Among LLC owners, Delaware is well-known. This article will walk you through the steps of forming an LLC in Delaware, including the forms you’ll need, tax details, and how the process works. LLC stands for limited liability company, and it refers to the entity’s right to restrict its owners’ liability. In other words, if the LLC cannot pay its debts, the owner’s personal property, such as his or her house, vehicle, and other possessions, is not legally at risk. A Delaware Limited Liability Corporation (LLC) is a legal entity that operates independently of its shareholders. The company’s liabilities and debts are not personally responsible to the owners and members.
A Delaware LLC may be considered a pass-through organization for tax purposes. LLC means Limited Liability Company, and it is a hybrid corporate organization that incorporates the features of partnerships and corporations. An LLC is regarded as a legal partnership, but it is not the same as a corporation. The owners or members may be any organization or person from anywhere globally, and the number of owners or members is unlimited.
Step 1: Pick a name for your limited liability company
In Delaware, the LLC’s name must be unique, distinct, and readily available. Your company’s name should be carefully chosen because it will serve as the foundation for your brand identity. Consider how you want your business name to appear in print, on a sign, in a logo, business cards, and social media. Under Delaware law, the words Limited Liability Company or the abbreviation LLC or L.L.C must appear in the LLC’s name. Words like Foundation, Bank, Institute, Club, Society, Union, Trust, or Syndicate can be used in the definition.
Your LLC/company name must not be confusingly similar to any other Delaware business names on file with the Secretary of State. To see if your company’s name is open, go to the Division of Corporation’s business name database. You can also pay $75 to reserve a name for 120 days. Reservations may be made online via the Delaware Division of Corporations’ website or by printing and mailing the application to:
Delaware Division of Corporations
401 Federal Street – Suite 4
Dover, DE 19901
Or, you can fax your application to (302) 739-3812.
It doesn’t matter whether you register online or on paper; it will cost $75 for the name reservation. You can also see if there are any website domain names available that include your LLC name. If it’s not available, the domain registrars may suggest alternatives.
When picking a name, there are a few guidelines to keep in mind:
- In the LLC’s name, the word limited Liability Company or one of the abbreviations: L.L.C or LLC must appear.
- The LLC’s name contains no terms that may be mistaken for those of a government agency.
- Some restricted terms, such as a bank, attorney, university, and others, can require additional paperwork and the presence of a licensed person, such as a solicitor or doctor, to be part of the business.
Step 2: Decide who will serve as your registered agent.
A Registered Agent is required by law for any business in the State of Delaware. As an agent, you may be a Delaware citizen or a Delaware-licensed business unit. The only condition is that the licensed agent has a physical street address in Delaware. To have confidential contact with the government, the registered agent is a vital part. Company notifications, tax notices, reminders, and several other documents are submitted to the company’s registered agent. The Licensed Agent must be present during regular business hours if a legal document or a notice is served. The issuing of documents that may require a signature, such as warrants, litigation, or subpoenas, is referred to as service of process. The registered agents are in charge of making sure that the legal procedures are running smoothly. If anyone wants to sue your LLC, they must contact you legally and prove that you have been served. When a process server acts as your Delaware Registered Agent, they produce a Proof of Service used in court to show that you received the notice. The Delaware LLC must have a registered office, it can be a Delaware business, and the Delaware LLC must have a licensed agent. A registered agent is needed for the service of the process. You can now choose between having a person or a corporation as your registered agent.
An individual who works as a Registered Agent
A registered agent may be someone over eighteen who is a Delaware citizen with an actual address in Delaware. Many companies name the LLC manager, a family member, acquaintances, or a friend as the agent. However, enlisting the aid of those familiar with the intricacies of running an LLC, like a consultant, can be advantageous.
Registered Agents service provider
Alternatively, you can outsource all of the necessary paperwork to a service that helps form the LLC. If you do not want help from such services and want to create your LLC by yourself, you can utilize the National Registered Agent Service to handle your agent’s duties.
LLC as the registered agent.
In Delaware, an LLC may act as its registered agent if it has a physical and mailing address in the State.
Step 3: Obtain a Completion Certificate/ Certificate of formation.
This procedure is known as incorporating. It is the official development of your organization by the Delaware Secretary of State. The business is legally not opened until the Certificate of Incorporation is filed and authenticated, and you are the sole owner! An application for the certificate may be mailed or faxed.
The following details must be included on the certificate:
- the name and address of the business’s registered agent
- The signature of an individual who has been certified.
You must file the Certificate of Creation on paper, which you may obtain from the official website. In addition to the bill, you’ll need to file a memo. The filing fee is $90 and can be paid via debit or credit cards, or cheque to:
Delaware Division of Corporations
John G. Townsend Building
401 Federal St. Suite 4
Dover, DE 19901
If you want, you can fax it to 302-739-3812. Your application will be processed between 10 to 15 working days. It could take up to weeks if there is a busy filing season. If you want the process to be faster, there are options to expedite the process. For one-hour processing time, you have to pay $1000 for a two-hour service; the rate is $500, $100 if you want your paper to be processed on the same day, and $50 for 24-hour service.
You’ve chosen a unique business name and appointed a registered agent, and you’re ready to get your LLC up and running. The Delaware Department of State keeps track of your LLC’s Certificate of Incorporation and authorizes it to do business in the State.
Stage 4: Draft an Operating Agreement of the Delaware Limited Liability Company (LLC)
While a Delaware LLC operating agreement is not needed, it is highly recommended. This document explains how your LLC will be run and utilized and the members’ and managers’ rights and responsibilities. By showing that your LLC is a separate legal entity, the operating agreement covers your limited liability status. As a result, securing an operating agreement is a wise decision.
What does an operating arrangement entail? It’s a legal document that spells out who owns an LLC and how it operates.
Personal assets are secured, and your LLC’s credibility is built in front of the courts, government agencies, banks, and other businesses, among others. It could be referred to as the company’s foundational text.
If you want to understand this idea quicker, you’ll need an example. Assume one of your friends wants to sell a portion of his company to the other partners. The operating agreement will now provide details of how the company’s assets will be distributed. If he tries to keep it for himself, though, this arrangement can be used in court to prove that the company’s assets are not the same as his personal property.
Step 5: Obtain a Delaware LLC EIN
An EIN, or Employer Identification Number, is issued by the IRS to your Delaware LLC. It functions similarly to a person’s social security number. It makes the IRS remember your business for tax purposes. Are you aware that you cannot stop paying taxes? And if you’re thinking about it, don’t because it’s illegal. As a consequence, you’ll need an EIN to pay business taxes.
The advantages of obtaining an EIN:
With an EIN, you can do the following:
- Create a business bank account.
- Take care of the employee’s salary.
- Pay all of your taxes, including local, State, and federal.
- Own a credit card or a business loan
- Obtain a credit card for your company.
You can get an EIN by applying online, faxing it in, or mailing it in. On the official website, you can apply for an EIN. You may also request an EIN via fax or mail to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
You may also fax your submission to (855) 641-6935
The IRS does not charge a fee to apply for an EIN. There is no cost to apply for an EIN with the IRS.
Step 6: Annual Franchise Tax
Delaware LLC owners do not have to file an Annual Report, but they have to pay a $300 Annual Franchise Fee. In Delaware, regardless of the business operation or sales, the LLC must pay $300. The annual franchise tax may only be delivered electronically and is due each year on June 1st. The first payment is due the following year after your LLC has been approved. Your franchise tax will be due on June 1st, 2019, if your LLC was approved on March 12th, 2018. You will be charged a $200 late fee as well as 1.5 percent interest on your account if you fail to file your annual franchise tax for each month before the tax is collected. So, if you want to sustain your good standing with the State, don’t forget to pay the annual franchise tax.
Step 7: Delaware LLC Business Licenses and Permits
Following the approval of your LLC, you must adhere to state and local licensing and permit standards. The standards differ depending on the industry you work in and your company’s location. You may face fines, penalties, or even the loss of your right to do business in the State if you do not meet the permit and license requirements.
According to the Division of Revenue, any person or company conducting trade or business in the State of Delaware must obtain a business license. You may apply for the license either online or by mail. You can interact via the official website. You may also submit a paper application to the following address:
Division of Revenue
PO Box 8750
Wilmington, DE 19899-8750
The price of a license is dictated by the type of business you run. For more information on the license, go to the Professional Regulation website division. Furthermore, special permits may be needed in some counties and towns, so it’s always a good idea to double-check with the local government.
The following licenses are required in Delaware:
- State Tax ID number from the Division of Revenue.
- A current medical certificate
- Signage permission
- A business license or a privilege license to operate a business is required.
- Taxes withheld (if you have employees) (if you have employees)
The more tightly regulated a company is, the more requirements it would have.
Step 8: Taxes on Delaware LLCs
Before you begin doing business, you must plan to fulfill the following criteria:
Taxes at the National Level
LLCs do not pay federal income taxes on their profits, so they have acquired a name as a pass-through business. The shareholders are responsible for reporting the company’s income and expenses on their tax returns. Owners of LLCs may opt to have theirs taxed as a company instead, thanks to their flexible tax structure.
Taxes imposed by the state and local governments
Delaware’s income taxes are treated similarly to those in the rest of the country. Instead of filing a separate corporate return, the LLC owners report profits and losses on their tax returns. The Delaware LLC is subject to an annual franchise charge, as we’ve seen above.
If your LLC meets these requirements, it may also be expected to file a few conditional business taxes. Businesses selling products in Delaware do not have to pay sales tax, but they have to pay a gross receipts tax. If your LLC has employees, you must also pay an Unemployment Benefits Tax and withhold employee taxes. Check the State’s employer guide if you want to look for more detail.
The lengthy process has finally come to an end. Even though the process tends to belong, it is well worth the time and effort. After carefully following all of the preceding steps, you can now form your LLC. It’s now ready to go on the board. Don’t be hesitant to pursue your dreams. You’ve organized your company, you are going for a big sale, you are using promotional campaigns and great deals, and you will have a lot of success.
Before we sign off, let’s look at some of the advantages of forming an LLC in Delaware. If you are investing in this State, you should know the benefits too. This awareness will help you enhance your performance even further.
Delaware Limited Liability Company Advantages (LLC)
- Uncomplicated and easy
The Delaware LLC is the most straightforward to set up of all the LLCs in the United States. The Delaware Division of Corporations only requires a small number of details in the LLC incorporation papers, also known as the Certificate of Creation. This minimal information requirement simplifies creating an LLC in Delaware while still protecting your personal information and identification. The majority of personal information would not be released on public records because it is not needed to form an LLC.
And if you hire a Registered Agent, your Delaware address is the only contact information on your incorporation sheet that is readily accessible.
Delaware ensures that you have the privacy rights that you are legally entitled to. Another advantage is that you won’t have to file annual reports, which means your data will be secure.
- Deductions from taxes
Delaware is known as a tax sanctuary and is thought to be the most business-friendly State. Delaware aims to build a competitive business atmosphere. It also offers a range of advantages that other states lack, offering Delaware business owners a significant opportunity to grow. Delaware does not tax intangible revenue, such as patent and trademark leases, making it commonplace to start a company, LLC, or corporation. Furthermore, the State is responsible for ensuring the safety of its residents. Payments to provinces are not required for Delaware-based LLCs that do not operate in the State. Isn’t it incredible? You may not have to pay state income tax if your LLC does not allow a trade-in in Delaware.
- There will be no taxes twice.
While taxes are still a source of concern for business owners, Delaware offers a range of taxation options. An LLC in Delaware may be taxed as a pass-through entity, a C corporation, or an S corporation. Corporations in Delaware and elsewhere are taxed as C corporations by default. This tax scheme, however, is inefficient for a variety of small businesses. Profits earned by C corporations are taxed twice: first as corporate income and then as personal income. The LLC, on the other hand, is not charged in this way in Delaware. They will send money directly to their members, and the profits will only be charged once as the members’ salaries if they choose to be taxed as a person. The LLC can be taxed as either an S corporation or a C corporation, giving it more flexibility as a corporate entity.
- A business license is not needed.
According to the State, Delaware LLCs who are not doing business in the State are not required to obtain a business license, pay Delaware’s gross receipts tax, or file with the Department of Revenue.
- Stringent management procedures
The most significant advantage of establishing your LLC in Delaware is that it carefully offers studies and some of the country’s most well-known business rules. Delaware has a long record of being a national leader in corporate law and formation. In law schools around the country, state codes and legal regulations are studied. The exciting aspect is that Delaware has a court devoted solely to corporations, the Court of Chancery. The cases are tried in a courtroom in front of judges. One benefit is that most legal claims have already been debated in court, making it easier for the owner to decide whether to file a lawsuit. This perception is beneficial. For firms that are regularly sued, only the bare minimum of formalities are required.
One of the most vital advantages of forming a Delaware LLC is that it takes very little upkeep. Small businesses also find it useful. In Delaware, LLCs are not required to file annual reports. LLCs require less documentation and administrative processes since they are exempt from conducting board of directors or annual shareholder meetings.
Overall, we can conclude that Delaware makes it easy for entrepreneurs to start a business or a limited liability company (LLC), and you can take the first step without having to focus on or overthink the formalities. This is your chance to go and make a name for yourself. So get ready to take off!