state offers the most comprehensive business laws anywhere in the country. Owing to Delaware’s famous history as the spearhead of the nation’s business law and company formation, its legal statutes and codes are a subject matter at numerous law schools in the US.
The state even has a court specifically organized for businesses. It’s known as the Court of Chancery and highly esteemed because cases are resolved before expert judges, instead of juries. Therefore, any litigation you’re involved in likely has precedents at the court, so businesses will know whether to settle or fight their lawsuits. This knowledge is especially useful for companies subject to frequent litigation since it saves a lot of time and money.
Delaware is widely regarded as the state most conducive to growing a business. A major reason for this is the tax exemptions. Namely, Delaware continuously tries to foster a favorable business environment and provides advantages not found in many other states.
For instance, Delaware doesn’t impose taxes on intangible properties (like trademark and patent leases), making the state an attractive destination for forming companies. The state also incentivizes LLCs started in Delaware but don’t conduct business in this state. If your LLC doesn’t operate in Delaware, you have no income tax liability.
No Double Taxation
Setting up an LLC in Delaware gives you access to flexible taxation solutions. For example, you can elect the pass-through taxation as a C corporation or an S corporation. By default, Delaware corporations are taxed as C corps. However, this structure doesn’t work for most small businesses since C corp profits are subject to double taxation (filing personal and corporate income tax returns).
Fortunately, LLCs in Delaware (or any other state) aren’t taxed this way. Instead, they pass profits to the members of the company directly and taxes are levied only once as personal income.
There’s still the option to choose the C or S corp taxation structure if the members of your LLC agree. As a result, you have a lot of flexibility in terms of taxation.
No Need for a Business License
According to the state’s code, if your LLC doesn’t do business in Delaware, you’re not obligated to get a business license. Also, you don’t have to pay gross receipts taxes and register with the Delaware Department of Revenue.
Embark on Your Business Journey
Considering all the benefits of registering a business in Delaware, establishing your company there could be the first step to a successful organization. The business atmosphere in the state is remarkable and the legal system comprises the finest experts in these matters. Plus, there’s no overwhelming red tape that can cripple your business.
So, don’t hesitate for a second to get your Delaware LLC underway. You’re now well-familiar with the process, reducing the risk of unpleasant surprises down the line.