DELAWARE LLC FORMATION: ANSWERS TO 9 COMMONLY ASKED QUESTIONS
On this page we'll answer the following questions regarding forming a LLC business entity such as:
- What are the advantages of forming a Delaware LLC?
- What are the disadvantages of forming a LLC?
- What are the articles of organization?
- What is a franchise?
- How do I conduct a name search?
- How do I search for an existing company on the State of Delaware website?
- What is a registered agent?
- What are the setup costs and fees?
- What are the annual fees and franchise taxes?
We also have a special section for non-US-residents and non-US-citizens. And we'll finish up with how easy it is for you to form a Delaware LLC today.
7 BENEFITS OF A DELAWARE LLC FORMATION
A LLC (Limited Liability Company) is a type of business structure or entity which is often described as a cross between a corporation and a partnership.
- The liability of all members is limited to their investments in the LLC.
- A LLC is more flexible in respect to management structure and is usually considered to offer greater ease of administration.
- Delaware recognizes single member LLCs.
- Forming an LLC in Delaware is popular with US citizens and non-citizens around the world because of its ease of formation. You don't have to travel to Delaware.
- Opening a business entity in Delaware is easy. You file a simple form to incorporate. No other documentation is not required.
- There is no sales tax in Delaware.
- You can get all of the benefits of incorporating while still operating your small business in your home state.
WHAT ARE THE ADVANTAGES?
- Can be taxed as either sole proprietorship, partnership, S corporation or C corporation.
- Flexibility in distributing share income or losses.
- Members have limited liability for the debts of the Delaware LLC.
- Unlimited number of members
- No citizenship requirement
- Less paperwork and record-keeping than a corporation.
- Pass-through taxation (i.e., no double taxation). This does NOT apply if you elect to be taxed as a C corporation.
- Profits are taxed at the member's personal tax level.
- LLCs treated as separate entities
- Delaware allows for one natural person LLC
- Real estate investors can use a Delaware LLC to title each property in a separate LLC for asset protection.
- A special, separate court called Delaware Court of Chancery hears all corporate business cases.
WHAT ARE THE DISADVANTAGES?
- Difficult to raise financial capital because investors are more familiar with corporate form of company ownership.
- Renewal franchise taxes are higher than corporations -- $300 versus $225.
- The management structure of a Delaware LLC may not be clearly stated unlike a corporation that has a board of directors or officers.
- Some countries may not recognize the limited liability company
- Difficult to determine who has the authority to enter into contracts because of all of the different titles that LLCs recognize.
I'M A NON-US-RESIDENT OR NON-US CITIZEN. HOW CAN A LLC HELP ME AND WHAT ARE THE ADVANTAGES?
- A Non-Resident Alien (NRA) usually is only subject to U.S. Income Tax on U.S. Source Income.
- Generally foreign source income received by a nonresident alien is not subject to U.S. taxation.
- Therefore, a non-resident non-citizen with no operations (no business activity, no employees) within the US, and no property in the U.S., pays no US Federal Income Tax.
- If your only U.S. business activity is trading in stocks, securities, or commodities through a U.S. resident broker or other agent, you are not considered engaged in a trade or business in the United States.
- A LLC formed in Delaware is not required to disclose the names of the Members at registration and does not file an Annual Report in Delaware.
- The identity of the Members is private.
- The Delaware Limited Liability Company Act does not require that a limited liability company agreement be in English.
WHAT ARE THE ARTICLES OF ORGANIZATION?
- LLCs are created by filing the Certificate of Formation with the State of Delaware, Secretary of State, Division of Corporations. This document is sometimes called the Articles of Organization or Articles of Formation.
- The following information will be included on the Certificate of Formation when we register your company:
- The name of the LLC
- The name and address of the Registered Agent
- If the name of the Member is to be printed on the Certificate it will appear as the Third article.
- The powers of the Initial Member are outlined
- OPTIONAL: Delaware does NOT require a member name on the certificate.
- The duration of the LLC is given to be perpetual
- The signature of the Organizer
- Delaware Business Incorporators, Inc. can act as the Organizer of your LLC.
- The Organizer has the power to represent the company as an agent during the process of creation.
- The Organizer has the authority to prepare, sign and file the Certificate of Formation and any other needed documents.
- The Organizer’s authority ends when the LLC is registered and the Initial Member or Manager is appointed.
- An Organizer is not an owner or officer.
- Our goal is to include the minimum amount of information necessary on the Certificate of Formation.
- Any additional provisions can be indicated in the Operating Agreement. By including additional provisions in the Operating Agreement rather than the Certificate of Formation, you can avoid the necessity of filing an Amendment to the Certificate of formation if any of the additional provisions change.
- You can also avoid costly per-page charges which add up when you file a multiple page Certificate of Formation.
- Filing the minimum provisions allows maximum flexibility and economy. Using a LLC operating agreement is a better way to organize and operate your LLC.
- If you want additional provisions included on your Certificate, we would be happy to accommodate you. You would need to supply the exact language of the additional articles.
For more information about LLCs, see our section LLC Frequently Asked Questions (FAQs).
WHAT IS A FRANCHISE TAX?
Delaware charges an annual franchise tax fee of $300. (Delaware's use of the term "franchise" does not mean that your company is being franchised. It is simply the term that Delaware uses for the annual tax.)
The LLC franchise tax is due every June 1. It's important to pay on or before June 1 since the State charges a late fee of $200 plus interest at the rate of 1.5% per month.
HOW DO I CONDUCT A NAME SEARCH TO SEE IF THE COMPANY NAME THAT I WANT IS AVAILABLE?
The state of Delaware maintains an online database of all business entities including LLCs, corporations, limited partnerships and trusts. You can visit the State of Delaware name check website to check for your company name availability. You can also reserve your desired company name for up to 30 days for an additional charge. Checking a name is free.
As an authorized registered agent, Delaware Business Incorporators, Inc. has an online connection with the State. We can quickly and easily check any company names for you at no charge.
HOW DO I SEARCH FOR AN EXISTING COMPANY ON THE STATE OF DELAWARE WEBSITE?
The State of Delaware maintains an online database with all existing companies that are currently incorporated in Delaware. Visit the State of Delaware website for more information. You only need the name of company to see if it is a company incorporated in Delaware.
WHAT IS A DELAWARE REGISTERED AGENT?
A registered agent receives and forwards service of process documents and any state tax notices.
A Delaware registered agent is required by Delaware law. The registered agent must have a physical address in Delaware that is staffed during normal business hours.
Delaware Business Incorporators, Inc., is an authorized Delaware registered agent. We've been located at the same address since 1988.
Our registered agent fee is as low as $100 per year for an U.S. billing address.
WHY USE DBI AS YOUR REGISTERED AGENT?
We send all tax notices via postal mail and/or email. All service of process documents are scanned and/or sent via express mail with tracking -- at no additional charge. And, at no extra charge, we also send several email alert reminders prior to your franchise tax due date. Starting in January 2019, we'll be sending text (SMS) message franchise tax reminders in addition to mailings and email reminders.
WHAT ARE THE SETUP COSTS AND FEES?
Delaware's business entity setup fees are very low. Delaware charges $90 as a filing fee. If you elect to have us prepare your Certificate of Organization, DBI charges $50. The first year of registered agent service is FREE. We will invoice you on the anniversary month of your Delaware limited liability company formation.
WHAT ARE THE ANNUAL TAXES AND FEES
Delaware charges a flat, annual franchise tax fee of $300. This franchise tax fee is due on or before June 1 every year. It is important to pay this fee on time. The State of Delaware charges a late fee of $200 plus interest at the rate of 1.5% per month.
Delaware Business Incorporators, Inc. (DBI) charges an annual registered agent fee of $100 per year for billing to a U.S. address and $120 per year for billing to an address outside of the U.S. If you'd like us to represent multiple companies for you, we offer a discount. Please call for details.
IT'S YOUR MOVE. STARTING A NEW BUSINESS IN DELAWARE IS A BIG STEP BUT WE CAN HELP YOU MAKE FORMING A LLC QUICK AND EASY!
You have everything you need to decide regarding starting an LLC Delaware. You can prepare you own Certificate of Organization or we'll be happy to form your LLC for you for a modest fee.
If you decide to prepare and file your own certificate of organization, we'll be happy to serve as your Delaware registered agent. Please send us an email requesting our services.
If you have any questions, please do not hesitate to call or write. Thank you for your interest in forming Delaware LLCs.