Delaware LLC – How to Form an LLC in Delaware

Starting a Delaware LLC is the right decision for any start-up. With a favourable work environment and diverse tax benefits, it is cost-effective to start any business here. Those who are newly setting up their business must know about the procedural steps to start a Delaware LLC.

delaware llc

By following the steps below, one can easily form an LLC. However, it is recommended to seek help from professional services to start your LLC in Delaware to handle financial statements and other legal documents. Meanwhile, if you are thinking of setting up an LLC in another state, then do check out Start My LLC

How to Start an LLC in Delaware

The following guide is simple but essential for all entrepreneurs, especially for start-ups. All these procedures are to be followed according to the state’s government guidelines. Make sure to be careful while moving forward with the steps.

Step 1: Decide a Name for Your LLC

The first step in your application for an LLC is to decide the name you want to give to your LLC. You have to choose a name that should be related to your business and should also be approved under the state government’s naming norms.

You should check the name you are thinking of giving to your LLC on the Secretary of State online services website or visit the Business Entity Search to check the name’s availability through the list of names. 

Here are some of the pro tips that will help you keep a name that will help you grow.

  • You should keep the name simple and try not to add some difficult words to the name. It can confuse the audience, and they won’t remember your name for a longer period.
  • There are some words like bank, attorney, and university, which you should avoid if not required. This is because such names are going to require an extra set of paperwork through a lawyer.
  • The name should also be available for making a website as you should keep the name of your business the same everywhere. Check if the name is still available for use with NameCheap and for web hosting, which is best to get now, check out Kinsta, and Google Suite, for your professional email account. 

For more requirements on naming your LLC, see other requirements.

Step 2: Assign a Registered Agent in Delaware

After you have decided the name, you must choose a registered agent in Delaware. The agent is going to work on your behalf. Agents are professionals and can be a person or a business entity. They will be responsible for receiving all documents. The documents consist of the tax forms, lawsuit notices, legal documents, and internal documents on their registered office in Delaware.

Some of the professional service providers that can be your agent and also, are able to handle all your official notices are:

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The best LLC services that would help you ease into operating an LLC or even other business structures in Delaware. From handling business license searches and filing to tracking upcoming filing deadlines and acquiring business insurance or professional liability insurance, an agent will answer all your questions and conduct all activities you need to set up your LLC. 

It would be so much time saved on your end if you avail of a registered agent’s service. You will have more time to focus on other business matters, not to mention you are guaranteed to meet every state requirement as you have experts handling everything. 

Step 3: File Certificate of Formation in Delaware

The certificate of formation is the legal document that you are required to start your LLC in Delaware. It establishes the type of LLC you are setting up, if member-managed or managers-managed.

Before you file the formation document, you need to attach documents such as name registration certificate, registered agent’s details, and/or employees’ details. The filing fee one has to pay is $90. 

Online Filing:

NOTE: But in some states, you are not allowed to fill the online form. For such people, there is a second option of sending the form through the mail.

File by Mail:

  • Download the original form from the Delaware Limited Company Certificate of Formation site.
  • Fill out the form and send it through an email to the Secretary of State Office or county judge’s judge.
  • With this form, the legal document to be attached will be the above-mentioned formation documents along with your cheque.

Mailing Address:
Delaware Division of Corporations
401 Federal St.
Suite 4
Dover, DE 19901

More Certification of Formation filing requirements in Delaware is mentioned below.

Step 4: Create Your Delaware LLC Operating Agreement

There are some major outlines and rules, regulations, and powers of attorney that become the LLC’s foundation. All of these rules and operational procedures are mentioned in the liability operating agreement. Also, when the agreement is formed, all the LLC members should agree with these rules. It will ensure that the limited liability company works smoothly and every person related to the company is on the same page.

If you want to start an LLC in Delaware, it is not required legally to form a limited liability operating agreement. But if you want to save your business from any future conflict, it is advised that you should make this effective operating agreement.

Step 5: Filing a Delaware LLC EIN

The E.I.N. is also known as the Employer Identification Number, which Internal Revenue Service provides. It is a nine-digit unique number given to businesses, and it is for tax purposes. When you are filing your limited liability company’s taxes, you need this number for the government official and taxation agencies; this is your identity.

You can file for the EIN online through the Delaware Internal Revenue Service website under Register an Entity section. Why do you need an EIN? The EIN will help you contact a business bank and will help you process your bank application.

Mail to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Fax: (855) 641-6935

To know more details about the documents required, you should jump to the ‘requirement section‘ below. 

Why Set Up an LLC in Delaware?

What is an LLC in the first place? It is a type of business that protects you and your assets from issues like debts.

When you want to form an LLC in Delaware, you look for the benefit of doing so. Here is the list of top benefits of incorporating a Delaware LLC.

Various Tax Exemptions

When you plan to go to Delaware for starting your LLC, then you are enabling your company for different tax benefits. They are mentioned below.

  •  There is no local and state sales tax that a businessman needs to pay for making a sale in the state. 
  • If a person has brought personal property then it will not be taxed. 
  • If you have inherited a business from your ancestors then there will be no transfer tax. 
  • There are no value-added taxes imposed by the state. 
  • For holding an inventory an LLC owner doesn’t have to pay taxes in the state. 

Enterprise Zone Program

There are places in the Delaware state like Claymont, Wilmington, Dover, Milford, and Smyrna that are included in the special economic zones. They are the backward areas of the state, and the government is looking for options to develop them through the LLC incorporations. If you choose these areas, your business is given a tax credit of 100% for 3 years and 70% for the upcoming 7 years.

You can also get flexible loans with meager interest rates in these areas, which help in the better development of the LLC.

Pros of LLC

  • LLC does not have detailed formalities like minutes of shareholders’ and directors’ meetings like other corporations.
  • No restriction on LLC regarding the members and shareholders. One can structure the company as one are willing to.
  • Unlike corporations, the cash method of accounting is easy as LLCs don’t use the accrual method.
  • In an LLC, due to personal liability insurance, no shareholder and investor can possess the personal asset of the member.
  • Tax benefits such as unemployment insurance taxes on any coverage for employees, and have different tax classification options.

Cons of LLC

Cost of Incorporating an LLC in Delaware

From time to time, an LLC has to pay few costs if they want to run their business. Some costs that a businessman has to bear while the incorporation process is mentioned below.

  • First of all, you need to reserve the name of your choice for which you need to pay $75. After reservation of name, you can jump to other steps.
  • The next cost is for filing the articles of formation. The Secretary of State will charge $90 for this purpose.
  • Next is the cost of hiring an agent, which can be as low as $49. Check out the cost of top agents with their costs.

Top Businesses Operating in Delaware State

To start an LLC in Delaware it is important for anyone to have knowledge of the economy of the state. It will help you thrive better in the state. Here is the list of top businesses of the state and their contribution to the state economy.

Agriculture Businesses 

Being the top industry of Delaware the contribution of the agriculture businesses is around $8 billion to the economy. The total agricultural land in the state is 510,000 acres on which potatoes and peas are the most grown crops. The city of Philadelphia and Wilmington is a major source of milk production in the state also.  

Manufacturing Businesses

The contribution of the manufacturing businesses in the state is around $4.7 billion. The top products of the state are chemicals, bioscience, and food processing. Moreover, the manufacturing sector is supporting the export businesses of the state with around $4.4 billion in export in a year. 

Tourism Businesses

The tourism businesses in the state are flourishing at a considerable rate giving jobs to more than 170,000 people. Due to this, the state managed to have $3.3 billion in revenue, which is 5% more than the previous year. According to statistics, more than 9 million visitors have visited the state in the year 2018-19. 

Low-Investment Businesses in Delaware

Some of the best small investment businesses of the state are mentioned below in detail.

  • Tourism businesses
  • Tuition businesses·        
  • Charter School

Requirements for Setting up LLC in Delaware

When you are setting up your LLC in Delaware, then there are some basic requirements that you have to fulfill. They are mentioned below in detail.

LLC Name

First of all, you have to think of a name for your LLC. When you think of the final name, you should get it registered through Delaware state’s official web portal. Before finalizing the name, it would be better that you check the availability of the name and also that it is feasible for your business or not. It would help if you thought from the customer’s perspective that you would attract with such a name. 

Directors or members

When you start an LLC, you must be some people in your mind that you want to do work with as members. You should have the current list of all those members with their approval to be a part of your LLC venture. Some points that you must always have in your mind when working for the list of directors is:-

  • The LLC can be started with one or more than one member. There is no restriction on the business owners. 
  • It is not required for the member to have a permanent residence of Delaware to be a part of LLC. 
  • The minimum age of the member should be 19. 
  • The complete legal name and address of the member must be required for Articles of Incorporation. 

Formation Articles

The articles of formation should be ready when you are forming an LLC. In these articles; you should mention the details about the business services, the members who are going to be part of the business, and the profit division structure. The last one should be approved by every member so that there is no future conflict.

Along with that, there should be the agent certificate that you have appointed to help you with the step guide. The last thing that should be attached with the certificate of formation will be the services list. There must be some offering of your business which should be mentioned in detail.

Also, there should be a fixed value of stock required to be mentioned in articles of formation and the address of the registered agent mentioned below. While selecting the business agent, you should ask them to always be available during office hours or not because they have to handle all the legal and tax documents.

Delaware state’s demand is a bit different from the other states. Here the business entity needs to submit the form to the Judge of probate instead of the state’s secretary. 

Corporate records

The Delaware LLC has to do different corporate reports before setting up. This included the initial reports that include the initial business privilege tax filing returns and annual reports. Both of these reports should be filed within two and one-half months after they start functioning. The next is the county filing that the business has to file before its incorporation. They must be submitted to the principal office for reference. With time, the requirement increases, which is discussed below. 

  • If any member has taken any action without a meeting, it must be added to corporate records. 
  • A copy of the original by-laws and the amendments that are made in them, later on, should also be added to the records. 
  • The complete communication of shareholders over three years should also be submitted. 
  • The recent annual report should be added to the corporate records. 

Taxes and licenses

The taxes of the LLC should be filed on time, and for that, E.I.N. is important. This should be applied when all the formalities are completed. Also, according to the service you are willing to provide, you have to look at whether the service requires an annual license to operate or not. If required, then you should go through the procedure of any license formation for your LLC office.

The taxation requirements are:-

  • Delaware requires the annual report that you file with the Department of Revenue. In the annual report, the taxes added are  Business Privilege Tax Return and Annual Report, and Schedule AL-CAR. 
  • You should need a complete detail of every small to large state and center tax. 
  • There is a state tax identification number that a business must procure. 

It is always recommended to get professional help to understand more about the LLC requirements. Check out the top 5 LLC services to look for today. Below is the list of Best LLC services, 

Delaware LLC Formation Summary

Time needed: 30 minutes.

To summarize, here are the simple steps for creating an LLC in Delaware. To learn more about the steps in this list, simply click on them.

  1. Choose a name for your Delaware limited liability company.

    The first step is to come up with a business name that includes the word “limited liability corporation” or one of its abbreviations (LLC or L.L.C.).

  2. Select a registered agent for your company.

    Selecting a registered agent for your LLC is needed in Delaware. Check out our list of the top five LLC services in the United States.

  3. Create a certificate of formation.

    When forming an LLC, you must file a formation certificate. It may be referred to as any of the following, depending on the state: Articles of Organization, Certificate of Formation, or Certificate of Organization.

  4. Make an operating arrangement.

    When forming an LLC, an operating agreement is not a legal necessity, but it is strongly recommended.

  5. Obtain an EIN

    The Employer Identification Number (EIN), also known as the Federal Tax Identification Number, is used to identify a corporation in the same way that a social security number is used to identify a person.

F.A.Qs

What is the difference between LLC and C-Corp?

The C Corp’s structures are very complex compared to the LLC, which offers a flexible and easily changeable structure. Also, the LLC is saved from the disadvantage of double taxation that a C Corp has to bear, but the LLC has a privileged taxation system due to pass-through entities.

How does LLC be different from S-Corp?

The major difference that the businessman will notice among the LLC and S-Corp is the flexibility. In LLC, you can allocate income according to your rules and change them according to your will. Also, there is a different LLC interest class that can be considered a downside of S Corp.

Distinguish between LLC, Partnership & Sole Proprietorship?

In the limited liability partnership and sole proprietorships, the owners are responsible for their debts, but the LLC facilitates owners. The LLC members’ assets are saved, and they are not considered the reason behind the debts that a company has with the help of limited liability protection. Moreover, the member’s liability is only limited to the investment that they have made in the LLC, unlike the sole proprietorships and solo partnership firms.

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