Step-by-Step Guide to Starting an LLC in Delaware [2022]

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Quick Reference

The Limited Liability Company (LLC) is a popular entity choice for many new Delaware businesses. The LLC provides personal liability protection and has the potential to save money on taxes. You can learn how to form an LLC in Delaware without an attorney with some research.

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 be additional accounting fees as well. 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

Forming an LLC can be both affordable and is something most people can do themselves. Entity formation companies like IncFile or IncAuthority help guide you through the process and make sure there are no mistakes.

Related: Should you use a Formation Service, Hire an Attorney or Do it Yourself?

Steps to Form a Delaware LLC

Let’s break down the steps to complete the Delaware Limited Liability Company formation process.

Total Time: 10 minutes

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
– LLC
– L.L.C.
2. A comma may be used after the business name and before the designator.  “Cowboy Cleaners LLC” and “Cowboy Cleaners, LLC” are acceptable.
3. 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 Registered Agent

To have an LLC in Delaware, a Registered Agent is required who will be the primary contact for 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. 

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

Any individual meeting the above requirements can be the agent; however, the agent’s name and address become public record, and with that comes a loss of privacy. This is more important for some entrepreneurs, especially when doing business from home or still employed.  Hiring a company like Northwest Registered Agent to be the Registered Agent will reduce the number of unwanted phone calls and mailings.

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 Secretary of State, Division of Corporations.

To file, the Delaware LLC Certificate of Formation from the Delaware Secretary of State will need to be filled out. The form can either be mailed in or uploaded to the Secretary of State’s website.

A cover letter will also need to be included if the Delaware Certificate of Formation is mailed in.

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
Ph: 302-739-3073
302-739-3073
https://corp.delaware.gov/contact.shtml

Estimated Cost: 90 USD

You don't have to form your LLC by yourself or pay an attorney!

Forming an LLC is a little intimidating, especially when it’s your first time. Professional entity formation services help guide you to make sure it’s done right. Check out our reviews of popular LLC formation services to learn more.

You have a Delaware LLC, now what??

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 an LLC Operating Agreement

The operating agreement is a document that governs the framework of an LLC.  This document covers items like ownership rights, member 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.
  • 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

The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN or Federal Tax Identification 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, register for business licenses and permits, file tax returns, 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.

Related: How to Apply for an EIN

Elect the LLC’s Form of Federal Income Taxation

One of the major benefits of the Limited Liability Company is the tax flexibility it provides.  When applying for the Employer Identification Number, you will choose how the business entity will be taxed for federal income tax purposes. While there are some limitations, an LLC may be classified for federal income tax purposes as a:

  • Sole proprietorship
  • Partnership
  • C-corporation
  • S-corporation

While this may sound confusing, this refers to how the LLC is taxed, not the legal structure. Consider talking with an accounting professional as some tax elections come with potential downsides such as double-taxation (C-corp).

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?

Annual Taxes

LLCs file an annual report in many states, but LLCs in Delaware instead pay a $300 annual franchise tax to the Delaware Secretary 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.

Common Questions To Starting an LLC in Delaware

How much does it cost to start an LLC in Delaware?

There is a state filing fee of $90 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 start an LLC in Delaware?

It normally takes 2-3 weeks for an LLC to be approved in Delaware, though for an additional fee, one expedited processing is available.

Do I have to pay to hire a registered agent?

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.

If I have an LLC, is a business license required?

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 an approval from a government entity to legally operate.

What is a Foreign Limited Liability Company?

An LLC that is physically operating in states outside of where it was formed. Physically operating means having a presence such as having an office or employee. The LLC will need to register as a foreign LLC in each state that it plans to operate.

Learn more about the foreign LLC.

What is a Professional Limited Liability Company?

Businesses that require state licensing such as accountants, attorneys, podiatrists, physical therapists, acupuncturists, etc. often must file as a Professional Limited Liability Company (sometimes referred to as a Professional LLC or PLLC) instead of an LLC. Filing for a PLLC is very similar to that of the LLC.

Learn more about a professional LLC.

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

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