Forming an LLC in Delaware
When you start a new business, one of the first decisions you will need to make is the type of business structure you will use. An LLC is a popular structure with small businesses because of the simplicity and personal liability protection they offer. You can start your own Delaware LLC by following along with the five steps below.
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Step One: Choose a Unique Delaware LLC Name
Before you can formally create your LLC, you need to have a name ready to go. According to the Delaware Limited Liability Company Act, your LLC name must:
- Be available: the name must be different from the names of any other businesses registered with the Delaware Secretary of State.
- Make it clear that your company is an LLC: Your name must contain the words "Limited Liability Company." If you prefer, you can use the approved abbreviations "L.L.C." or "LLC"
- Not contain restricted words: You should not incorrectly use any variation of the word “bank" in your LLC name.
To find out if your name is available in Delaware, you can run a business name search. The Delaware Division of Corporations provides a searchable database to make this easy. If there are any exact (or deceptively similar) matches, you will need to find a new company name.
Next, you should run an internet screening search for your name. This is an easy way to quickly determine whether any major businesses are already using your desired name. To complete this search, simply type your name into your favorite internet search engine.
It's wise to check the United States Patent and Trademark Office (USPTO) for any trademarks of your name too. The USPTO has a database of all United States registered trademarks for this purpose. To avoid legal trouble for trademark infringement, you should not use a name that is trademarked by another business.
Finally, you should consider checking for domain name availability. It's a good idea to reserve your domain name, even if you are not starting your website right away. With a domain name ready to go, you can build your web presence more easily when the time comes.
Step Two: Select a Delaware Registered Agent
All Delaware LLCs need to have a registered agent. A registered agent is a person or entity who will accept important legal paperwork for your LLC. If someone sues your business, the service of process would go to your registered agent.
Under Delaware law, your registered agent can be:
- Your LLC itself
- A Delaware business
- An individual who is a resident of Delaware
The registered agent must have a physical street address (not a PO Box) in the state of Delaware.
Step Three: File Your Delaware Certificate of Formation
To officially form your Delaware LLC, you need to file a certificate of formation with the Delaware Division of Corporations. The certificate of formation is like a charter that formally establishes your LLC as a legal entity. You may hear people calling this document a certificate of organization or articles of organization. This is not a difficult document to create. You will probably find all of the required information easily at hand.
To complete your certificate of formation, you will need to give:
- Your LLC name
- The address of your registered office
- Your registered agent's name and address
- Any other information you would like to add
- A $90 state fee
Note that your registered office and registered agent's addresses should be the same.
The Delaware Division of Corporations provides a certificate of formation template to help you draft this document. On the template, you will find contact information for the agency.
If you would like to expedite your LLC registration, you can do so for an additional $50 charge.
Step Four: Create an Operating Agreement
An operating agreement is not required as part of the Delaware LLC formation process. However, an LLC operating agreement is a key company document that every LLC should have. An operating agreement forms a contract among members on important LLC issues, including:
- Management style
- Member rights and responsibilities
- A profit and loss allocation plan
- Ownership percentages
- Voting rights
- Procedures for removing or adding members
- Any other agreements among members
Even a single-member LLC should have an operating agreement. An operating agreement shows that you treat your LLC as an entity separate from yourself. This helps to protect your limited liability status.
Once you and your LLC members have signed it, you should store your operating agreement with your other important company records. You may need to show it to open a business bank account or apply for a loan. Certain professionals, such as accountants and attorneys, may also ask to see it before doing business with your LLC.
If you have any trouble drafting an operating agreement, an experienced Delaware business attorney can help.
Step Five: Comply With Tax and Licensing Requirements
Once your LLC is up and running, it's important to make sure to follow all tax and licensing rules. These will vary depending on your location and the nature of your business.
To find out which state licenses you will need, you should check Delaware's index of business licenses. At the Delaware Division of Revenue One Stop portal, you can apply for those licenses and register as an employer. The portal offers more information about starting a Delaware business too.
Depending on the type of business you run, you may need city or county licenses. Delaware's Business First Steps website provides licensing information for Delaware cities and counties.
Delaware does not require LLCs to file annual reports. But your LLC will need to pay an annual tax of $300 every year after the year of your LLC's creation. The tax is due before June 1st annually.
Delaware is one of the few states that does not charge sales tax. But you may need to pay gross receipts tax if you sell goods or services in the state.
If you have employees, you will need to register for withholding tax and unemployment insurance tax. To learn more about your state tax obligations, you should visit Delaware.gov.
There may be city or county taxes too. You should check with your local governmental agencies to find out more.
Federal LLC Requirements
Certain businesses may need a federal license. This will depend on the type of business activities you engage in. To find out if you need a federal license, you should check the Small Business Administration (SBA) website. There you will find a list of business activities that are subject to federal licensing requirements.
If your LLC will have more than one member or hire employees, you will need an Employer Identification Number (EIN). An EIN is a unique identifying number that the Internal Revenue Service (IRS) issues. The IRS uses it to distinguish between businesses for tax purposes. In this way, it's like a Social Security Number for businesses. Applying for an EIN is easy and free. You can apply by mail, fax, or online.
You will use your EIN for:
- Employee payroll
- Paying taxes
- Opening a business bank account
- Applying for a company credit card
To learn more about your federal business tax requirements, you should visit the IRS Small Business and Self-Employed Tax Center.
Delaware LLC FAQs
Here are some frequently asked questions about starting an LLC in Delaware.
Why Should I Start an LLC?
LLCs are a popular structure for small business startups. One of the main advantages of an LLC is the limited liability protection. With limited liability, LLC owners are only responsible for the LLC's obligations up to the amount they invested in the business. In other words, your car, house, and personal accounts will not be at risk if someone sues your LLC.
Not all legal structures provide this protection. For example, if you own a sole proprietorship, your business's creditors could come after your personal property to cover business debts.
In addition to liability protection, LLCs also offer a simple and flexible structure. If you would like to streamline your business operations and protect your personal assets, you should consider an LLC for your business.
How Much Does it Cost to Start an LLC?
You will pay $90 to submit your certificate of formation, which creates your LLC. There will be other state filing fees if you need to amend your certificate of formation or change your registered agent. You can find a full list of these fees at the Division of Corporations Fee Schedule.
Can I Operate My Out-of-State LLC in Delaware?
Yes, but you need to register it first. To register your out-of-state LLC (foreign LLC) in Delaware, you need to file a Certificate of Registration with the Division of Corporations.
To complete your Certificate of Registration, you will need to provide:
- Your LLC's name
- Your Delaware registered agent and registered office address
- The nature of your business
- The name of the state where you formed your LLC
- The date when you first began doing business or will start doing business in Delaware
An authorized person for your LLC will need to sign the form. With the registration, you must include a certificate of existence. You will get this from the state where you organized the LLC. You may find that this is called a certificate of good standing in other states. You will probably need to contact the secretary of state where you started your LLC to request this document.
Can I Reserve My LLC's Name?
Yes. If you would like to reserve your name before starting your LLC, you can do this online at the State of Delaware website. This name reservation lasts for 120 days and there is a $75 fee.
Note: State laws are always subject to change through the passage of new legislation, rulings in the higher courts (including federal decisions), ballot initiatives, and other means. While we strive to provide the most current information available, please consult an attorney or conduct your own legal research to verify the state law(s) you are researching.
FindLaw's Business Formation Service
Fortunately, forming an LLC in Delaware can be a straightforward process with FindLaw's Business Formation Service. If you would like additional assistance, an experienced Delaware attorney near you can help.
Forming an LLC in Delaware: Related Resources
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