Delaware is one of the most prominent States of the United States of America (USA) thanks to its established business codes and statutes.
A limited liability company (LLC) is a way to legally structure a business. It combines the limited liability of a corporation with the flexibility and the absence of formalities provided by a partnership or sole proprietorship.
Why form an LLC in Delaware?
Delaware is often considered one of the best states to form an LLC because it has limited fees and tax obligations. As a matter of fact, many businesses choose to form an LLC in Delaware even if they don’t intend on doing business in Delaware. In fact, if you don’t intend on doing business in Delaware, Delaware doesn’t require you to obtain a business license nor does it require that you pay income or gross receipt taxes. Additionally, Delaware does not tax intangible income, and LLC formation is relatively low-maintenance in comparison to other states.
Benefits of an LLC in Delaware
- No sales tax.
- No state income tax or gross receipt taxes for LLCs who don’t precisely do business in Delaware.
- No annual report filing.
- Business license not required for LLCs who don’t actually do business in Delaware.
- Simple LLC formation document and filing process, which also limits exposure of personal data.
- Limited LLC naming restrictions.
- Limited registered agent restrictions. Businesses can also serve as their own registered agent.
There are also the traditional benefits of starting an LLC in Delaware, as opposed to starting another entity type. LLCs offer their members personal liability protection, they have very few reporting requirements, and they avoid the double taxation that C-corporations face. In addition, LLCs have the option to select how they’d like to be taxed.
Steps to forming an LLC in Delaware.
Choose a Name for Your Delaware LLC
Your LLC’s name must not be similar to the names of other business entities currently on file with the Delaware Secretary of State. Names may be checked for availability by searching the Department of State- Division of Corporation’s business name database.
Under Delaware law, an LLC name must contain the words, Limited Liability Company, or the abbreviation L.L.C. Furthermore, An available name may be reserved for 120 days by paying a $75 fee.
Appoint a Registered Agent
Every Delaware LLC must have an agent for service of process in the state. This is an individual or business entity that agrees to accept legal papers on the LLC’s behalf if it is sued. If the LLC is physically situated in Delaware, it may act as its own registered agent. The registered agent may be either an individual resident or a business entity that is authorized to do business in Delaware. The registered agent must have a physical street address in Delaware.
File a Certificate of Formation
A Delaware LLC is established by filing either by mail or by fax a Certificate of Formation of Limited Liability Company with the Delaware Division of Corporations.
The Certificate Of Formation must include, the LLC’s name, the name and address of the LLC’s registered agent, and a signature of an authorized person (the organizer or person authorized by the organizer). The filing fee for a Certificate of Formation in Delaware is $90.
Prepare an Operating Agreement
An LLC operating agreement is an internal document that specifies how your LLC will be run. It sets out the rights and responsibilities of the members and managers, including how the LLC will be governed. It can also help maintain your limited liability by showing that your LLC is truly a separate business entity. In the absence of an operating agreement, state LLC law will govern how your LLC operates. An LLC operating agreement is not required in Delaware but is highly recommended.
Obtain an EIN
If your LLC has more than one member, it must acquire its own IRS Employer Identification Number (EIN), even if it has no employees. If you form a one-member LLC, you must obtain an EIN for it provided that it will have representatives. You may obtain an EIN by completing an online application on the IRS website. There is no filing fee.
Pay an alternative entity tax
Delaware LLCs must pay an alternative entity tax, sometimes called an annual tax, yearly. The tax is $300 and is usually due on June 1 every year.
Unlike most states, Delaware does not require LLCs to file annual reports, and Registering your LLC gives you a legal foundation to conduct business.
Per the steps outlined above, starting an LLC in Delaware is a fairly quick and straightforward process. However, if you want to register your LLC in Delaware, contact your Damalion expert now.
