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Forming A Delaware LLC - How to Get Started
If you’re looking to start a new LLC, Delaware is a state that offers many business benefits to new business owners. Delaware is also the home to many commercial companies that have chosen to establish their headquarters to utilize a long tradition of business hospitality, a highly efficient legal system, and a tested network of services for business promotion. In fact, Delaware is the top-ranked US State in the ranking compiled by the American Chamber of Commerce for its capacity for economic attraction.
Additionally, it’s wise to open up a limited liability company (LLC) because of the asset protection a Delaware LLC offers to LLC owners and members. If you’re thinking about forming an LLC, Delaware is a great state to open your business entity within.
The professionals at LLC Formations are here to guide you through the process of forming an LLC in Delaware. Keep reading our guide for more information about how you can form an LLC so you can start doing business.
1. Choose A Business Name for Your Delaware LLC
The first step of forming a Delaware LLC is to pick a unique name that best represents your business or services. When starting an LLC, it’s important to remember that your company name may be the first impression that future customers or clients have. Additionally, in order to start an LLC in Delaware, your company name cannot be in use by any other Delaware LLCs. To check name availability, you may use the Delaware LLC Search Corporations Database.
If you are still thinking about the name, you may reserve a name for your company by paying only $75 for name reservation. Once reserved, a potential business owner has three months to register the LLC name before it is released back in the public domain for another LLC to use.
Once you are sure that you have a unique company name, it’s time to fill Articles of Organization, also known as the Certificate of Formation.
2. File the Certificate of Formation for Your LLC in Delaware
The Certificate of Formation is a legal form that contains information about the new business. All new business entities are required to fill this out in order to complete their LLC formation. After preparing the Certificate of Formation, you will get a certificate from the State of Delaware Division of Corporations recognizing you as a legal Delaware LLC.
To make the process easier, Delaware provides a very simple form that is easy to understand. The cost of registering an LLC in Delaware is $90, which can be paid by credit card or by a check.
The Certificate of Formation asks you to fill out important information about your Delaware LLC and its structure. Most questions are easy to answer as you only need to write your company name, the address of the company, and the number of members in the Delaware LLC.
If your LLC has more than one member, you will also need to write their name, their title, and their address. Depending on how much information you want to provide, some LLCs also provide details about the role of each member, which also includes the distribution of profits.
Overall, preparing the Certificate of Formation is generally not difficult. Despite the ease of process, a lot of business owner hire a professional to help them fill the form. By paying a few extra dollars, an agent can streamline your filing so you to concentrate on more important matters. Another advantage of hiring a professional company is the time savings because a small typo can delay the LLC formation process for your LLC in Delaware.
After preparing the Certificate of Formation, you can send it to the State of Delaware Division of Corporations. If you have filed the paperwork online, it will take approximately 48 hours to process it. If you are mailing the papers, it can take anywhere from a week to ten days for business entities to get a positive reply.
To register your Delaware LLC, you must file the Certificate of Formation and submit the certificate to the Delaware Secretary of State. Once you get a reply from the Delaware Secretary of State, your Delaware LLC will be officially registered.
The form for the certificate is mostly self-explanatory, but the following particulars are to guide you if you require help in filing the content. You can also contact the professionals at LLC Formations so we can help you file all of the necessary paperwork so you can start an LLC in Delaware.
Principal Mailing and Street Address
In this field, you must disclose the physical address of your office in the state of Delaware. For businesses that have a brick-and-mortar store or a physical storefront in Delaware, it’s easy to fill this form with that address as the mailing address. On the other hand, if you are a resident of Delaware, you may also designate your home address as the office address. Most businesses do not name their home address as an office address because these business filings are in the public domain, which means that your address will be accessible to marketers.
One of the easiest methods to solve this issue is to use a virtual office address or the address provided by a registered agent. There are many reputable professional companies offering office address and registered agent services. For a low cost, you can have a high-street reputable address that can serve as your official office address in Delaware.
Such methods are also extremely popular with online businesses, franchise, and foreign entities, which can get an office address at a reasonable cost. Since professional companies are registered with the Delaware Department of State, everything is done in under the most professional and legal framework. In addition, new businesses don’t need to reveal their private home address to spammers and advertising companies when starting an LLC.
The Management Structure
Most limited liability companies are either controlled by the members or by a manager appointed by the owner. If you are the only person who will be running a business, then the company is considered to be run by a member. Similarly, if there is more than one stakeholder in a company, then the LLC is said to be run by its members. In both these cases, your company is a member-managed company.
On the other hand, if someone appoints a manager to run the company, then the company is said to be run by a manager. There are several instances in which multiple members of the company may appoint a manager to run the show. Such business structures are common when members believe that a certain manager or managers have the unique skills required to run the company. A simple example would be a general manager of a hotel. Usually, hospitality industry has a general manager who takes care of all the hotel affairs.
In this section, you just need to let authorities know the type of management structure. Accordingly, the management structure will be either member-managed or member-managed.
Address & Delaware LLC Cost
In order to start your LLC, you must file the appropriate forms and pay the filing fee. The filing fee can be paid either by check or money order if filing by mail, or by credit card if filing online. Be sure to fill out your LLC application properly as you can experience delays if you have any typos.
You are required to fill in the name and address of the person filing the Articles of Organization. Think of this section as a kind of official signature. If there is more than one person filing the form, then they should also include their name and the address.
Once done, the Articles of Organization is ready for the submission. The last part is to pay the filing fees. You can pay the $90 fee using any major credit card or you may also use a pre-paid account. Before submitting the official document, make sure to make a copy for your records.
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3. Appoint A Delaware Registered Agent
To establish a LLC, everybody must designate a registered representative for their LLC. In line with the laws of Delaware, a n LLC registered agent could be any responsible person or it may also be a professional service firm. If you wish to name a person as a registered representative, the person must have a physical address in Delaware.
There are a lot of professional service providers offering registered agent service for an inexpensive price. State authorities demand that these private businesses meet certain standards to provide such services for LLCs. As such, the benefit of a professional service provider is its capacity to provide round-the-clock service to customers allowing them to get their private documents and relevant official papers in a timely way. This benefits LLCs that are owned by busy or out of state individuals.
For several internet companies and people residing in other U.S. States, a private business offering registered broker service is quite beneficial for LLCs. As a specialist provider, these businesses provide many different services which include registration of Delaware LLC, office address, telephone calling, and business process management.
Address of a Delaware Registered Agent
A Delaware registered agent is someone with a physical address in Delaware who can be contacted by the state to deliver legal letters and official documents regarding the LLC formation and operation. An LLC registered in Delaware must have a registered agent who can receive legal documents from the state on the behalf of the LLC. According to the law of Delaware, a single-member company can be its own registered agent because there is only one member who can take care of the legal communications.
For online businesses, multi-member companies, and foreign entities who do business in Delaware, it is better to appoint a registered agent service for the LLC. The registered agent service will receive and forward all the important documents to the LLC. Even if you are a single-member LLC or multi-member LLC with a physical address in Delaware, registered agent services can benefit a Delaware LLC in many ways.
A registered agent is qualified to receive legal documents for a variety of clients, which means that they are trained to deliver legal documents responsibly to every LLC. This means that they can help you while you form your Delaware LLC. Irrespective of the day of the year, registered agent services make sure that the important documents are delivered to the right recipient at the right time.
If you need help with choosing a registered agent service to help you form your Delaware LLC, contact the professionals at LLC Formations so we can help you get going.
4. Draft an LLC Operating Agreement
Preparing an LLC Operating Agreement, also known as a working agreement, is not mandatory for business entities in Delaware. It’s possible to bypass an LLC Operating Agreement in case you are a single-member LLC. An Operating Agreement outlines the responsibilities and obligations of every member in your Delaware LLC from the start of your LLC formation.
Without an Operating Agreement, Delaware LLCs that have more than one member may get into operational difficulties at a later stage. Operating Agreements are essential for multi-member organizations as they can work as proof if a dispute happens within the Delaware LLC. Since the Operating Agreement also highlights the obligations of every member, members take their responsibilities more seriously within the Delaware LLC.
When you’re forming an LLC, it’s wise to have an Operating Agreement to keep your LLC in Delaware organized. Operating Agreements act as a guide for your Delaware LLC and keeps your business entity organized so you can run business services smoothly. The Operating Agreement also makes your business more professional since everyone knows what is expected individually and collectively within the Delaware LLC.
If you need help writing your Operating Agreement as you form a Delaware LLC, contact the professionals at LLC Formations so we can help you get started.
5. Obtain An Employer Identification Number for Your Delaware LLC
According to state rules in Delaware, single-member Delaware LLCs that have one or more than one employee must register for an EIN, also known as an employer identification number. It’s simple to get EIN for your LLC in Delaware. You simply need to submit a brief form online and then you will get the EIN for your Delaware LLC immediately. Getting an EIN is an important step in starting an LLC in Delaware for many reasons.
Some of the requirements include paying taxes, opening up a bank account, offering specific business services, and paying employees through the business entity. Free of cost, the EIN can be obtained from the IRS site by filing Form SS-4.
If you’re the sole owner of your Delaware LLC, the EIN remains important as you may need it to open a business account or pay certain taxes whether you’re a Delaware resident or a foreign LLC.
6. Get Permits and License for LLC Delaware
Apart from an EIN, certain companies also need permits and licenses to fulfill their legal obligations. For example, health care, property, and construction businesses need special licenses to operate as a Delaware LLC. You can’t form a Delaware LLC without getting these permits and licenses if your business requires it.
If your Delaware LLC is involved with promoting tobacco products, electronic cigarette goods, or products containing nicotine, you’ll need to get the license as soon as you form your Delaware LLC. The license can be obtained by contacting your local licensing authority. If you aren’t sure, speak to a professional representative who will be able to help you to get permits and licenses.
7. Open a Business Bank Account for Your Delaware LLC
Another important part of the LLC formation process is opening a business bank account for your Delaware LLC. After establishing your LLC in Delaware, make sure to get a business bank account. It’s not wise to combine your company and individual bank account since it’ll be damaging to the security of your personal assets, and it could make it difficult to file annual reports for your LLC. As soon as you’ve registered your LLC in Delaware and appointed someone as your own registered agent, it is time to go to the bank so you can set up your business account information for your Delaware LLC.
To register a business bank account for your LLC, you will need to take the LLC Articles of Organization, employer identification number, and the Operating Agreement for your Delaware LLC. Call the bank officials in advance letting them know that you want to open an official business account so that they can get someone who can answer your questions with the correct information.
If you need help finding the right bank and business services for your LLC in Delaware, contact the professionals at LLC Formations.
8. Get Business Insurance
Delaware has business-friendly laws that favor LLCs and small businesses, but you need to cover yourself in case of a mishap within the LLC. There is a variety of business insurances that you may get in Delaware for your LLC. Insurance will help your Delaware LLC reduce risks and focus on increasing sales.
For instance, most LLCs get general liability insurance for their companies, which help LLCs be protected against a potential lawsuit. While personal assets of the owners of a limited liability company are protected by law, it makes sense to protect the profits generated from your business in Delaware.
General liability insurance will make sure that the profits generated from the Delaware LLC are not lost to a legal process; therefore, many LLCs in Delaware also opt for general liability insurance. Similarly, if you are an accountant or a consultant, you may prefer a professional insurance as it will protect you from claims of mal-practice.
For more information on types of insurance for the business services you offer, contact the professionals at LLC Formations so you can form an LLC.
Operating as A Foreign LLC in Delaware
A foreign LLC that intends to operate in Delaware can also use its own branch rather than constitute a separate company. In fact, some types of LLCs such as credit institutions tend use a branch as it allows the foreign company to keep an operational structure, which is more integrated with that of the parent company.
However, there are also certain disadvantages to operate a branch in the United States instead of a full-fledged U.S. company. First of all, the parent company will be directly responsible for the liabilities and operations of the branch according to local Delaware laws. Taxes and annual reports may also be complicated regarding the foreign LLC.
If judges in Delaware consider that the activities carried out by the parent company through its branch breach the local laws, the many advantages of LLC can be wiped out. As a result, the parent company of the foreign LLC could be sued in court. The assets of the parent company will not be protected under the Delaware law in the event of an unfavorable verdict.
If you are operating a foreign LLC as a Delaware LLC, speak with the professionals at LLC Formations about how to remain legally compliant within your limited liability company.
The Top Benefits of Forming an LLC in Delaware
#1. A Delaware Limited Liability Company (LLC) Provides A Multi-layer Protection to LLC Owners
If you’re establishing a company in Delaware, the state offers protection of your personal assets based on the legal structure of the company, and it also offers a “Charging Order” to protect creditors from taking over the organization. In fact, it will not be an overstatement to suggest that Delaware laws are tailor-made for protection of businesses in the state.
When you register a limited liability company, the business owner is automatically protected from the liabilities of creditors and other stakeholders as they cannot access your personal resources to pay off capital. In simple words, it means that no one can access your car, house, personal assets, and bank balance if you didn’t commit a fraud.
#2 Delaware Limited Liability Company Laws Are Business-friendly
When you form an LLC in Delaware, you will have the piece of mind that the state has a history of protecting its businesses. Historically, local courts have always offered protection to businesses from liabilities and credit claims. Abiding by the law that provides “corporate shield” afforded by the Delaware Limited Liability Company Act, laws are written to strengthen LLCs. This is a great bonus of doing business in Delaware.
In recent years, local courts have ruled in favor of small businesses and LLCs. There is a strong tendency of the state to ask for evidence of intentional wrongdoing from the plaintiff if someone sues a limited liability company. Perhaps, it is one of the main reasons why small businesses and single-member companies continue to regard Delaware as a safe state for them to start an LLC.
#3 You Can Operate Your Delaware LLC From Anywhere in the World
One of the distinct advantages of a Delaware Limited Liability Company is its ability to operate from around the world. For foreign entities, online businesses, and out-of-state businessmen, this makes it easier for everyone to register their LLC and offer business services even if Delaware isn’t your home state. The state doesn’t discriminate on the basis of nationality, which means that you can either register online or ask someone to register your company without visiting the United States.
There are a number of reputable professional companies that offer business registration services in Delaware at a fraction of the cost of what you may assume. You just need to provide basic information and then you can form a Delaware LLC. You don’t have to be a resident of the state, or even a resident of the U.S. to form an LLC in the state of Delaware.
# 4 Delaware Honors Operating Agreements Between Business Owners and Partners
A limited liability company in Delaware can create its own agreement when the owners form an LLC. If you have more than one member when you form a Delaware LLC, you and your partners can create an operational agreement regarding the role and duties of each partner. The rules and procedures defined in the written agreement will always be honored by the Delaware court as long as updates are made accordingly to the report.
It means you get better control of your company by creating your rules, regulations, and information. If there is no Operating Agreement when you form an LLC, then the state of Delaware will decide conflicts based on the existing law of the state. If you are the only member of a company and you form an LLC, you can also create rules for potential employees and contractors to meet business requirements, and you will file the annual report on your own.
Overall, there is less administrative paperwork and requirements when you do business in the state of Delaware, which makes creating and operating a Delaware Limited Liability Company easier than many other U.S. states.
# 5 Managers Are Protected from Lawsuits
If you don’t have the necessary business experience, you can let someone else manage the LLC for you. The laws of the state are extremely friendly when it comes to company managers. All managers of Delaware LLCs are mostly exempt from fiduciary duties. By eliminating burden of fiduciary duty for managers of Delaware LLCs, the state encourages managers to make important decisions that are beneficial to stakeholders and minority investors.
# 6 No Corporate Taxes for LLCs and No Business Tax Loopholes
One of the major reasons for the success of the Delaware corporate environment is its tax structure, which prohibits anyone to pay taxes if they did not conduct any business. The LLC would only be responsible for the formation cost. Not surprisingly, the majority of the Fortune 500 companies maintain their headquarters in Delaware due to its tax environment being relaxed when they form an LLC.
Besides getting tax provisions, there are also a lot of benefits for LLCs that want to be taxed as S-corporation or C-corporation. For instance, LLCs can save thousands of dollars by using the tax structure of S-Corporation. The income of such a business can be divided between self employment and S-dividend income for LLCs. Splitting such taxes also saves corporations on Medicaid and social security taxes of LLCs.
The flexible tax structure proves useful for limited liability companies as they expand their business in the future or establish branch network in other U.S. states.
# 7 Speedy Registrations and Business Fillings
The Delaware Secretary of State office is open for extended hours due to the influx of business interest. While there are a lot of state where you will require a week to file papers, get answers, and register business, Delaware is different as it can speed up the process according to the number of filings.
For instance, you can file a business-oriented request after office hours and get your answer within one hour. In fact, this is unheard of in the U.S. business environment. For company registrations, Delaware authorities offer complete flexibility as you can fill company papers online; send it through a registered mail; get everything done on the phone; or pass information using an email. Everything can be done in a matter of hours.
In Delaware, LLC owners are in charge of their work. They’re the boss who tells the state how they want to manage their business. If you want complete flexibility and peace-of-mind, look no further than establishing a Delaware Limited Liability Company. The professionals at LLC Formations are happy to help you get started with your LLC.
# 8 You Can Own and Manage Any Business Type
Regardless of your business interest, Delaware offers extremely flexible operational structures. The state makes it easier for anyone to operate a small business or multi-million dollar LLC. In fact, a number of LLC owners hold a passive stake in Delaware where they use their LLC to hold real estate or an investment property through Delaware LLCs.
Likewise, the state has special provisions for trusts, non-profits, and certain organizations. These companies can not only take massive tax advantages, but they can also expand their businesses to other states and countries without restrictions imposed by other U.S. states. Accordingly, the most common use of establishing Deleware LLCs includes operating a service-oriented business, holding real estate, or holding tangible assets such as an airplane, yacht, or patents.
Delaware LLCs can operate as different types of business structures. If you’re looking to do business in Delaware, contact the professionals at LLC Formations so we can help you get started.
# 9 Delaware Courts are One-of-a-Kind
Delaware has a separate court for LLCs that decides business dispute. Known as the Court of Chancery, it appoints business-oriented judges who have special knowledge of business cases. Their knowledge helps them solve corporate disputes effectively without delaying the entire process. Unlike other courts, there is no jury trial because the judgment of the court is considered a final verdict.
Due to the unique nature of Court of Chancery, business decisions are taken within a matter of months. Most cases are decided in less than three or four months. Decisions for each verdict may consist of more than 100 papers, which reflect the seriousness of the judges. There are no arbitrary outcomes as detailed decisions contain vital information and reasons for the verdict.
If a business is not satisfied with the decision, they can matters to the Supreme Court of Delaware. Just like the Court of Chancery, the Supreme Court puts special emphasis on business cases making it easier for both the parties to get a final verdict within few months. In fact, there is also a provision to expedite the entire process.
# 10 Delaware Has the Most Pro-business Laws Compared to Other U.S. States
Delaware is famous for providing an unbiased non-political decision to business cases. The pro-business environment is Delaware is reflected in the history of judicial proceedings. Since the state handles hundreds of business-related cases every month, the judicial process has evolved into a strong unit, which can decide cases based on a pervious verdict.
It is often easier for the companies to predict the outcome because most cases are decided based on similar provisions found in past cases. As such, judges can relate their verdicts and decisions to a history of fair business judgments. The entire process ensures that everyone can trace the decision to a reasonable judgment. Overall, business trials in Delaware are known to be based on reason and logic.
How Can LLC Formations Help You?
Hopefully, this article has offered you an overview of how you can register and operate your business. If you feel overwhelmed by the information, it’s because it’s a lot to take in. It is highly recommended that you consult a reputable professional agent to help you with starting your business. While a professional agent may charge you a fee to take care of the entire process, it is usually a great value for your money. By outsourcing important business tasks, you can concentrate on growing your business instead.
To keep it simple, start by completing one task at a time. If you follow this guide step by step, you will definitely reach your goal of opening a Delaware LLC.