A Delaware LLC may be a good option if you are looking to start your dream business or live in the First State. Delaware is known for being a state that is business-friendly. LLCs are an attractive option, as they can be combined to make it more business-friendly.
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Northwest Registered Agent
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Even so, it can be difficult to learn how to create an LLC in Delaware during peak tourist season. But don’t worry. The Delaware LLC guide will help you navigate the process. Soon enough, you will be able to enjoy the flexibility and protection that an LLC offers.
LLC in Delaware Pros and Cons
Delaware does not have a sales tax if you have ever made any purchases in the state. The state’s reputation as being pro-business is due to a number of factors including lower taxes, less exposure of business owners personal information, and business-friendly legislation.
The Court of Chancery is also located in Delaware. This unique 215-year-old court has written most of U.S. corporate case law. Because the Delaware Court of Chancery does not use juries, cases involving business can be resolved much faster than in other states.
We explain this on our Delaware Benefits and Risks Page. However, small businesses outside of Delaware may not be able to reap the same benefits as larger corporations. Delaware is the most popular jurisdiction for publicly traded corporations that are listed on U.S stock exchanges. However, Delaware’s corporate law website states that “for many small businesses entities, formation in Delaware where the corporation will do most its business may prove to be more cost-effective.”
Benefits of LLCs in Delaware
A limited liability corporation (LLC), is a legal entity that combines elements of sole proprietorships and corporations. It acts as a corporation and provides limited liability protection for the business owners. The LLC owners’ personal assets are protected in the event of a lawsuit or if the business goes into default.
The LLC’s profits, unlike a sole proprietorship are not subject to tax at the business level before they are distributed to LLC owners (called “members”) This avoids “double taxation”, which is what traditional corporations do. The profits are both taxed at the personal and business levels. Additionally, LLCs require less paperwork but have greater flexibility regarding how they are run.
How to form an LLC in Delaware
This article will walk you through the basics of setting up an LLC in Delaware. First, you’ll choose the name of your new business and appoint an agent. After you have these, you can file the Certificate of Formation in order to register your LLC with state.
You can then create an operating agreement that will govern the operation of your Delaware LLC. Also, obtain an Employer Identification Number from IRS. Other topics will be covered, such as obtaining your business licence and registering to pay state taxes.
We’ll walk you through each step and show you how the services can cut through red tape so that you can enjoy the fun parts of starting your business.
Once you are ready, continue reading to find out what to do in the 302 form to create an LLC.
These steps can be used to form a Delaware domestic LLC. Foreign LLCs, which are those that were formed in another country, will need to follow a different process.
Step 1: Create your Delaware LLC
Choose a name to your LLC in Delaware. Naming your company can be fun. You might already have a name in mind. You’ll still need to adhere to Delaware’s naming guidelines.
Delaware LLC Name Availability
|Name Search||Delaware Department of State- Division of Corporations|
|Suffix:||Shall contain “Limited Liability Company”, or the abbreviation L.L.C.” Oder the designation “LLC”.|
Your name must be unique in Delaware. This means that it cannot be used by any other business. It must be distinct from any Delaware company to avoid confusion. Visit our Delaware Business EntitySearch page to find out if your desired Delaware LLC name is available.
Will my file be rejected due to the name I choose?
You bet. You can bet.
One of the main reasons LLC applications are denied is because you don’t follow the Delaware naming guidelines. Although you can apply again with a different name (or resubmit), rejections will slow down the process.
Name reservation and formation services are available to help you find the right name for you. This will save you time and money.
Reservation of Business Name
Although it is not necessary, you should consider reserving the name once you have chosen it. This will ensure that no one else uses it before your company is formed. Delaware permits you to reserve names for up to 120-days by filing an Application for Reservation Of Limited Liability Company Name.
Our business name reservation service will take care of everything for you if you don’t want to do it yourself. You can also search for your name to ensure that it is available.
Choose a designator
A designator is a group of words or abbreviations which are added to certain business names, such as “limited liability corporation” or “Inc.” Your LLC must include the designations “limited liability companie,” “LLC”, or “L.L.C.”
Other Naming Regulations
There are other considerations that you should consider when naming your LLC:
- It is illegal to use the term “bank” or any variant thereof.
- The name of a manager or member can be used in the business name.
- Unlike other states, you are allowed to use the following words or their abbreviations in your LLC’s title: “Company,” “Association,” “Club,” and “Foundation,” respectively.
These restrictions should be kept in mind as you create your LLC.
Does your Delaware LLC name have a website domain?
It is important to consider the availability of the LLC name on the internet when choosing a name. A business name that you like and is also available as a URL will give you a website that is easier to find for marketing purposes.
You can also check which social media handles are currently available. Businesses market on platforms such as Facebook, Instagram, Pinterest. It is important to get the right social media handles for your online marketing.
Register domain name for your Delaware LLC
It’s a good idea to think about whether you can get a matching domain name when you are creating an LLC name. Your future company’s website will be easy to find online. A strong URL is essential for any business.
Our tool will help you to do a preliminary domain name search. To help you choose the best online name for your company, you can use our domain registration service.
Search for trademark registrations
Your Delaware LLC name approval does not mean that you are in good standing. You might already have a trademark for the name you choose.
Trademarks can be registered at both the state and federal levels. To check if your company name has been trademarked at the federal stage, you can visit the U.S. Patent and Trademark Office Website.
Contact the Delaware Division of Corporations (302) 739-3073 to find out if your name has been trademarked at the local level. You can also try searching the name on Google and browsing phone directories looking for similar names. You could also consider hiring a trademark attorney to help you get the details right.
A trademark can be obtained by you. A federal trademark can be too expensive and time-consuming for small businesses. However, a state trademark is easier to use. Although it is only valid within the state, it is less costly and easier to obtain.
Register your state trademark with the State of Delaware Application For Registration of Trademarks or Service Marks.
How to file a DBA in Delaware
You will need a DBA to operate your business in Delaware if you are planning to use a different name than the Delaware LLC’s legal title. An LLC may use a DBA (Doing Business As) name to market new products or stores under a different name.
You will need to fill out the Registration of Trade, Business and Fictitious name Certificate if you are interested in a DBA. It must be notarized and submitted in every county where you intend to do business. This will require a small filing fee.
Step 2: Elect a Delaware Registered Agent
Designate an agent for your Delaware LLC. The primary function of a Delaware registered agent is to receive official state correspondence and legal documents (such notices of lawsuits), on your behalf.
What happens if my Delaware registered agent isn’t found?
It might seem simple to act as your Delaware registered agent, or appoint a friend or family member as your agent. Consider what might happen if the state or a process server is unable or unwilling to locate you or your agent.
If you or your appointee are not in the office (for instance, on vacation, sick etc.), this can happen. When they attempt to reach the agent. This can also occur if the agent leaves or moves and you forget to update the state with your paperwork.
Failure to register an agent can result in Delaware dissolving your LLC and you losing your liability protection, which was most likely the reason you created the LLC.
A process server might not be able to locate you in time to notify you about a lawsuit. This is another scary possibility. A court case against your could be filed without you knowing.
Registered agents must be available during business hours to receive certain notices, such as subpoenas, in person and relay them back to business owners. The agent cannot provide financial or legal advice. A registered agent must:
- Delaware residents or entities authorized to do business within the state of Delaware
- A physical address is required in Delaware, which is called the “registered Office”. Boxes are not permitted
- During normal business hours, be available in person
Delaware, unlike many other states, allows LLCs to register their own agents.
Registering a Service Agent for Your LLC in Delaware
Many business owners believe they should be serving in this role for their company. They also use their primary address as their registered office address. This approach can have unintended consequences such as a process serve showing up at your office with court papers and clients.
A registered agent service such as ours will help you to comply with Delaware’s statutes regarding registered agents and avoid situations such as the one described above. This eliminates the need to be physically present in order to receive legal notices.
Step 3: Get a Delaware Certificate Of Formation
|Agency:||Delaware Department of State- Division of Corporations|
Certificate certifying the formation of a Limited Liability Company
|Filing Method||Fax or mail|
|Agency Fee||$90 + optional $50 – $1,000 expedite fee|
|Turnaround:||~3 weeks. For $50 state expedite fee, it takes 24 hours. Same-day service for $100 state fee. 2hrs for $500 state fee expedite fee. 1 hour to pay $1000 state expedite tax.|
Delaware Code. Title 6: Commerce and Trade. Chapter 18. Limited Liability Company Act
|Notes:||Include a cover letter.|
Fill out and submit your Certificate of Formation. Once approved, this document is known as the Articles of Organization.
Online filing of your Certificate of Formation can be done with the Delaware Division of Corporations, but not the Delaware Secretary of States. You can also fax or mail your paperwork. At the time of writing, the filing fee is $90.
Many people find filing official documents such as these difficult and intimidating. This is why we are here. Our business formation programs let professionals take care of the filing so it is done right the first time.
What information is required for my Certificate Of Formation?
For the Certificate of Formation, The Delaware Division of Corporations offers a PDF fillable on their website. The Delaware Division of Corporations asks that you include the following information.
- Your LLC’s full name in Delaware, with the designationator
- Your registered agent’s name and address
- Signature of the authorized person to sign for the LLC. Below the signature, the name of the authorized person must be written or typed clearly.
You are also required to include a cover letter by the Division of Corporations. This can be downloaded from their website. The documents can be submitted via their Document Upload Service, or by post. The filing fee must be paid at the time you file.
How long does it take to process?
The Division of Corporations website does not commit to a specific timeframe for processing your Certificate of Formation. The website states that times may vary depending on the volume of work being done at the time. To get an estimate, you can call them at (302)739-3073 option 2. Online submissions are generally faster than those sent by mail.
Delaware offers several options to expedite your process if you need it urgently. You can get your Certificate of Formation processed within two hours or one hour depending on how much money you have available. The Division of Corporations website has the most current fee schedule.
Once your Certificate of Formation has been approved, you will receive a stamped “Filed” copy of the submitted document. A certified copy can be requested for a fee.
Modifying the Certificate of Formation
Only one Certification of Formation is required. You only need to file your Certificate of Formation once.
Step 4: Make an operating agreement
Create an operating agreement for your Delaware LLC. It establishes the rules and procedures for the LLC, including how it will be managed, who owns it, what percentage of each member, how profits will be split, and other details.
A operating agreement may allow you to:
- Clearly indicating each member’s powers and privileges will help to prevent and resolve conflict between them
- To meet your LLC’s needs, expectations, and interests, customize your business’s procedures and rules.
- Define the management structure of your LLC
- Plan for what to do if a member is incapacitated or leaves.
- Establish the rules for inviting new members to the company
- Separate your business and your personal assets to provide additional protection against legal liability.
These are the reasons we consider operating agreements an integral part of LLC formation.
Do I have to sign an operating agreement if my only owner is me?
You might believe that most of the terms in your operating agreement are meant to prevent disputes among LLC members. However, one is not necessary for a single-member LLC. Your operating agreement may be useful to potential investors and future business partners.
Some banks won’t allow you to open a bank account for your business without one. An operating agreement will outline what happens to the business in case you become disabled or die.
Sometimes, an LLC owner will be taken to court by someone trying to prove that they are one entity. This allows them to pursue the owner’s personal assets. An operating agreement is a way to show the court that the LLC owner and LLC are distinct if that happens.
Delaware LLC Operating Agreement Template
It is possible that you are unsure how to create an operating agreement for Delaware LLC. We offer a customizable template to get you started.
Step 5: Apply to an EIN
Register with the Federal Government and obtain an EIN (Electronic Tax Identification Number) from the Internal Revenue Service. For tax purposes, you will need an EIN (Electronic Tax Identification Number).
|Agency:||Internal Revenue Service|
|Filing Method||Mail, phone, or Online.|
|Turnaround:||Instantly online or by phone 4 business day by fax. 4-5 weeks by mail|
|Notes:||The IRS website can only be accessed during specific hours. Print your EIN before you close the session. For additional guidance, refer to IRS Publi 1635: Understanding Your.|
An EIN can be described as a Social Security number for your company. It allows you to hire employees and apply for a bank account. You can also pay taxes.
Although you can obtain your Delaware LLC’s EIN online, by mail or fax, we can help you avoid having to deal with the IRS. The EIN service eliminates the need to deal with the Internal Revenue Service.
Register with Delaware Division of Revenue
You must register your Delaware business with the Division of Revenue to apply for a business license.
Will filing as an S corporation lower my taxes?
LLCs are flexible business structures. One of those flexibilities is the way you can have your LLC taxed.
An LLC is treated as a sole proprietorship by default if it only has one member, or as a partnership if there are multiple members. This is a good choice for LLC owners because it avoids double taxation, in which the business pays taxes at the business level as well as when income is paid to its owners. Some LLCs choose to be taxed either as a C-corporation or an S-corporation because they feel it is more advantageous.
Double taxation does not mean that you are taxed as C corporations. However, certain LLCs can have the advantages. C corporations can deduct more taxes than other entities, which is a benefit in certain situations, particularly for more profitable LLCs. Insurance premiums, for example, can be deducted as a business expense.
S corp stands for Subchapter S Corp and is a tax status that is targeted at small businesses. Your LLC will be taxed as an “S corp” and you can enjoy the same pass-through taxation as a regular LLC. However, it could also reduce your self-employment taxes.
Your self-employment taxes pay for Medicare and Social Security. These taxes would be paid on all profits in a typical LLC.
Filing as an S corporation allows you to be an employee-owner and divide your income between your salary and your share in the company’s profits. This allows you to pay self-employment tax on your salary but not on your profits. You’ll still have to pay any applicable taxes on the LLC profits.
S corps are more subject to scrutiny by the Internal Revenue Service, which means that you are more likely get audited. S corps have stricter qualifications.
It’s possible one of these options might work better for your LLC. However, taxes can be very complicated. Taxes are also specific to your particular situation. To determine which taxing method is best for your Delaware company, you should consult a tax professional.
Our Scorp service is available to assist you in forming your LLC with an Scorp status.
Are you planning to employ employees? You will need to file forms for workers’ compensation or unemployment insurance, as well as register for a withholding account. Register with the Delaware Division of Unemployment Insurance or the Delaware Office of Workers Compensation.
Delaware’s website, “Delware One Stop”, can help you navigate the process of filling out these requirements online.
Also, you must report any new hires to Delaware State Directory of New Hires within twenty days of an employee being hired, rehired or returning to work.
Delaware LLC Business Banking
After you have obtained an EIN, you can open a bank account for your business. Separate accounts for your business and personal banking are essential for tax planning and to avoid misintermediation.
If you are sued for the assets of your LLC, as well as your personal assets, commingling funds can make it more difficult to pay your taxes.