Delaware has a well-established reputation as an attractive state in which to set up a business.
This is in large part due to a favorable business climate that provides businesses with liability and asset protection. No wonder, more than 66% of the Fortune 500 have chosen Delaware as their home state for their business.
To set up a Delaware Limited Liability Company (LLC), follow our four steps as explained below.
How to Form a Delaware LLC
1. Choose a Name for Your Delaware LLC
To get started, choose a unique name for your Delaware LLC. Head over to the Delaware State website and make sure the name you’ve chosen is available. Keep in mind that the business name must contain the term “Limited Liability Company,” either spelled out or in abbreviated form as LLC or L.L.C.
The LLC naming can include the following:
- Any combination of capital and lowercase letters, including an uppercase letter in the body of the name. For example, "AwesomeBuys LLC."
- Numbers as well as letters. For example, "10 Angels LLC."
- Any of the following words in their entirety or in an abbreviated form: company, association, club, foundation, fund, institute, society, union, syndicate, limited or trust.
- Your name or the name of other LLC members.
- If the name contains any non-English words, a translation must be submitted along with the application for filing the formation.
Also, the name you choose cannot contain words that might cause your business to be confused with a government agency (such as the FBI, the CIA, or the State Department).
Additional paperwork might be required for the following:
- If you include words whose meaning is legally restricted such as bank or university.
- Words the Delaware Secretary of State deems lewd, racist, or objectionable.
- Your LLC includes a licensed individual such as a professor or doctor.
You can reserve a name for 120 days for a fee of $75. Reservations are made on the Delaware Division of Corporations website.
2. File a Certificate of Formation
The Certificate of Formation is the document that, once approved, creates your Delaware LLC. You’ll have to file a Certificate of Formation of Limited Liability with the Delaware Division of Corporations. This can be done by mail or in person.
In order to file, you must include a cover sheet and a check or credit card number to pay the filing fee. In the cover sheet you also need to provide your information (business name, address, etc.) but don’t fill in the account number field unless you actually have one. You also need to enter the name of the entity and its file number (if you have it), and to choose the type(s) of certificate requests you are filing. Here are instructions on filing a cover sheet.
This is a one-time fee of $90, for regular processing. If you want to speed up the process, you can pay the expedited fee of $100 for same-day filing or $50 for 24-hour filing. Consult the schedule of fees for the current filing fees. The approval time is typically one week, but it could take up to three or four weeks depending on whether the State’s office is busy.
The Certificate of Formation must include:
- The name of the LLC.
- The name and address of the registered agent.
- The name and signature of a person authorized to form the LLC.
If you need further assistance in completing the Certificate of Formation you can read our article on the 6 Steps To Prepare A Certificate of Formation for a Delaware LLC.
After you file, the State will send you the LLC approval document that includes a copy of your Certificate of Formation with a receipt.
3. Select a Registered Agent
In order to operate in the state, every Delaware LLC must have a registered agent for service of process or the delivery of legal documents, such as lawsuits or subpoenas. A registered agent is an individual or business that consents to accept legal papers on an LLC’s behalf if that LLC faces a lawsuit. Your registered agent must have a physical street address in Delaware, which means that PO boxes are not allowed.
Can You Form a Delaware LLC If You Are Out of State?
Are you wondering if you can form a company in Delaware even if you live in a different state or country?
The answer is yes. An individual doesn’t actually have to live in-state to set up a business in Delaware. The only requirement is that your Delaware LLC must have a registered agent in the state.
Please note that if you wish to set up a Delaware LLC, but you are operating in another state (ie. your headquarters is in another state), you’ll most likely need to register your Delaware LLC as a “foreign LLC” in that state. There are additional costs that come with this process. This includes filing a foreign LLC registration and paying the state filing fee. You will then have to make sure that your foreign LLC is in compliance with that state’s law.
Still not sure if you are doing business out of state? Find out more here.
4. Things to Do After Forming Your Delaware LLC
Once you’ve formed an LLC in Delaware, you should be aware of the maintenance fees associated with operating a business in the state of Delaware.
All LLCs, domestic (those registered in Delaware) and foreign (those that are registered in another state, but that provide products and/or services in Delaware), must pay the annual franchise tax, which amounts to $300 annually regardless of your level of income and business activity. This is a requirement to keep your company in compliance.
Delaware LLCs do not file annual reports. Instead, LLCs operating in Delaware are required to file an annual tax. Notices are sent to the registered agents every year. We recommend you set a calendar reminder because there is a $200 penalty fee for late and non-payments and 1.5% interest is accrued for every month that tax isn’t paid.
You must pay this tax by June 1st of each year. Your first payment is due the calendar year following the year that your LLC was approved. For example, if your LLC was approved on February 5th, 2017 then your first annual franchise tax payment of $300 will be due on June 1st, 2018. You can pay this tax online at the Delaware Division of Corporations.
Depending on the industry and business, additional tax and regulatory requirements may apply to your LLC, which may include:
- EIN: You must obtain an Employer Identification Number (EIN) by completing an online application on the IRS website. There is no filing fee. If you need assistance, you can take a look at our article on the 4 ways to apply for an EIN.
- Business Licenses: Your LLC may need to obtain other local and state business licenses. The easiest way to get all the necessary authorization is through the Delaware One-Stop Business Licensing and Registration Service.
- Sales Tax: Delaware does not have state sales tax.
- Gross Receipts Tax: This refers to the total amount received from the sale of goods or services sold by the business from within Delaware. Depending on your location and who you’re selling to, you may or may not be subject to this tax. For more information, head over to the Delaware Department of Revenue website.
Is Forming a Delaware LLC the Right Choice For You?
Overall, a Delaware LLC has minimal setup requirements, protects your privacy, simple to run, and is cost-effective.
The main highlight is while all LLCs provide liability protection to their business owners, Delaware takes this form of asset protection one step further. The state protects the LLC from the creditors of its members. This means that if a judgement is filed against a member of the company, the creditor cannot acquire any part of the business’s assets. As a result, many startups create an LLC in Delaware to protect their assets from litigation.
Other benefits Delaware provides are tax benefits to businesses that do business out of state. These benefits include, but are not limited to:
- No sales tax, provided the LLC doesn’t do business in the state. This makes it convenient for online businesses to maintain a competitive edge in the e-commerce space because they don’t need to collect taxes from customers.
- No tax on intangible personal property such as trademark royalties. Therefore, Delaware is an ideal choice for businesses that deal with intellectual property.
- No taxes on capital shares or stock transfer. This is particularly beneficial to startups that are anticipating venture funding.
In conclusion, opening a Delaware LLC is one of the best solutions available if you are seeking to establish a startup with all the above benefits in mind.
Do You Need A Registered Agent?
Before you can form a LLC in Delaware a registered agent is required. You’re required to designate an in-state registered agent when you form your company and in each additional state in which you are doing business. Maintaining a registered agent in the state in which you formed and in each state where your company is conducting business is an ongoing requirement.
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