DE LLC: Everything You Need to Know
The DE LLC is a popular choice for people wanting to form businesses in the State of Delaware. 3 min read
2. Key Elements of a Delaware LLC
3. Simple to Form
4. Tax Exemptions
5. No Double Taxation
6. Strong Business Laws
7. No Business License Required
8. Few Formalities
9. Asset Protection
The DE LLC is a popular choice for people wanting to form businesses in the State of Delaware. A Delaware LLC can be easily formed by submitting a Certificate of Formation with the Division of Corporations with the Delaware Secretary of State. This form can be submitted electronically, which is beneficial for companies wanting a more expedited process of formation. A Delaware LLC is considered a hybrid business structure that combines features of a corporation and a partnership.
The owners of an LLC are referred to as members, and such members can be individuals or other businesses. There can be an unlimited number of members in an LLC. The State of Delaware allows LLCs to operate as member-managed LLCs or manager-managed LLCs. Approximately two-thirds of all businesses formed in Delaware are LLCs.
Key Elements of a Delaware LLC
There are several key elements of a Delaware LLC that you should be mindful of and these include:
- A Delaware LLC is simple to form
- There are several tax exemptions for LLCs
- LLCs avoid double taxation
- Delaware has strong business laws as it is generally viewed as a business friendly state
- No business license is required
- There are very few formalities for Delaware LLCs
- There is limited liability protection for its owners
Simple to Form
The Delaware LLC is the most convenient LLC to form in the country. The Delaware Division of Corporations requires very minimal information from businesses forming an LLC. Specifically, a lot of personal information is not requested in the formation documents, which not only makes it easier to form your LLC, but it also helps you keep your identify private. Therefore, your personal information will not be published in such documentation.
Furthermore, Delaware LLCs don’t file annual reports. People will generally choose an LLC if they want to form a business but have no plans to offer shares to the public. In this sense, a business owner intends on keeping the business rather small as opposed to growing it to such an extent that the company engages in an initial public offering, thereby offering its shares to the public.
Delaware is quite often referred to as a tax haven, as it offers benefits that other states don’t offer to businesses, including tax incentives. The state doesn’t tax intangible income, i.e. patent or trademark leases, which makes Delaware such a popular state to form a business in.
No Double Taxation
LLCs offer flexible tax options. An LLC in Delaware can elect to be taxed as a sole proprietorship, partnership, S corp, or C corp. You should become familiar with the tax incentives and implications for each type of business structure, as one might be a better choice for your business.
If you fail to make the most favorable tax election for your business, the state will automatically tax you as a C corp, and therefore, you will be subject to double taxation. This is why it is important that you make the election in the required amount of time to avoid the disadvantages of operating as a C corp. If you elect to be taxed as a sole proprietorship, partnership, or S corp, the profits of the business will pass through to the members who will report it on their personal tax returns.
Strong Business Laws
Delaware has its own court, known as the Court of Chancery, specifically designed for businesses. Any business engaged in a legal dispute will adjudicate their case in this court. A judge hears the court case, as juries are prohibited.
No Business License Required
Delaware LLCs are not required to obtain licensing with the Department of Revenue nor must they pay Delaware gross receipts tax. Most other states, however, do in fact require business licensing at the state and local levels.
Delaware requires very little ongoing maintenance for LLCs, as the only requirement is a flat $300 annual tax fee that is due on June 1 every year and can easily be paid online. Unlike corporations, such LLCs don’t have annual shareholder or director meeting requirements.
LLC members benefit from personal liability protection against creditors, which is a common feature for any LLC. This means the members cannot be held liable for the debts of the LLC.
If you need help learning more about forming your Delaware LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.