Articles of Organization

After your Delaware LLC is named, you must file a certificate of formation with the Delaware Secretary of State, along with a $90 filing fee. The certificate must be executed (signed) by one or more authorized persons as laid out in the LLC operating agreement. Organizers may be either natural persons or legal entities, and there must be at least one organizer.

The certificate of formation for your new Delaware LLC must include the following information:

• The LLC's name
• The name and street address of the LLC's resident agent
• The street address of the registered agent
• The duration of the LLC, either perpetual or for a set amount of time

The certificate may also include other items that the members wish to include (as long as they don't conflict with state law), even if they are also included in the operating agreement.

Your LLC is officially "organized" once the signed original of the certificate of formation are received by the Secretary of State's office, and it is determined to be in compliance with state requirements.

Registered Agent and Office

All Delaware LLCs are required to have a registered in-state agent. This agent is the person or office designated to receive official state correspondence, including notice if the LLC is served with a lawsuit.

A registered agent in Delaware may be an individual state resident; a domestic corporation, limited partnership, LLC, or statutory trust; or a foreign corporation, limited partnership, or LLC authorized to do business in the State of Delaware.

The registered office may be (but is not required to be) the LLC's place of business. The registered agent must have a business office identical with the registered office, which should generally be open during normal business hours.

Operating Agreement

Almost as critical for the LLC as the certificate of formation is the operating agreement. There isn't an official state requirement to have an operating agreement, but it's a vital internal document that specifies how your LLC will operate on both the day-to-day and strategic levels. If there is more than one member, the operating agreement must initially be approved unanimously in writing by the members.

The operating agreement should list the LLC's members, specify how much each member has invested, explain how profits will be divided, and state how much proportional "weight" each member has when issues are voted upon. Unless the certificate of formation or the operating agreement say otherwise, voting power in a member-managed LLC is vested in each member according to his or her current capital account balance with the LLC.

The operating agreement may also set forth meeting requirements such as the amount of required notice, what constitutes a quorum, voting rules, and so on, but it doesn't have to. Normally, however, the operating agreement does list requirements for the LLC that are already listed in state law and regulations. It can also include such items as restrictions or constraints on the power of the members to adopt, amend, or repeal the operating agreement.

Unless the certificate of formation or the operating agreement itself state otherwise, unanimous consent of the LLC's membership is required to amend the operating agreement.

Membership in the LLC

An LLC is required to have at least one member. Members may become a member of or acquire an interest in the LLC when it is first started, or when the new member's admission is recorded in the LLC's records.

To join the LLC, the prospective member usually needs to make some kind of contribution-for example, pay cash or transfer property to the LLC-or undertake a binding obligation to do so.

A member can only resign from the LLC in a manner allowed by the certificate of formation and/or the operating agreement. One or both of these documents will also usually state the minimum amount of time a member can maintain membership before being allowed to resign.

When a member resigns, he or she is entitled to receive the fair value of the membership interest within a reasonable time after the resignation (unless, of course, either the certificate of formation or operating agreement specify otherwise).

If the resignation or withdrawal of a member violates the provisions in the operating agreement, then the amount payable to the former member is the fair market value of his interest reduced by the amount of damages sustained by the LLC or its other members as a result of the violation. In this case, the LLC may also defer the payment for as long as needed to prevent unreasonable hardship to the organization

Ongoing Requirements

Compared to other states, Delaware has minimal reporting and disclosure requirements. Each LLC must keep the following records available at its office for review or inspection:

• Names and addresses of all members and managers
• A certified copy of the certificate of formation and any amendments
• Executed copies of any powers of attorney related to any certificate or amendment
• Operating agreement with any amendments
• A copy of the LLC's federal, state, and local income tax returns for each year
• Status of the LLC's business and financial situation, including cash on hand
• A description and statement of the agreed value of the property or services contributed by each member, the amount that each member has agreed to contribute in the future, and the date on which each became a member

Also, it's a very good idea to keep on file and available the minutes of the meeting of the board and any committees of the owners or members.

Dissolution

An LLC is dissolved when any one of the following events occurs:

• Event(s) specified in the certificate of formation or operating agreement
• A unanimous member vote to dissolve (unless a certain percentage or proportion is stated in the certificate of formation or operating agreement)
• An event that makes it unlawful for the LLC to continue
• The LLC's duration as specified in the certificate of formation or the operating agreement expires (if the LLC is not perpetual)
• A court order ordering dissolution

If the sole remaining member of the LLC resigns or withdraws, the LLC will automatically dissolve unless, within 90 days, the personal representative of the last member agrees to continue the LLC and consents to serve as an LLC member or appoints another person in his or her place.

Taxes

All LLCs and corporations formed in the State of Delaware are required to file an annual report and to pay a flat annual franchise tax of $250. The annual report filing fee is $25. Taxes and annual reports are to be received by March 1st of each year. The minimum tax is $75, with a maximum tax of $165,000.

Articles of Incorporation

Delaware state law requires that the new Delaware corporation file articles of incorporation with the Secretary of State, including the following:

• At least one incorporator must sign and file the articles of incorporation.
• There must be at least one incorporator, either a natural person of legal age or a legal entity.
• A brief statement of corporate purpose, or a statement that the corporation is organized to undertake any lawful business purpose.
• The classes, number, and par value of shares that the corporation is authorized to issue.
• The name and address of each incorporator and initial director.
• The name and address of the initial registered agent.
• Name and address of each director who will take office prior to the first annual meeting, if any.

Delaware has a complicated filing fee structure. The minimum filing fee is $74. This includes a minimum authorized shares tax of $15, a minimum county recording fee of $24, a flat receiving and indexing fee of $25, and a flat data fee of $10.

The county recording fee is $15 plus $9 per page. If your certificate is only one page (which is the standard length of the Delaware Certificate of Incorporation), you pay the minimum county recording fee of $24. If your certificate is more than one page long, plan to increase your county fee by $9 for each additional page

Delaware also permits optional provisions to be included in the certificate of incorporation for corporations wishing to specify additional criteria, including:

• Any limitation on the duration of the corporation's existence.
• Any shareholder preemptive rights.
• Limitations on the personal liability of directors to the corporation or its shareholders for money damages under certain circumstances.
• The right of directors to amend or repeal bylaws.
• The ability of shareholders to take action by written consent without a meeting.

Registered Agent and Office

Delaware corporations must have a registered in-state agent-a natural person who is a Delaware resident-who is designated to receive official correspondence from the state. The registered agent must have a business office that is the same as the registered office.

Many new corporations use one of the initial directors or officers as the registered agent and list the street address of the corporation for the registered office.

Bylaws

A corporation is required to keep its bylaws available at its main office, but it is not required to file them with the state. The incorporators or board of directors should adopt the corporation's bylaws at their first meeting, insuring that there is no conflict with the articles of incorporation or state law. They should also keep the bylaws updated as time goes on.

Bylaws set forth the corporation's basic operating principles from both the managerial and legal perspectives, and should include, as a minimum:

• The authority of directors, how many there are, and how long they serve
• Officers' duties and responsibilities and how long they serve
• How major decisions are reached, with or without meetings
• How, when, and where shareholders' and directors' meetings are held
• How the corporation's stock is issued
• Requirements for publishing annual financial information to shareholders

Directors and Officers

The board of directors is responsible for making the corporation's major decisions. It must consist of one or more members. The number of directors should be specified in either the certificate of incorporation, the bylaws, or both. If the certificate of incorporation establishes the number of directors, it can only be changed by amending the certificate.

Directors are not required by law to be stockholders, but the certificate of incorporation or the bylaws may set forth the requirement, as well as other requirements. Directors and officers will hold office until a successor is elected or they resign or are removed. A director or officer may resign at any time after giving written notice to the corporation.

The officers of a corporation oversee the day-to-day operations of the organization and carry out the strategic decisions made by the board of directors. Their titles and duties are stated in the bylaws and/or specified by the board, but they must be organized so as to be able to sign instruments and stock certificates that comply with state law. One of the officers will have the duty of recording the proceedings of stockholder and director meetings. An officer may hold more than one office simultaneously unless the certificate or bylaws state otherwise.

Required Reports

Each year, on or before March 1, a Delaware corporation must file a franchise tax report with the Delaware Secretary of State. This report must include the corporation's registered name and office, names and addresses of the corporation's directors and up to two officers.

There are two methods for calculating the annual franchise tax: (1) The Authorized Shares Method, which is based on the number of shares authorized in the Certificate of Incorporation, and (2) the Assumed Par Value method, which is based on the corporation's total assets divided by the number of shares. The minimum franchise tax is $35.

Taxes

All corporations formed in the State of Delaware are required to file an Annual Report and to pay a franchise tax. Religious/charitable and non-stock corporations are exempt from the tax but must file an Annual Report. The Annual Report filing fee for all domestic corporations is $25.00. Taxes and Annual Reports are to be received no later than March 1st of each year. The minimum tax is $75, with a maximum amount of $165,000.