Delaware LLC Benefits: Everything You Need to Know
Delaware LLC benefits are numerous. In fact, forming a Delaware LLC ranks among the top three most popular choices for starting new businesses or investment organizations.3 min read
Delaware LLC benefits are numerous. In fact, forming a Delaware LLC ranks among the top three most popular choices for starting new businesses or investment organizations. The other two are forming an LLC in Nevada or forming an LLC in the owner's home state.
Why Delaware LLCs Are Popular
In 1992, Delaware authorized a new type of business entity, called the limited liability company, which combined the best traits of corporations and partnerships. While all states in the U.S. now allow for LLC formation, there are many good reasons for forming an LLC in Delaware for investments in stocks and bonds, real estate, or for family businesses:
- Startup and maintenance are simple.
- There's no need to visit the state or provide extensive information; the process can be done online.
- Delaware has business-friendly laws.
- Owners are protected from liability, like a corporation's shareholders.
- Like a partnership, profits from LLCs are distributed and taxed on the owners' personal returns.
How To Form an LLC in Delaware
Forming your LLC in the state of Delaware is a simple process:
- Choose a name for your LLC.
- Check with the Delaware Secretary of State to make sure your name is available and not too similar to others that are currently registered.
- Make sure your name has "LLC" or "Limited Liability Company" at the end.
- Select a registered agent for your LLC, or someone who is available during business hours to receive mail and handle necessary administrative tasks. Although you need not have an office or bank account in Delaware, your registered agent must have an address within the state.
- A Certificate of Formation must be filed with the Secretary of State. Other states call this the Articles of Formation. It does not need to have your name and address, but it does need the LLC name, registered agent's name, and an authorized person's signature.
- Your LLC's Operating Agreement should be prepared. This does not need to be filed but it is an important document because it sets guidelines for many administrative details.
Even a single-member Delaware LLC should have an operating agreement. It provides a structure for making decisions, increases legal protection of members, and enhances a business' credibility. It should include information about ownership, how members can leave or join the organization, and how the LLC will be dissolved when it is no longer viable or useful. It's sort of like a prenuptial agreement and can help prevent disputes between members from arising.
All members should sign the agreement. Since LLCs do not have the same requirements as corporations with regard to a board of directors, voting, or formal meetings, a good operating agreement serves to simplify the business' operations. If it is not signed, it's hard to prove that every member approved the agreement at the outset. A new operating agreement should be written and executed by members any time there is a major change to be made.
Features of Delaware LLCs
The state of Delaware has become friendly to businesses, particularly LLCs. It allows for a lot of freedom with regard to business structure, rules, and contracts. These can be altered to meet an LLC's unique needs, and the preferences of its owners. Ownership of LLCs in Delaware is flexible as well. One person can be both the owner and manager.
In Delaware, LLCs have what is referred to as two-way protection. If one member of an LLC is subject to a lawsuit or debt collection, the creditor may not seize the LLC or any portion of that business' assets. That way, every owner of the LLC is protected from the private actions of the other owners. Creditors are not able to take over the company, or even that member's interests. Creditors can only seize any profits that are distributed to the member.
In addition, members are not held liable for debts or other liabilities incurred by the LLC. If the business fails and is in debt, the only assets each member risks losing are the ones they had invested in the business. These protections afforded to LLC members are the strongest of any state.
There are many tax benefits to forming a Delaware LLC. For one thing, you do not pay Delaware income tax if your business operates in a different state. LLCs do not pay taxes themselves; instead, all profits are distributed to members and are reported on the members' personal tax returns.
If you need more information or help with Delaware LLC benefits, 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.