While forming an LLC in Delaware is easy, there are some things to know. For example, the state does not require you to write down your business purpose or keep the minutes of your meetings.
You do have to file a list of managers or members of your company with the Department of State within 80 days after filing for formation – but nobody needs to sign it. And you don’t need to have regular annual meetings, though many people choose to have them anyway.
Here is a quick overview of the steps involved in forming a company in Delaware. As with any legal decision, you should consult with your attorney when making these decisions.
Forming an LLC in Delaware Is easy
STEP 1: Name your Delaware LLC
You may choose any name available in the state of Delaware for your LLC.
You can even use a word like “Delaware” in the name, but you cannot use certain words that mean something else in Delaware (such as Bank or Corporation) unless you are actually chartered by the state to do business there under that name.
FAQ: Naming a Delaware LLC
Q. Does the name of my Delaware LLC need to end with “Delaware” or can it be a foreign LLC?
A: Your business entity will end in “LLC,” but you do not have to specifically state that it is a Delaware company.
Take note, however, that if your business purpose does not particularly limit the geographic area in which you intend and expect to operate and/or is not limited by specific legislation (meaning if you do not have a contract specifying where your customers are from), people may think your company operates nationwide solely because you have the word “Delaware” in the name of your business.
In this case, some experts recommend amending the name of your business so as to make clear its limited purpose or geographic location.
STEP 2: Choose a Registered Agent in Delaware
A registered agent is a person or business that will receive your notifications from Delaware law enforcement, tax officials, and other agencies.
The State of Delaware requires that this party be located within the state. If you choose a company to be your registered agent, it must have a physical location in Delaware.
FAQ: Nominating a Delaware Registered Agent
Q. Can I be my own registered agent?
A: No. You must name someone else to receive official documentation and tax forms that will be sent from the State of Delaware to your business.
STEP 3: File the Certificate of Delaware LLC Formation
This is the form that you file with the Secretary of State to create your LLC.
You must include:
- The name and address of the registered agent for service in Delaware
- The management structure (member-managed, manager-managed, or member-manager) and number of managers
FAQ: Filing Delaware LLC Documents
Q. How long will it take to get my Delaware LLC established?
A: For most companies, you will receive the Certificate of Formation back in two weeks. However, if there are issues with your filing (such as if your name is too similar to another business already on file with the state), then the process could take up to six months.
STEP 4: Create Your Delaware LLC Operating Agreement
An LLC is not required to have an operating agreement, but many people make the mistake of thinking one isn’t necessary. In reality, it’s a very smart move.
An operating agreement for your Delaware LLC will define how company members should make decisions and set their shares of profits and losses from business operations.
FAQ: Creating a Delaware LLC Operating Agreement
Q. How do I know if I need an operating agreement?
A: An LLC is a legal company structure allowed by the State of Delaware. If you wish to form an LLC and create your own operating agreement, and there are only two people involved in the business, then you may not feel that you need one.
However, because it’s so easy and inexpensive to have one created (prices start at $10), most people decide they would rather be safe than sorry down the line. It’s also wise as a limited liability protection measure for yourself and your business partners.
STEP 5: Get a Delaware LLC EIN
An Employer Identification Number or EIN is your business’ unique identifier with the IRS and other agencies.
You will need to apply for this number even if you do not yet have any employees because it’s necessary in order to open a company bank account and file your first tax return.
FAQ: Getting a Delaware LLC EIN
Q. Do I need a separate EIN for each LLC I am involved in?
A: No, one EIN can be assigned to more than one LLC if they are all registered to the same person or persons.
Pros and cons of forming a Delaware LLC
- Your company is required to pay a flat fee, regardless of how many members/employees you have or where your business is located The annual fees you’ll be charged for running a Limited Liability Company in Delaware are below the national average
- It takes fewer steps and less paperwork to form a Delaware LLC than it does to form one almost anywhere else
- You can easily hire an attorney or other professional to help with specific legal questions if necessary In most cases, it’s not necessary to hire someone this way unless you want them to check over your operating agreement, fill out any special forms for you, etc.
- Not always considered a “no tax”state, depending on your specific business (you may actually be required to pay income tax in Delaware)
- It’s a bit more expensive to form a Delaware corporation or S-Corp instead of a regular LLC Most businesses have no problems with these fees and the extra requirements involved when forming a corporation or an S-Corp.
How much does it cost to form a Delaware LLC?
The fees involved in forming a Limited Liability Company cost $89.75. If you have employees, the fee is increased by .75 to account for their tax paperwork.
The annual fees are broken down into four different categories depending on how many members are in your business and where you live within the state of Delaware.
Most businesses will pay between $125-$500 annually depending on these two factors plus whether or not they have any employees at all. These fees are very low compared to other states that require yearly renewal fees!
Separate Your Personal and Business Assets
While you are forming your business in Delaware, it’s important to consider how you will separate your personal and business finances.
If you do not plan properly, when debt is incurred with one account, it can cause problems with both. This structure allows easier maintenance of financial records in the event that all aspects of a business are used for that specific purpose only.
1. Opening a business bank account:
This is the cornerstone of separating personal and business finance. If you plan to maintain financial records for your business, it’s advisable that you use only one account for all transactions.
2. Getting a business credit card:
Use this card for all business expenses. If you are planning to offer your employees payment via credit or debit cards, this is the way to go.
They can be set up with individual accounts that are linked back to one primary account which you manage personally.
3. Hiring a business accountant:
If your business is bringing in enough money that you need an accountant, then it’s advisable that you hire one who isn’t also handling your personal finances.
It’s important to separate the two; otherwise, we suggest hiring qualified professionals for each different function.
Get Business Insurance for Your Delaware LLC
Your LLC is the most important asset your business will ever own and you need to protect it. Besides, if anything were to happen, you would want all your personal assets protected as well.
There are three main types of insurance:
1. Commercial property insurance
This type of insurance covers damage (and theft) of business properties such as buildings, vehicles and equipment used for commercial purposes
2. General liability insurance
This form of coverage protects businesses from claims due to injury or material damage done by the client or customer on behalf of the company.
This can be extended with umbrella liability protection which includes damages and injuries caused by third parties such as dog bites, faulty products and slip and fall accidents
3. Worker’s compensation insurance
This type of coverage is mandatory in some states and optional in others, including Delaware. If you employ even one person part-time, we recommend that you get worker’s comp coverage to ensure employees can receive benefits such as medical payments and lost wages if they are injured on the job.
The benefit of working with a broker for this insurance specifically is that he/she can walk you through your options and help determine what best meets your specific needs while balancing all available plans.
Delaware LLC Business Permits and Licenses
You will need to secure specific business permits and licenses when you incorporate in Delaware.
The actual steps vary depending on the type of business, but we suggest using an attorney for this step or hiring a Business Compliance Specialist who can walk you through each individual requirement.
Delaware LLC Tax Filing Requirements
The tax filing requirements for Delaware LLCs are fairly straightforward and we suggest working with an experienced business compliance specialist to ensure you meet all of your state and federal filing obligations.
Delaware Sales Tax
As with most states, including Delaware, you must include sales tax on taxable goods and services sold to the public. This includes email marketing campaigns sent to existing customers or prospects.
The following steps will help get your business set up for sales tax compliance in Delaware:
- Obtain your state’s general information number (SIN)
- Complete an application form
- Include the correct taxing authority (sales tax division) on all of your customer invoices/contracts
- Register for a federal Employer Identification Number (EIN) if you don’t already have one
- Establish a filing schedule by which all transactions are reported, usually on a quarterly basis
- File sales tax returns using the correct forms
- Report/pay all sales taxes due on time
- Keep accurate records for at least four years (the statute of limitations) to protect yourself should an audit take place.
Delaware Employer Taxes
As an employer, you are responsible for withholding income taxes and reporting payroll information to the Internal Revenue Service (IRS) on a regular basis.
For more detail about your specific responsibilities, consult IRS Publication 15-A.
Delaware Gross Receipts Tax
The Delaware Gross Receipts Tax (GRT) is imposed on the privilege of doing business within the state and must be collected from customers by companies located in Delaware.
There are exemptions to this rule for nonprofits, charities, and wholesale/resale businesses.
Delaware Franchise Tax
The Franchise Tax applies to all domestic Delaware corporations and partnerships or LLCs organized within the State of Delaware which transact intrastate business.
The tax is calculated as a percentage (1%) of the first $1000 plus (0.75%) on taxable income above $1000 up to $150,000; plus (0.50%) on taxable income exceeding $150,000 up to $250,000; plus (0.25%) on taxable income exceeding $250,000 up to $500,000; plus (0.125%) on taxable income exceeding $500,000 up to $1million; and (0.05%) on taxable income exceeding $1 million.
Federal LLC Tax Filing Requirements
You will need to register your LLC with the IRS and pay any associated annual tax filing fees. Since LLCs are not considered “pass-through” entities, all income and expenses must be counted as taxable income for federal purposes.
However, you will typically claim 1099-MISC forms at year-end for independent contractors or freelancers paid via invoice.
Federal Return Filing Requirements
The US government has specific rules for filing business returns (Form 1120) depending on whether you file as a C-Corp., S-Corp., Partnership, or Sole Proprietorship.
You can work with an accountant or other compliance specialist to help ensure that the appropriate forms are filed in a timely manner and all amounts due are remitted.
State Income Tax
If you fall under the state income tax requirements, you will be responsible for following your specific state guidelines to ensure that income taxes are paid on time.
Since each states’ legislation is different, we recommend working with a compliance specialist to ensure all deadlines are met and no fees or fines are assessed.
Delaware Division of Revenue
The Delaware Division of Revenue is the state agency responsible for setting up businesses within the State of Delaware.
They are able to provide you with all of the necessary forms and information you will need to complete in order to formally register your business.
The website also contains additional information about obtaining a Federal EIN, reporting requirements, and more.
Setting up your business in Delaware will make it easier to expand into other states.
However, you should consult with legal counsel or tax professionals early on to ensure all filing requirements are met.