You may be tempted to follow the crowd when deciding where to form your new business entity.
Business-friendly laws and a business court of chancery make Delaware the most popular state for small business owners and seasoned entrepreneurs alike to form an LLC. Delaware is often considered one of the best states to form an LLC because it has limited fees and tax obligations
Flexibility and limited personal liability to protect personal assets make limited liability companies (LLCs) the most popular business structure for many.
So if you too would like to settle your operations in Delaware, this guide will explain how to get your company registered and running in the steps outlined below.
Steps to Open an LLC in Delaware
- Step 1: Select a Unique Name for Your LLC
- Step 2: Appoint a Registered Agent
- Step 3: Draft and File a Certificate of Formation
- Step 4: Draft an LLC Operating Agreement
- Step 5: Obtain an EIN (Employer Identification Number) from the IRS
- Total Cost to Set Up Your LLC in Delaware
- Last Steps
Step 1: Select a Unique Name for Your LLC
The LLC name in Delaware must meet specific requirements to ensure that the public understands the nature of your business.
For example, to inform the public what type of business entity you have chosen, the name must include the words “limited liability company” or an abbreviation such as “L.L.C.” or “LLC.”
Your name also should be distinguishable from the words of other businesses in Delaware. The name may also contain the words such as:
- Company
- Association
- Club
- Foundation
- Fund
- Institute
- Society
- Union
- Syndicate
- Limited
- Public benefit
- Trust.
However, you must avoid any indications that may lead others to believe that your business is associated with the government or a bank.
Once you have chosen a name that complies with Delaware’s requirements, check to see if it’s available on the Delaware Secretary of State Division of Corporation’s website.
You can reserve the name for a $75 fee if it is available. The name reservation will be valid for 120 days. Remember, reserving a name does not mean that Delaware will accept the selected name as your legal LLC name. Delaware may still reject your choice after you file the Certificate of Formation, a topic discussed below. Your LLC may also request a “doing business as” (DBA) name, which can be different from your company’s legal name. To do so, your LLC will have to register the DBA company name in the location where your LLC does business. The cost is $25 per assumed name.
Step 2: Appoint a Registered Agent
The purpose of a registered agent is to receive important mail from the state or legal documents such as accepting service of process in case a lawsuit is filed against your business.
A registered agent can be either a person at least 18 years old or a business entity with a physical address in Delaware.. You or your business can be your own registered agent if you feel comfortable listing a physical address in the state (P.O. boxes are not accepted). However, this can create privacy issues if a process server shows up at your place of business to serve the lawsuit.
For privacy reasons and because most Delaware LLCs do not have a physical address in the state, most people designate a third person or entity who resides in Delaware to act as their designated registered agent. Many companies offer registered agent services in Delaware and will act as your designated registered agent for a flat fee per year. The Delaware Division of Corporations also provides a list of recommended registered agent companies.
Step 3: Draft and File a Certificate of Formation
The “Certificate of Formation,” called “Articles of Organization” in other states, is a legal document that creates your new LLC.
The state application form is very straightforward and only requires you to provide the name of the LLC and the name and address of the registered agent. A person authorized by the LLC, called LLC organizer, must sign the document and submit it to the Delaware Division of Corporations.
There is no official state document that Delaware requires you to use. However, Delaware provides an example of Certificate of Formation on its website you can copy and submit.
The filing fee for the Certificate of Formation is:
- $90 for domestic LLCs
- $200 for foreign LLCs registration/conversion, plus the USD 90 for the certification formation
Once filed, Delaware will return a copy stamped “filed” to you. You may (and should) request a certified copy of the document for $50.
The Certificate of Formation can be filed online. Or sent over by mail to:
Division of Corporations
John G. Townsend Building
401 Federal Street
Suite 4
Dover, DE 19901
If filing by mail, be sure to include a cover letter and a check for a state filing fee.
After Delaware receives your Certificate of Formation, it generally takes 7 to 10 days to process the document. If the above sounds too long, you can opt for the following expedited services for a fee.
Step 4: Draft an LLC Operating Agreement
An operating agreement is a document governing the rights and obligations of the LLC members. It is similar to the by-laws of a corporation. It’s an internal contract LLC members typically, although not always, in writing and signed and dated upon forming the LLC.
Although an operating agreement is not necessary at formation, Delaware law requires all LLCs to adopt an operating agreement eventually. Whether the operating agreement is created before, after, or at the time of formation, it may be made effective upon formation or at some other time. The operating agreement may be written, oral, or implied.
The Delaware Limited Liability Company Act will “fill in” the terms of the operating agreement where necessary. Where a Delaware LLC is formed without a written or oral operating agreement, the Delaware LLC Act will be the implied operating agreement.
You don’t have to file a copy of a written operating agreement with the state.
Delaware is one of the few states that does not require the LLC to maintain this as part of its books and records. A Delaware LLC must only record each member and manager’s last known business, residence, or mailing address. However, a copy of a written operating agreement should be provided to all members and kept with company records. Whether your LLC has one member or multiple members, a written operating agreement is strongly advised at or before the time of formation. One reason is to enact extra liability protection not provided by Delaware law.
For multi-member LLCs, a good reason to have an operating agreement is to prevent conflict among the LLC members.
A properly drafted operating agreement will address, at a minimum, the following member issues:
- Member identity
- Member interests
- Member capital contributions.
- Allocation of profit and losses among the members
- Amount and timing of member distributions
- Management responsibilities
- Voting rights
- Procedures for changing the LLC ownership structure
- Financial reporting responsibilities
- LLC dissolution procedures
Step 5: Obtain an EIN (Employer Identification Number) from the IRS
Now that you have formed your new entity, you should obtain an employer identification number (“EIN”) from the Internal Revenue Service (IRS).
An EIN is necessary to hire employees and file employment tax returns. Some financial institutions may also ask for your EIN to open a business bank account. But this is not a legal requirement. For instance, if you report your federal taxes as a sole proprietorship, you can provide your social security number instead.
The application process is straightforward, and you may obtain an EIN online. Once you have completed the application, you will immediately be assigned a permanent number.
Total Cost to Set Up Your LLC in Delaware
Your total cost to set up your LLC in Deleware may vary on a variety of factors, including whether or not you are a domestic or a foreign corporation, whether or not you have a Deleware address and other factors.
The minimum amount you can expect to pay is 90 USD for filing your Certification of Formation.
Last Steps
After you successfully incorporate your business, there are several next steps you will need to take, which include opening a bank account, obtaining necessary permits and licenses, and annual reporting and tax filings.
Open a Business Bank Account
Opening a business bank account is an essential first step in the operation of your new business.
If your company operates in several states, consider using a national bank such as Bank of America or Chase. If your business will be confined to Delaware and you live in this state, opt for a more affordable local bank.
Local banks usually offer more personal services and lower fees than national banks. Wilmington Trust has an excellent reputation in Delaware.
To open a business account, you must usually provide your Certificate of Formation and proof of your EIN from the IRS. You will also typically need to provide a sample signature to the bank.
Fees will vary depending on the activity in your account and the amount of cash on deposit. Overall, plan to pay $0 to $35 monthly.
Delaware Permits and Licenses
Any person or entity conducting a trade or business in Delaware, including corporations, must obtain a State of Delaware Business License from the Delaware Division of Revenue. The annual fee for a Delaware business license varies; however, the rate is generally $75.00 for a first location. A separate permit is required for each individual business activity.
After the first year, Delaware businesses may additionally opt to buy a three-year business license. The cost of a three-year license is not discounted; companies will pay three times their regular yearly license fee for a three-year license.
Register with Delaware State Tax Authorities
An LLC in Delaware must register with various government agencies, including the Division of Revenue.
Delaware Limited Liability Companies must pay an annual tax of $300 for the privilege to conduct business in Delaware. Further, an LLC in Delaware may be subject to other business taxes, such as gross receipts or employment taxes.
You can determine your tax liabilities and register for all applicable state tax licenses via the Delaware One-Stop business portal.
Frequently Asked Questions
Below are some of the most frequently asked questions (FAQs) about forming an LLC in Delaware.
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Last updated: Dec 2023