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An LLC (Limited Liability Company) is a business organization set up to allow liability protection for its owners. The LLC is not a formal corporation or a partnership, though it has characteristics of both. Unlike a corporation or partnership, the LLC offers owners limited personal liability—the owners stand to lose only what they put into the business. This guide will walk you through the steps necessary to form an LLC in the state of Delaware.
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Tips on Forming an LLC in Delaware
- Delaware's Division of Corporations is the jumping-off point for LLC formation in the state
- The Division's website offers all forms necessary for filing LLC status
- Select a name for your company
- File paperwork to register the company name
- File paperwork to establish your LLC in Delaware
- LLCs in Delaware are required to pay a $250 annual tax
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Managed Since: 08/01/2009
Views: 505
Money Earned: M$13.08
Page revenue is subject to change as we obtain data from our partners
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Introduction
- If you are the sole owner of a company, you might want to consider becoming an LLC. An LLC, or limited liability company, is a business with characteristics of both a corporation and a sole proprietorship or partnership. LLCs offer owners a limited personal liability for business debts and claims. LLC owners stand to lose only what they put into the business; only the LLC assets are used to pay off business debts. For tax purposes, LLCs have "pass-through" taxation status from the IRS, meaning that the company's business income is reported on your personal tax return.IRS.gov: Limited Liability Company (LLC)
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Why Delaware?
- While an LLC can be formed in any of the U.S. states, LLCs are popular in Delaware: more than 50% of all U.S. publicly traded companies and 63% of the Fortune 500 are legally located in the state.Delaware Division of Corporations: Why Choose Delaware as Your Corporate Home? Delaware is popular with businesses for a number of reasons:
- Delaware is known as a business-friendly state, meaning it has business-friendly laws.
- Because many major corporations are incorporated in Delaware, the state has an intricate court system that can handle any business-related litigation issues.
- Delaware does not tax out-of-state income.LegalZoom.com: Form an LLC MyNewCompany.com: In Which State Should I Incorporate or Form an LLC?
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Step 1: Choose a Company Name
- The first step in establishing an LLC in the state of Delaware is selecting a name for your company. The Delaware Division of Corporations makes this step relatively easy by offering a name reservation application on its website.
- Fill out the proper paperwork establishing your LLC's name.
- The name cannot be similar to any other corporate or company name on file with the state. The Delaware Division of Corporations offers a handy online search guide to help you make sure your company's name isn't too similar to an already-established company in the state.
- You must include the proper LLC identifier in your company name: either LLC or Limited Liability Company.MyNewCompany.com: How to Incorporate in Delaware
- Submit the application and pay the necessary fees for registration. The application fee for an LLC company name in Delaware is $75.Delaware Division of Corporations: Application for Reservation... (50.67 KB)
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Step 2: File the Necessary Paperwork
- All LLCs are required to file with the Delaware Division of Corporations. Some companies will offer to do this for you, but the state of Delaware makes the process relatively simple by offering an online PDF form for you to fill out to obtain a certificate. In addition, LLCs are required to pay an annual tax of $250.Delaware Division of Corporations: How to Form a New Business Entity
- Fill out the LLC application form. In Delaware, an online PDF form is offered to make the process easier.
- You will want to include a cover letter containing all pertinent contact information: your name, address and a telephone number. Proper cover letter format can also be found on the Delaware Division of Corporations website.
- Pay the necessary registration fees. The fee to file the formation certificate in Delaware is $90. If you want a certified copy of your document, an additional fee of $30 is required.Delaware Division of Corporations: Certificate of Formation... (65.00 KB)
- Once you file the necessary form with the state of Delaware, it can take 4-6 days to receive your formation documents.INCNOW: How Long Does the Formation Process Take?
- The Delaware Division of Corporations does offer expedited services, but the fees for such services can be high. For one-hour service, for example, the fee is $1,000.Delaware Division of Corporations: Expedited Services
Step 3: Adopt An Operating Agreement
- While an operating agreement is not a legal requirement for an LLC in the state of Delaware, it is usually a good idea to adopt one, even if you are the sole owner of the company. The operating agreement is similar to a corporation's bylaws; it establishes guidelines for running the business on your terms—not terms set forth by a state. In addition, the operating agreement can protect your LLC by distinguishing it from a sole proprietorship.NOLO.com: The LLC Operating Agreement An operating agreement can include:
- The management structure of the LLC
- The percentage interests of each member of the LLC
- The responsibilities of each LLC member
- Allocation of any profits or losses
- Information on potential buy-outs involving membersNOLO.com: The LLC Operating Agreement
Step 4: Tax Information
- Once you have established a name for your LLC, filed the necessary paperwork and drawn up an operating agreement, it is time to determine if you need to apply for a Federal Tax Identification Number.
- According to the IRS, you will need to file for a Federal Tax ID Number if your LLC has employees and the LLC reports and pays employment taxes.
- If the LLC has more than one owner, you must file for a Federal Tax ID number.
- If you are the sole owner of the LLC and have no employees, filing for a Federal Tax ID Number is not necessary.IRS.gov: Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership...
- If specified on an SS-4 form, an LLC in Delaware can be recognized as a partnership; it will not be subject to federal income tax.Delaware Incorporation: What is a Limited Liability Company (LLC)?
- The LLC can elect to be taxed as a corporation; form 8832 is necessary to do so.IRS.gov: Tax Issues for Limited Liability Companies
- For more information on the types of tax returns that should be filed, consult Tax Issues for Limited Liability Companies on the IRS website.
Conclusion
- Forming an LLC can help you get your business off the ground, and allow you to enjoy the many benefits of a corporation without the higher taxes and extra paperwork. Forming an LLC in the state of Delaware is attractive because it is known as a business-friendly state, and the Delaware Division of Corporations offers most applicant forms online, making it easier than ever to start your new venture. Good luck!
