Delaware is one of the most popular states in the U.S. for LLC formation due to its business-friendly laws, flexible structure, and strong privacy protections. Whether you’re a new entrepreneur or looking to expand your business, forming an LLC in Delaware offers several benefits, including strong legal protections and a streamlined registration process.
In this guide, we’ll walk you through the Delaware LLC formation steps, from choosing a name to filing your operating agreement, and highlight some services to help you along the way.
1. Choose a Name for Your Delaware LLC
The first step in forming your LLC is choosing a name that complies with Delaware state rules. Here are the key guidelines for naming your Delaware LLC:
Naming Requirements:
- Must be Unique: Your LLC name must be distinguishable from other registered entities in Delaware. You can check for name availability using Delaware’s business entity search tool on the Delaware Division of Corporations website.
- Include “LLC” or “Limited Liability Company”: Your LLC name must include either “LLC,” “L.L.C.,” “Limited Liability Company,” or “Ltd. Liability Company.”
- Avoid Restricted Words: Certain words (such as “bank,” “insurance,” or “university”) require additional documentation or approval from the state.
Once you’ve settled on a name, you can reserve it with the state if you’re not quite ready to file your formation documents yet (though this is optional). To reserve a name, you’ll need to file a Name Reservation Form and pay a small fee.
2. Choose a Registered Agent for Your Delaware LLC
A Registered Agent is a person or business entity that agrees to receive legal documents on behalf of your LLC. Delaware requires that every LLC have a Registered Agent with a physical address in the state. This ensures that you can be properly notified of legal actions or other important communications.
Registered Agent Options:
- Use a Registered Agent Service: This is the most common choice for LLCs in Delaware, especially if you are not located in the state. Services like IncFile or Northwest Registered Agent offer reliable Registered Agent services for a fee.
- Appoint Yourself (if you are a Delaware resident): If you live in Delaware and have a physical address in the state, you can act as your own Registered Agent.
The Registered Agent must be available during business hours to receive mail and legal documents.
3. File the Certificate of Formation
To officially create your LLC, you must file the Certificate of Formation with the Delaware Division of Corporations. This document establishes your LLC as a legally recognized entity in the state.
Filing Requirements:
- What’s Included: The Certificate of Formation includes your LLC’s name, the address of your Registered Agent, and other basic details about your company.
- Where to File: You can file online via the Delaware Division of Corporations website, or you can file by mail.
- Filing Fee: The filing fee for the Certificate of Formation in Delaware is $90.
After filing, your LLC will officially exist, and you’ll receive a certificate confirming its formation.
4. Create an LLC Operating Agreement
While Delaware doesn’t require an Operating Agreement by law, it is highly recommended that you create one for your LLC. The Operating Agreement outlines how your LLC will be run, covering everything from management structure to ownership percentages and distribution of profits.
Key Elements of an LLC Operating Agreement:
- Management structure: Will your LLC be member-managed or manager-managed?
- Ownership percentages: How much ownership does each member have?
- Member duties and responsibilities: What role does each member play in the business?
- Profit and loss distribution: How will profits and losses be shared among members?
An Operating Agreement is not filed with the state, but you should keep it with your company records.
5. Apply for an Employer Identification Number (EIN)
An EIN (Employer Identification Number), also known as a Federal Tax Identification Number, is required by the IRS for tax purposes. You’ll need it if your LLC has employees, or if you plan to open a business bank account or file taxes as a corporation.
How to Get an EIN:
- Apply for an EIN directly through the IRS. You can do this for free online on the IRS website.
- If you’re forming your LLC with a service like IncFile or Swyft Filings, they can usually apply for your EIN on your behalf as part of their formation package.
6. Register for Delaware State Taxes
In Delaware, there is no state sales tax, which is one of the benefits of forming an LLC there. However, depending on your business activities, you may still need to register for certain state taxes. These include:
- Gross Receipts Tax: Delaware imposes a tax on the revenue your LLC generates in the state. The rate varies depending on your type of business.
- Employee Withholding Taxes: If your LLC hires employees, you must register with the Delaware Division of Revenue to withhold state income taxes from employee wages.
- Franchise Tax: Delaware requires all LLCs to pay an annual Franchise Tax of $300, which is due every year on June 1st.
You can register for taxes online through the Delaware Division of Revenue.
7. Comply with Ongoing Delaware LLC Requirements
Once your LLC is formed, you must ensure you stay in compliance with state regulations. Here’s what you need to do annually:
Annual Franchise Tax and Report
- Franchise Tax: As mentioned earlier, you’ll need to pay the annual Franchise Tax ($300) to the state.
- Annual Report: While Delaware doesn’t require an annual report for LLCs, you must file the Franchise Tax by June 1st every year.
Registered Agent Renewal
- Keep Your Registered Agent Active: Your Registered Agent needs to be maintained, whether it’s through a third-party service or an individual in Delaware. You’ll need to pay an annual fee for this service.
8. Open a Business Bank Account
Once your LLC is formed and you have your EIN, you can open a business bank account. This account helps separate your personal and business finances, and it’s necessary for managing your LLC’s finances professionally.
To open a business bank account, you’ll typically need to provide:
- Your LLC’s Certificate of Formation.
- EIN.
- Operating Agreement (sometimes required).
- Valid identification (passport or driver’s license).
9. Consider Additional Business Licenses and Permits
Depending on the nature of your business, you may need to obtain additional licenses or permits to legally operate in Delaware. For example:
- Business License: Most businesses in Delaware require a business license, which can be obtained through the Delaware Division of Revenue.
- Professional Licenses: Certain types of businesses (e.g., legal, medical, accounting) may require specialized professional licenses.
Check with local Delaware authorities or use a service like IncFile or LegalZoom to determine which licenses apply to your LLC.
Recommended LLC Formation Services
To make the process easier, you can use LLC formation services that handle all of these steps for you. These services include the filing of your formation documents, EIN application, and Operating Agreement, among other things. Some popular services for Delaware LLC formation are:
- IncFile: Offers a free LLC formation package (you only pay the state fee) and includes a free Registered Agent for the first year.
- Swyft Filings: Known for their fast, professional service and affordable pricing.
- LegalZoom: A trusted name in legal services that can assist with LLC formation and additional business services.
- Northwest Registered Agent: Specializes in privacy protection and excellent customer service.
Conclusion
Forming an LLC in Delaware is a straightforward process, especially with the state’s business-friendly environment. By following the steps outlined in this guide, you’ll be on your way to establishing your LLC in no time. Remember, after the initial formation, staying compliant with annual fees, taxes, and reports is key to maintaining good standing with the state.
Good luck with your new LLC!
Leave a Reply