Delaware LLC Advantages: Everything You Need to Know
Delaware LLC advantages are the many and generous business provisions Delaware has to encourage business activity in the state. 4 min read
Delaware LLC Advantages
Delaware LLC advantages are the many and generous business provisions Delaware has to encourage business activity in the state. Among other things, Delaware LLC owners enjoy tax benefits, privacy, and asset protections exceeding many, if not all other states, so it is no surprise that along with Nevada, Delaware is the most popular state to form an LLC in. In fact, it attracts entrepreneurs from all over the world with its advantages, and once you understand the details of these advantages, you will see why.
Advantage 1: Custom Rules and Business Structure
In Delaware, LLCs have freedom of contract, which means that the LLC’s structure and governing rules can be fashioned to benefit the specific preferences and needs of the LLC, rather than be subject to excessive outside influence.
Advantage 2: Asset Protection
Delaware has the strongest personal asset protection for LLC owners of any state. This protection is often referred to as the “corporate shield,” and it protects your personal assets from being seized in repayment for business-related debts or legal actions. In Delaware, the “Charging Order” is the only means by which creditors can collect debts from LLC members.
Advantage 3: Statutory Limitation
Statutory limitation pertains to the personal liability of LLC members in relation to debts accumulated by their LLC. If the LLC dissolves and leaves debt behind, LLC members are not liable for its repayment through their personal assets. They are only liable for what they have invested in their company.
Advantage 4: Beneficial Tax Treatment
LLCs formed in Delaware that conduct no business in the state do not have to pay taxes to the state, while those LLCs that do pay taxes can benefit from numerous tax breaks. For example:
- S corporation owners can enjoy significant savings on their self-employment taxes due to their income being equally split between “S-Dividend” and self-employment income.
- The S-Dividend can offer thousands of dollars in tax reductions. For instance, if $200,000 were split with it, the LLC member electing it would save more than $4,000 on their Medicare and Social Security taxes.
- The IRS does not recognize single-member LLCs, and thus, they do not have to pay any taxes.
Advantage 5: Simple Start-Up
Starting an LLC in Delaware is very simple. Little information needs to be provided during formation, and the filing fee is only $250. There is also no capital requirement, so you don’t need a great deal of assets to get started. This makes Delaware very attractive for start-ups with limited resources.
Advantage 6: Low Annual Fees
Advantage 7: LLC Privacy
Delaware affords excellent privacy protections to LLC members. In every state, one is required to file articles of organization during the process of LLC formation. These articles contain basic information about the LLC and its members and will become part of the public record. However, unlike all other states, Delaware does not require LLC members to list their names or addresses here. The IRS is the only entity that has to know about your business interests.
Advantage 8: The Court of Chancery
Delaware has a unique court system called the Court of Chancery that deals exclusively with business law and can be very beneficial to LLC members. Under the court, Delaware LLC members can file a derivative action, which is a lawsuit against another company or individual to enforce an LLC’s claim that a member feels is not being sufficiently pursued by the other members.
Advantage 9: The Series LLC
Delaware is one of eight states that offer the series LLC. This allows one to form cells within their LLC to separate assets, which prevents one asset from bringing down the others through liability. For instance, if you owned many rental properties, you could separate each one with series LLC to protect them from each other.
Advantage 10: Freedom of Operation
Delaware LLCs can be formed regardless of the location of your business activities or your location in the country. Beyond the United States, there are few nations from which you cannot form a Delaware LLC. There is also no requirement to have an office or bank account in the state. However, your registered agent must have a physical address in the state.
Advantage 11: Lawsuit Protection
The LLC agreement in Delaware gives managers the freedom to take business risks without worry of litigation from minority investors, so long as these risks were not undertaken in bad faith or would be considered “self-dealing.” (Although Delaware still allows self-dealing if it is done in a way that is considered “entirely fair” to the other LLC members).
Advantage 12: Versatility
In Delaware, an LLC can be used to manage and own just about anything. This can range from a one-person food truck business to a holding company for an international shipping conglomerate. Delaware LLCs can also be used to hold tangible assets, intellectual property, and real estate.
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