Forming a Limited Liability Company (LLC) in Delaware offers numerous benefits for entrepreneurs, including liability protection, tax advantages, and flexible management options. Delaware is known as a business-friendly state, with straightforward procedures and a well-regarded court system for resolving business disputes. Knowing how to start an LLC in Delaware is extremely important, as there are specific things that Delaware does that other states cannot. It’s one of the reasons why 60% of Fortune 500 companies are registered in Delaware.
This comprehensive guide will walk you through the steps of establishing your Delaware LLC, from selecting a unique name to completing the necessary paperwork and compliance. Whether you are looking to start this LLC to develop a family office the Familoff way, or if you are just looking to start a business, let this guide lead the way.
How to Start an LLC in Delaware: Step-by-Step Guide
Creating a Delaware LLC involves several essential steps to ensure compliance with state regulations. In this guide, you’ll find a detailed overview of the process for forming a Delaware LLC, including choosing a name, appointing a registered agent, filing the Certificate of Formation, creating an operating agreement, obtaining an EIN, complying with tax and regulatory requirements, maintaining your LLC, and outsourcing LLC creation.
Choose a Name for Your Delaware LLC
The first step in establishing your Delaware LLC is selecting a unique and fitting name for your business. An effective name should be memorable, reflect your business’s nature, and comply with Delaware’s naming requirements:
- The name must include “Limited Liability Company,” “LLC,” or “L.L.C.”
- Name cannot contain words or abbreviations that could cause confusion with a government agency (e.g., FBI, Treasury, State Department, etc.)
- The name must be distinguishable from other registered businesses in Delaware.
To verify if your desired name is available, use the Delaware Division of Corporations’ online Entity Search. If your chosen name is available, you can reserve it for up to 120 days by filing a Name Reservation Request and paying a $75 reservation fee.
In addition to checking name availability, consider searching for your desired domain name to secure your preferred online identity early on if you plan to develop a web presence for your business.
Appoint a Registered Agent in Delaware
Every Delaware LLC must appoint a registered agent who is a person or business entity that agrees to receive legal and official documents on behalf of your LLC. The agent must meet the following requirements:
- A Delaware resident or a business authorized to conduct business in the state.
- Physically located at a street address within the state (P.O. boxes are not accepted).
You can act as your own registered agent or hire a professional registered agent service. When selecting a registered agent, consider their reliability, availability, and ability to maintain your business’s privacy. Many professional services offer additional benefits, such as compliance reminders and document management, which can help you stay organized and in compliance with state requirements.
File Delaware LLC Articles of Organization
To officially form your Delaware LLC, you must file the Certificate of Formation with the Delaware Division of Corporations. This document contains basic information about your LLC, such as its name, registered agent, and business address. In Delaware, you can file the Certificate of Formation online through the Delaware Division of Corporations’ website, or by mail using a paper form.
The filing fee for Delaware LLCs is $90. Once your Certificate of Formation is approved, your LLC will be officially registered in Delaware. It’s essential to keep a copy of the approved Certificate of Formation for your records, as you may need to reference them in the future.
Create an Operating Agreement for Your Delaware LLC
An operating agreement is a legal document that outlines the ownership structure, management, and operating procedures of your LLC. Although Delaware does not require an operating agreement, it’s highly recommended to have one in place to ensure all members are on the same page and prevent potential disputes.
An operating agreement should include information about:
- Ownership percentages
- Management structure (member-managed or manager-managed)
- Member roles and responsibilities
- Voting rights and decision-making processes
- Profit distribution and capital contributions
- Procedures for adding or removing members
- Dissolution process
An operating agreement can be customized to fit your LLC’s specific needs and preferences. While you can create an operating agreement yourself, it’s advisable to consult with an attorney or use an online template to ensure all necessary information is included and that it complies with Delaware laws.
Obtain an EIN for Your Delaware LLC
An Employer Identification Number (EIN) is a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses for tax purposes. Your Delaware LLC will need an EIN for filing taxes, opening a bank account, and hiring employees.
Obtaining an EIN is a simple and free process. You can apply for an EIN online through the IRS website. The online application is available Monday through Friday, from 7 a.m. to 10 p.m. Eastern Time. Alternatively, you can apply for an EIN by mail or fax using Form SS-4, but the processing time will be longer.
Once you receive your EIN, it’s essential to keep this number secure, as it’s used to identify your business for various financial and legal purposes.
Comply with Delaware LLC Tax and Regulatory Requirements
As a Delaware LLC, your business will be subject to various tax and regulatory requirements. It’s crucial to understand and comply with these requirements to maintain your LLC’s good standing.
- Federal income tax: By default, LLCs are treated as pass-through entities for tax purposes. This means that profits and losses are passed through to the LLC members, who report them on their personal income tax returns. However, you can choose to have your LLC taxed as a corporation by filing Form 8832 with the IRS.
- State income tax: Delaware does not impose a state income tax on LLC members. However, the state does require an annual Franchise Tax, which ranges from $300 to $200,000, depending on the LLC’s total authorized shares.
- Business licenses and permits: Depending on your LLC’s industry and location, you may need to obtain additional licenses and permits to operate legally. Check with your local city or county government offices to determine which licenses and permits are required for your LLC.
Maintain Your Delaware LLC
To keep your Delaware LLC in good standing, it’s essential to meet ongoing state requirements. Delaware LLCs must pay the annual Franchise Tax and file an Annual Report by March 1st of each year. Failure to do so can result in penalties and the administrative dissolution of your LLC.
Additionally, ensure that your registered agent’s information remains current and promptly update the Delaware Division of Corporations if there are any changes.
Outsourcing Delaware LLC Creation
While forming a Delaware LLC on your own is doable, many entrepreneurs choose to outsource the process to professional services such as LegalZoom, Incfile, or ZenBusiness. These services can simplify the LLC formation process and save you time, allowing you to focus on growing your business.
Outsourcing LLC creation offers several benefits:
- Expertise: Professional services are well-versed in state requirements and can help you avoid common pitfalls and errors.
- Convenience: They will handle the paperwork, filings, and interactions with the state on your behalf, ensuring all necessary steps are completed.
- Registered agent services: Many LLC formation services also offer registered agent services, providing you with a reliable and professional registered agent for your LLC.
- Ongoing support: Most services offer ongoing support and assistance with maintaining your LLC, including compliance reminders and annual report filing.
When choosing an LLC formation service, compare pricing, features, and customer reviews to find the best fit for your needs. Keep in mind that the cost of using a professional service will be in addition to the state filing fees.
Final Thoughts on How to Start an LLC in Delaware
Starting an LLC in Delaware can be an advantageous decision for entrepreneurs, as it offers liability protection, tax benefits, and a business-friendly environment. By following this comprehensive guide and considering the option of outsourcing LLC creation to professional services, you’ll be well on your way to forming a successful Delaware LLC.
Remember to stay informed about tax and regulatory requirements, as well as ongoing maintenance obligations, to maintain your LLC’s good standing and protect your business’s interests. With a solid foundation in place, you can focus on growing and nurturing your Delaware LLC to achieve your business goals.
