Delaware LLC Law: Everything You Need to Know
Understanding Delaware LLC law can help people know more about the requirements and guidelines for creating and properly running an LLC.3 min read
2. The Operating Agreement
3. Managing an LLC
4. Ease of Formation
Updated November 27, 2020:
Understanding Delaware LLC law can help people know more about the requirements and guidelines for creating and properly running an LLC. The state makes it especially easy and convenient to form and operate LLCs, so many individuals — including those from out of state or out of the country — choose Delaware as a place to form a business.
An LLC is a business structure that makes a clear legal separation between the business and its owners. For business owners, investors, and advisors, the LLC has quickly become a favorite business structure due to the tax advantages it provides. It also has some business advantages over other structures, such as corporations.
An LLC's owners and managers aren't held liable on a personal level for company obligations and debts. For tax purposes, an LLC is considered a pass-through business entity. It may be viewed as a cross between a partnership and a corporation because it has some of the advantages of both business types.
LLCs are still relatively new in the U.S. When structured properly, LLCs enjoy limited liability as well as the pass-through taxation of a partnership. LLCs may be treated like legal partnerships, but it's important to understand that an LLC is not a corporation.
Owners, also known as members, of an LLC may be individuals or other entity types. They may be located anywhere in the world, and they can have an unlimited number of members.
LLCs are often used for the following:
- Single-member ventures.
- Family partnerships.
- Holding assets, such as aircraft, watercraft, real estate, etc.
The Operating Agreement
The operating agreement is a document outlining the management and operations of the LLC. It's a governing agreement composed of its members. You don't have to make your LLC's operating agreement public by filing it on a public platform, and you don't have to disclose it to the Secretary of State.
You can run an LLC with a degree of confidentiality and privacy, and you have the flexibility to create a management structure that's most appropriate for you and any other members. You can write your operating agreement in the language of your choice; there's no requirement that it be translated into English.
Managing an LLC
Members can manage an LLC in Delaware if they prefer, but it's not a requirement for them to act as managers. Legally, no manager or member will be personally responsible for the LLC's debts, liabilities, or obligations just because he or she is a manager or member.
The limited liability for an LLC compares favorably with the type of liability shareholders of corporations in Delaware enjoy. Delaware offers an unmatched degree of contractual flexibility for LLCs in the state, especially when compared to LLC statutes in other states.
Ease of Formation
It's easy to create and maintain an LLC in Delaware, as you'll only need the following to form one:
- A company agreement of the members.
- A certificate of formation on file with the state.
Once the certificate of formation is filed, your LLC is effectively formed. The certificate lists the name of the LLC as well as the registered agent's name and address. Members may choose to include other matters as well. The company agreement isn't a public document; instead, it's a private contract for members of the LLC only. Legally, information regarding an LLC's managers and members can stay confidential.
For LLCs, there's no minimum investment of capital required.
There's no requirement that an LLC's members or managers must be U.S. residents or businesses. Also, the state doesn't make it a requirement for a Delaware LLC to keep records or its principal business address in the state. You can have your Delaware LLC located in an area that's convenient for you, including regions outside of the U.S.
You don't have to keep your LLC records in written form. You can keep them electronically or in another, non-written form.
It's always a good idea to check out the Secretary of State website for additional information about requirements unique to your state. There, you may find answers to frequently asked questions about creating and running a business.
If you need help with LLC law in Delaware or another state, 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.