How To Create An LLC in Delaware
Creating a business can be an overwhelming process. It’s hard to know where to start, especially when it comes to the legalities of forming a company. But don’t worry, we’re here to help! Here, we’ll give you step-by-step instructions on how to start an LLC in Delaware. So whether you’re dreaming of starting your own business or ready to take the plunge, keep reading!
What is an LLC?
The Limited Liability Company (LLC) is a popular entity choice for many new Delaware businesses. The LLC provides personal asset protection and potentially saves money on taxes.
Unlike a sole proprietorship or partnership, where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure protecting the business owner’s personal assets.
Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, general partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.
Forming an LLC in Delaware is popular due to the potential benefits of how the state statutes treat businesses. Delaware has a court system just for businesses, called the Court of Chancery. Cases in the Court of Chancery are argued in front of judges, not juries, which means any legal dispute has likely already been argued in court, and businesses will know whether to fight a lawsuit or settle. While this may be a benefit, understand there are additional costs because, if you form a Delaware LLC but physically operate in another state, you will need to register as a foreign LLC in your home state. In addition to the extra filing fees (a foreign LLC costs an extra $200 annually), there may also be additional accounting fees to account for. In most cases, you are better off creating an LLC in the state where the business activity will take place.
Delaware does offer a benefit for LLCs that are formed in the state but don’t conduct business in the state, which is not having to pay state income taxes.
The filing fee to form a Delaware LLC is $90, and approval typically takes 2-3 weeks. 24-hour expedited processing is available for an additional $50.
Related: Guide to starting a business in Delaware
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Steps to Form a Delaware LLC
Let’s break down the steps to complete the Delaware Limited Liability Company formation process.
Step 1: Choose an LLC Name
The first step in starting an LLC in Delaware is making sure the name you want to use for the LLC is available. The name of the LLC has to be different from other entity names in the state of Delaware. Learn how to check on the availability of Delaware LLC names.
Note that even though a name may be available from the state, it does not check for trademarks.
There are a few LLC naming requirements in Delaware to be aware of:
1. The name of the LLC must include one of the following words or abbreviations at the end of the business name:
– Limited Liability Company
2. A comma may be used after the business name and before the designator. “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are acceptable.
3. The LLC name can’t contain the word “bank” or any variation thereof, except for the name of a bank reporting to and under the supervision of the Delaware State Bank Commissioner.
If you are not ready to form the LLC but want to reserve a name, the Delaware Division of Corporations allows entity name reservations. This is not a requirement, and you will be able to reserve the name for up to 120 days at the cost of $75.
You may also want to see if a domain name is also available to have a matching website address.
Step 2: Appoint a Delaware Registered Agent
To have an LLC in Delaware, a Registered Agent is required who will be the primary contact for the service of process. The Registered Agent will act as the primary point of contact to receive legal documents, tax notices, summons, subpoenas, etc., on behalf of the LLC.
Under Delaware law, the requirements to be a Delaware Registered Agent include:
– An individual resident at least 18 years of age or a corporate agent such as a registered agent service
– Having a registered office with a physical street address in the state of Delaware as a PO Box may not be used.
– Being available during normal business hours.
Learn more about the requirements for a Registered Agent in Delaware
Step 3: File the Delaware Certificate of Formation
The paperwork to create an LLC in Delaware is called the Certificate of Formation and is filed with the Delaware Department of State, Division of Corporations, which is organized under the Delaware Secretary of State.
To file, the Delaware LLC Certificate of Formation from the Department of State will need to be filled out. The sample form from the Delaware Department of State’s website can either be mailed in or uploaded on their site.
A cover letter will also need to be included when filing the Delaware Certificate of Formation by mail.
Related: How to fill out the Delaware Certificate of Formation
Turnaround time for the state to approve the LLC paperwork is approximately 2-3 weeks; however, expedited processing is available for an additional fee.
Contact the Delaware Department of State, Division of Corporations if you have questions.
401 Federal Street – Suite 4
Dover, DE 19901
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What To Do After Setting Up Your Delaware LLC
Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.
Prepare a Delaware LLC Operating Agreement
The operating agreement is a document that governs the framework of an LLC. This document covers items like ownership rights, member (LLC owner) responsibilities, how profits and losses are distributed, and more.
Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:
- The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
- Member’s personal liability protection may be diminished.
- LLC members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.
Related: Delaware operating agreement template
Obtain an EIN
If the LLC will hire employees or is owned by more than one member, an EIN is required.
The EIN or Employer Identification Number (also referred to as a Federal Employer Identification Number, FEIN, or Federal Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, build business credit, register for business licenses and permits, file federal and state taxes, and more.
There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.
If an Employer Identification Number isn’t required, the LLC can either use the owner’s social security number or register for an EIN.
Related: How to Apply for an EIN
Open an LLC Bank Account
Opening a bank account for your Delaware Limited Liability Company is important for liability protection as the account separates the business’s funds from the member’s personal funds.
Several documents will be needed to open a business bank account, such as:
- A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
- Copies of the original LLC formation paperwork from the state showing the creation of the LLC.
- Driver’s licenses of the members.
- Depending on the LLC age, a Delaware Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.
Related: How to Open a Business Bank Account for your LLC
Apply for Business Licenses and Permits
Depending on what your business does and where it is located, there will likely be various business licenses and permits to register for. Some common registrations include:
- Business License – Every business operating in the state will need to obtain a state of Delaware business license from the Delaware Division of Revenue. The business license combines licensing from the Division of Revenue, the Division of Unemployment Insurance, and the Office of Workers Compensation. Also, several cities require businesses to obtain licensing before they can start.
- Professional License – Certain services such as barbershops, accountants, salons, and others must be licensed.
Related: What Business Licenses are Needed in Delaware?
Pay the Annual Franchise Tax
LLCs file an annual report in many states, but LLCs in Delaware instead pay a $300 annual franchise tax to the Delaware Department of State. The franchise tax is not a tax on franchises but for the privilege of doing business in the state. Franchise taxes are due by June 1st, starting after the first year of formation.
Additionally, Delaware has a Gross Receipts Tax. Although Delaware doesn’t impose a sales tax, the Gross Receipts Tax is a tax on the total gross revenues, regardless of the source.
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Delaware LLC FAQs
How much does it cost to set up an LLC in Delaware?
There is a state filing fee of $90 with the Delaware Department of State LLC to start an LLC in Delaware.
Is there a yearly fee for an LLC in Delaware?
Each year LLCs will need to pay a $300 Annual Franchise Tax.
How long does it take to set up an LLC in Delaware?
It normally takes 2-3 weeks for an LLC to be approved by the state of Delaware, though expedited processing is available for an additional fee.
Can you be your own registered agent in Delaware?
Anyone can act as a registered agent, provided they are at least 18 years old, reside in the state, and are generally available to receive documents during normal business hours.
Related: What are the requirements to be a Registered Agent in Delaware?
Which licenses and permits are required for an LLC in Delaware?
Business license requirements are based on what the business does or where it is located in the state, not on the type of entity.
It’s sometimes thought that the LLC and business license are the same, but they aren’t. An LLC is referred to as the business entity, which is how the business is organized to conduct business. A business license is approval from a government entity to operate legally.
What is a Foreign Limited Liability Company?
A Delaware Foreign Limited Liability Company refers to an LLC that was formed in another state but wants to physically operate in Delaware. Physically operating means having a presence, such as having an office or hiring an employee.
Is an LLC the same as a corporation?
The LLC is one of four main types of business entities. You can learn more about each here:
What is a sole proprietorship?
What is a general partnership?
How to form a Delaware corporation
What is a Delaware anonymous LLC?
An anonymous LLC isn’t a special type of LLC but refers to the state keeping the names of LLC owners private. Deleware is one of four states where the owner’s name and address are not made public.
Related: What is an anonymous LLC?
Can you use a PO Box for your LLC in Delaware?
A PO Box can only be used as a mailing address for the LLC. A physical street address in Delaware must be used for the Registered Office and Registered Agent.