The state of Delaware is home to half of all public and Fortune 500 companies, but that doesn’t mean that small businesses miss out on all its big benefits. As the most popular business entity, the LLC offers Delaware-based owners many tax advantages and asset protections in a state heralded for its strong case law. First, however, it’s vital to know the legal side of getting your business off the ground. Here’s how to form an LLC in the Diamond State.
The first step in starting a new LLC in Delaware is to choose a name. Your new Delaware LLC’s name must be sufficiently different for people to tell it apart from other business entities already on file (registered and reserved) with the state of Delaware. Is the name you want available? You can do a name search at the Delaware Division of Corporations.
The LLC’s name must include at its end “Limited Liability Company,” “L.L.C.,” or “LLC.” The LLC name is allowed, however, to contain the name of a member or manager, as well as one of the following terms: “Company,” “Association,” “Club,” “Foundation,” “Fund,” “Institute,” “Society,” “Union,” “Syndicate,” “Limited,” or “Trust” (or abbreviations of the same).
After your Delaware LLC is named, you must write your articles of organization and file a certificate of formation with the Delaware Secretary of State, along with a $90 filing fee. Incfile canprovide these services for you.
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 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.
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 to the registered office, which should generally be open during normal business hours.
Incfile offers registered agent service for your Delaware LLC, if needed.
Your LLC is officially “organized” once the signed original of the certificate of formation is received by the Secretary of State’s office, and is determined to be in compliance with state requirements.
Almost as critical for the LLC as the certificate of formation and articles of incorporation 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:
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.
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.
Compared to many other states, Delaware has minimal reporting and disclosure requirements for LLCs, and most of those come in the form of taxes and fees.
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 for a total cost of $300. 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. The filing due date for an LLC is June 1, and corporations are due March 1. Franchise tax fees vary based on entity type.
When you use Incfile services, we send you reminder emails at the approach of each ongoing requirement due date.
An LLC is dissolved when any one of the following events occurs:
If the sole remaining member of the LLC resigns or withdraws, the Delaware LLC will automatically dissolve. This dissolution may be prevented if, within 90 days, the personal representative of the last member agrees to continue the LLC. The representative must also consent to serve as an LLC member or appoint another person in his or her place.
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