Delaware LLC Guide

“LLC” stands for Limited Liability Company. This business structure is designed to provide distinct legal protections for owners and managers. LLCs are widely popular because they are efficient to establish and simple to maintain. If you look down your Main Street, you will likely find that most small-to-medium businesses operate as LLCs.

 

The primary benefit of forming an LLC is limited liability protection. This means business owners shield their personal assets like  homes, vehicles, and savings, from the debts and liabilities of the business. Forming an LLC puts up a legal wall between yourself and your company.

An LLC is a separate legal person. It can obtain a federal tax ID number (EIN) from the IRS, open business bank accounts, and own property in its own name.

Delaware is known worldwide for being the legal home of some of the largest businesses in the world. This is due to the state’s business friendly legal environment. Entrepreneurs and small business owners can take advantage of the same legal protections that major corporations benefit from by registering their business as a Delaware LLC. 

These are the steps you need to follow to form an LLC in Delaware.

You can name your Delaware LLC anything that you want. However, your business name has to be unique. Your business name cannot be similar to any company already registered in Delaware.

By law, your LLC name also needs to include a corporate ending. Options include LLC, L.L.C, or Limited Liability Company. 

If you don’t want to do business with LLC in your name, you’ll need to register a Doing Business As or DBA name.

Delaware law requires you to appoint a Delaware Registered Agent for your LLC. If you are not located in Delaware, you need to appoint a company, like IncNow, to be your Registered Agent.

A Delaware Registered Agent needs to meet the following requirements:

• Maintain a physical street address (not a P.O. Box) within the State of Delaware.
• Be available during standard business hours (9:00 A.M. to 5:00 P.M., Monday through Friday).

The main purpose of a Delaware Registered Agent is to receive “Service of Process” on behalf of the LLC. This includes official court filings, such as lawsuits and subpoenas, as well as state tax notifications.

Forming a Delaware LLC requires filing a Certificate of Formation with the Delaware Secretary of State’s office. The Certificate of Formation is the document that creates a public record of an LLC’s existence in Delaware. 

The Certificate of Formation must include the name of the LLC, the name and address of the Registered Agent, and the signature of an authorized individual. Delaware does not require the names of the LLC owners (Members) or Managers to appear on the Certificate of Formation, offering a layer of privacy not found in many other states.

Every Delaware LLC should have a written Operating Agreement signed by all Members, even if the company is a Single-Member LLC.

The LLC Operating Agreement is an internal company document that explains how an LLC is structured. It records the names of the LLC Members and their respective ownership interests, while also designating Managers and outlining their specific duties. Fundamentally, the LLC Operating Agreement is a contract among the Members establishing the rules for how the company is owned, managed, and operated.

Once your Delaware LLC is officially formed, it must obtain an Employer Identification Number (EIN). This unique identifier is mandatory for paying federal taxes, hiring employees, and opening business bank accounts.

Business owners can apply for an EIN directly through the IRS website or by mail. The application process involves completing and submitting IRS Form SS-4.

The cost to form a Delaware LLC depends on the level of service and processing speed you require. The mandatory base filing fee paid to the Delaware Division of Corporations is $110. For expedited processing, the state charges an additional $50.

IncNow offers three distinct formation packages tailored to your needs:

• Basic LLC Package – $199: The Basic LLC  Package covers the filing of your Delaware LLC and includes one full calendar year of Delaware Registered Agent Service.
• Complete LLC Package ($299): The Complete LLC Package provides all necessary internal company documents, including an attorney-drafted LLC Operating Agreement. It includes standard filing speed.
• Now LLC Package ($399): The Now LLC Package is our most popular option. The Now LLC includes every document in the Complete LLC Package, plus an official Statement of Organizer and the $50 expedited filing fee for faster turnaround.

Exclusive Offer: Use the discount code Save50 at checkout to receive $50 off the Complete LLC or Now LLC package.

LLCs offer business owners lots of flexibility when it comes to tax structures.

By default, the IRS treats an LLC as a “pass through” entity. This means the company itself does not pay federal income tax. Instead, the profits and losses of the business “pass through” the LLC to the owners, who report this income on their personal tax returns.

LLCs can elect to be taxed as a C-Corporation or an S-Corporation by filing the appropriate forms with the IRS. The S-Corp election is particularly popular among entrepreneurs as a strategy to potentially reduce self-employment taxes.

An LLC Operating Agreement is a private contract between an LLC’s Members. In the Operating Agreement, the members agree on the ownership structure of the LLC as well as how decisions will be made within the company. To be legally effective, the Operating Agreement should be written and signed by all current Members. 

A well-prepared LLC Operating Agreement should include the following:

• Member Details: The names of all LLC Members and their individual ownership percentages.
• Roles & Responsibilities: Specific management duties for Members and the designation of any third-party Managers.
• Financial & Voting Rights: Each Member’s voting privileges and initial capital contributions.
• Amendment Procedures: The specific process required to adopt changes to the Agreement.

The LLC Operating Agreement should include provisions addressing aspects of the business that could lead to disputes between members. These include provisions addressing the transfer of ownership interest in the LLC. 

It is recommended that you have a written and signed LLC Operating Agreement. A formal written Operating Agreement provides several benefits for an LLC, including:

• Definitive Proof of Ownership: Clearly establishes who owns the company.
• Enhanced Liability Protection: Reinforces the corporate veil between personal and business assets.
• Structured Governance: Creates a clear, agreed-upon framework for decision-making.

This is how Delaware LLCs compare to other types of business entities.

A sole proprietorship is a name given to individuals who operate a business without forming a legal entity for themselves, like an LLC or corporation. If you put up a lemonade stand on the corner of your street and begin selling lemonade, you are operating as a sole proprietorship.

The main difference between LLCs and sole proprietorships is that business owners operating as sole proprietors do not have any limited liability protection. They are personally responsible 

for any liabilities generated by the business. Additionally, a sole proprietor needs to operate their business using bank accounts opened in their own name.

LLCs and corporations are two types of business entities that provide limited liability protection for their owners and managers. However, they have key fundamental differences.

Corporations have a rigid structure which they need to follow by law:

• Shareholders own the company.
• Directors make high-level business decisions.
• Officers oversee day-to-day operations.

LLCs are more flexible than corporations. LLCs consist of Members who own the company and may also manage it directly. Members can appoint separate Managers to handle specific responsibilities.

Unlike corporations, LLCs enjoy “freedom of contract.” Members can arrange the ownership and management of the business however they see fit. These terms are outlined in the company’s private Operating Agreement, which is legally binding and enforceable.

The S-Corp, short for S Corporation, is not a type of business entity. The S-Corp is a type of tax election an LLC can choose to make with the IRS. Businesses taxed as S-Corps pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

Like the S-Corp, the C-Corporation (C-Corp) acts as a tax election for an LLC rather than a change in its legal structure.

C-Corps pay corporate income tax on their profits. If those profits are distributed to owners as dividends, that money is taxed a second time at the individual level. LLC owners can choose to have their company treated as a C-Corp for federal tax purposes by submitting the necessary election forms to the IRS.

LLCs can be managed by the Members themselves or by third-party managers. There are two types of LLC management structures:

• Member-Managed LLC: This is the most common structure, where the Members (owners) actively run the daily operations of the business.
• Manager-Managed LLC: In this scenario, the company is operated by appointed Managers who do not necessarily hold an ownership interest. This is often used when owners want to be passive investors.

LLCs are owned by the LLC Members. The ownership percentage and responsibilities of each LLC Member are set in the company’s Operating Agreement.

The LLC Operating Agreement acts as a contract between the Members, where the Members agree on how ownership can be transferred. For example, Members can establish rules and procedures for selling an ownership stake to prevent any unwanted parties from buying their way into the business.

An LLC needs to have at least one Member named in its Operating Agreement as an owner. An LLC with just one Member is typically called a Single-Member LLC. Single-Member LLCs aren’t legally different from LLCs with multiple Members or partners. The single Member is simply the sole owner and manager of the company. 

LLCs allow for highly customizable voting and decision-making structures. Specifically, a LLC can have its capital structure divided into voting and non-voting units.

This arrangement enables Members to have ownership in the company without participating in management or governance. This setup is ideal for passive investors who want to own a share of the business without being involved in day-to-day operations.