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Entrepreneur’s Guide to Setting Up a Delaware LLC

Entrepreneur’s Guide to Setting Up a Delaware LLC

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Entrepreneur’s Guide to Setting Up a Delaware LLC

It’s hard to know where to begin when starting a business start, especially when it comes to the legalities of setting up the business structure. Here, we’ll provide step-by-step instructions on starting a Delaware LLC so you can learn to do it yourself without an attorney.

Related: Guide to starting a business in Delaware

What is an LLC?

The Limited Liability Company (LLC) is a popular business structure (also called a business entity) for many new Delaware businesses. The LLC provides personal asset protection and potentially saves money on taxes.

Unlike a sole proprietorship or general partnership, where the small business owner can be held personally liable for lawsuits against the business, the LLC is a separate legal structure protecting the business owner’s personal assets.

Besides the liability protection, the Limited Liability Company provides several other benefits over the sole proprietorship, general partnership, and corporation because of the multiple tax options, ease of administration, and management flexibility.

One of the reasons the Delaware LLC is so popular is due to the potential benefits of how the state statutes treat businesses. Delaware has a court system just for businesses, called the Court of Chancery. Cases in the Court of Chancery are argued in front of judges, not juries, which means any legal dispute has likely already been argued in court, and businesses will know whether to fight a lawsuit or settle. While this may be a benefit, understand there are additional costs because if you form a Delaware LLC but physically operate in another state, you will need to register as a foreign LLC in your home state. In addition to the extra filing fees (a foreign LLC costs an extra $200 annually), there may also be additional accounting fees to account for. In most cases, you are better off creating an LLC in the state where the business activity will take place.

Delaware offers another benefit for LLCs that are formed in the state but don’t conduct business in the state, which is not having to pay state income taxes.

The filing fee to form a Delaware LLC is $90, and approval typically takes 2-3 weeks. 24-hour expedited processing is available for an additional fee.

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Steps To Form A Delaware LLC

Step 1: Choose an LLC Name

The first step in starting an LLC in Delaware is making sure the name you want to use for the LLC is available. This step is especially important because the name of new LLCs has to be different from other entity names in the state of Delaware. The Delaware Department of State makes it easy to check on which Delaware LLC names are being used with their online name database.

Note that even though a name may be available from the state, it does not check for trademarks.

There are a few LLC naming requirements in Delaware to be aware of:

1. The name of the LLC must include one of the following words or abbreviations at the end of the business name:

  • Limited Liability Company
  • LLC
  • L.L.C.

2. A comma may be used after the business name and before the designator.  “Blue Hen Boutique LLC” and “Blue Hen Boutique, LLC” are acceptable.

3. The LLC name can’t contain the word “bank” or any variation thereof, except for the name of a bank reporting to and under the supervision of the Delaware State Bank Commissioner.

If you are not ready to form the LLC but want to reserve a name, the Delaware Division of Corporations allows the option of reserving an LLC name for up to 120 days.

You may also want to see if a domain name is also available to have a matching website address.

Step 2: Appoint a Delaware Registered Agent

In Delaware, every LLC will need to appoint a registered agent. A registered agent is simply an individual or company with a Delaware street address who is responsible for receiving legal legal documents, such as lawsuit notifications, on behalf of the business.

While many LLC owners opt to fulfill this role themselves, some owners choose to hire registered agent services like Northwest Registered Agent. Utilizing a registered agent service ensures that your LLC adheres to state requirements while offering an added layer of convenience and confidentiality since the owner’s personal address isn’t disclosed in public records.

Related: What is a Delaware registered agent?

Step 3: File the Delaware Certificate of Formation

The paperwork to create an LLC in Delaware is called the Certificate of Formation and is filed with the Delaware Department of State, Division of Corporations, which is organized under the Delaware Secretary of State.

To file, the Delaware LLC Certificate of Formation from the Department of State will need to be filled out. The sample form from the Delaware Department of State’s website can either be mailed in or uploaded on their site.

A cover letter will also need to be included when filing the Delaware Certificate of Formation by mail.

Related: How to fill out the Delaware Certificate of Formation

Turnaround time for the state to approve the LLC paperwork is approximately 2-3 weeks; however, expedited processing is available for an additional fee.

Contact the Delaware Department of State, Division of Corporations if you have questions.
401 Federal Street – Suite 4
Dover, DE 19901
Ph: 302-739-3073
302-739-3073
https://corp.delaware.gov/contact.shtml

If you are worried about making a mistake when forming your LLC, or just don't want to deal with filling out state paperwork, an LLC formation service will help guide you through the process. My top recommended services include:

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What To Do After Setting Up Your Delaware LLC

Once the LLC has been formed, there are a few additional steps to take care of. Below is a list of the most common tasks.

Prepare a Delaware LLC Operating Agreement

The operating agreement is a document that governs the framework of an LLC.  This document covers items like ownership rights, member (LLC owner) responsibilities, how profits and losses are distributed, and more.

Most states do not require an LLC to have an operating agreement, but it is still worth considering. Without an operating agreement:

  • The LLC could be subject to generic state rules that may be detrimental in the event of a lawsuit.
  • Member’s personal liability protection may be diminished.
  • LLC members may not fully understand their roles and responsibilities, which could lead to costly disputes in the future.

Related: Delaware operating agreement template

Obtain an EIN

If the LLC will hire employees or is owned by more than one member, an EIN is required. 

The EIN or Employer Identification Number (also referred to as a Federal Employer Identification Number, FEIN, or Federal Tax ID Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes.

Related: How to apply for an EIN

Open an LLC Bank Account

Opening a bank account for your Delaware Limited Liability Company is important for liability protection as the account separates the business’s funds from the member’s personal funds.

Several documents will be needed to open a business bank account, such as:

  • A banking resolution is a document that authorizes the members to open a business bank account on behalf of the LLC.
  • Copies of the original LLC formation paperwork from the state showing the creation of the LLC.
  • Goverment ID of the member(s).
  • Depending on the LLCs age, a Delaware Certificate of Good Standing may be needed to prove the LLC is active and in good standing with the state.

Apply for Business Licenses and Permits

Depending on what your business does and where it is located, there will likely be various business licenses and permits to register for. Some common registrations include:

  • Business license: Every business operating in the state will need to obtain a State of Delaware business license from the Delaware Division of Revenue.  The business license combines licensing from the Division of Revenue, the Division of Unemployment Insurance, and the Office of Workers Compensation. Also, several cities require businesses to obtain licensing before they can start.
  • Professional license: The state of Delaware requires certain services, such as barbershops, accountants, salons, and others, to be licensed.

Related: What business licenses are needed in Delaware?

Pay the Annual Franchise Tax

LLCs file an annual report in many states, but LLCs in Delaware instead pay a $300 annual franchise tax to the Delaware Department of State. The franchise tax is not a tax on franchises but for the privilege of doing business in the state. Franchise taxes are due by June 1st, starting after the first year of formation.

Additionally, Delaware has a Gross Receipts Tax. Although Delaware doesn’t impose a sales tax, the Gross Receipts Tax is a tax on the total gross revenues, regardless of the source.

File the Beneficial Owner Information Report

Beginning in 2024, any individual who owns at least 25% or has “substantial control” of an LLC or corporation in Delaware or any other state must file the Beneficial Ownership Information (BOI) form with the Financial Crimes Enforcement Network (FinCEN). BOI reports are filed electronically through FinCEN’s website.

This material is property of StartingYourBusiness.com

Delaware LLC FAQs

How much does a Delaware LLC cost?

There is a state filing fee of $90 with the Delaware Department of State LLC to start an LLC in Delaware.

Is there a yearly fee for an LLC in Delaware?

Yes – Each year LLCs will need to pay a $300 Annual Franchise Tax.

How long does it take to set up an LLC in Delaware?

It normally takes 2-3 weeks for an LLC to be approved by the state of Delaware, though expedited processing is available for an additional fee.

What is a Delaware anonymous LLC?

An anonymous LLC isn’t a special type of LLC but refers to the state keeping the names of LLC owners private. Deleware is one of four states where the owner’s name and address are not made public.

Related: What is an anonymous LLC?

Can you use a PO Box for your LLC in Delaware?

A PO Box can only be used as a mailing address for the LLC. A physical street address in Delaware must be used for the Registered Office and Registered Agent.

What is a Delaware Series LLC?

A Delaware Series LLC is a unique form of a Limited Liability Company offered in a small number of states, including Delaware.

This structure allows for the creation of multiple, independent series or divisions under the umbrella of a single LLC. Each series can hold assets, have its own members, and operate independently from the others while still being shielded from the debts, obligations, and liabilities of the other series and the LLC as a whole. It’s like having multiple mini-LLCs within one big LLC, each with its own financial and legal responsibilities.

The Series LLC is mainly of interest for businesses that want to manage different projects or properties separately without setting up multiple LLCs.

Entrepreneur’s Guide to Setting Up a Delaware LLC

Entrepreneur’s Guide to Setting Up a Delaware LLC

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