Delaware LLCs: Everything You Need to Know
Delaware LLCs are the most flexible business entity offered in the US and the world making them the favorite business entity for many since 1993.3 min read
By 1998 there were 30,793 LLC's formed in Delaware. By 2006 there were 96,831. By 2014 there were 121,592. In 2014, approximately two-thirds of businesses formed in Delaware were LLCs.
To create a Delaware LLC you need to file a Certificate of Formation with the secretary of state in Delaware. Owners tend to form a Delaware LLC if they have don't want their new business to go public or issue shares of company stock.
The flexibility of business structure is a great incentive as owners can organize as they please and go on to create their own rules of governing, operating, and overseeing. Other benefits inherited can occur when the LLC:
- owns property
- operates a family owned business
- owns IP/apartment buildings/fleet vehicles
- wins government contracts
Choosing a Delaware LLC Name
Before getting started with creating an LLC, you need to check if your potential business names have been taken with the Delaware Secretary of State. Note: you must have "Limited Liability Company," "LLC," or "L.L.C" in your company name to comply with Delaware laws. You can always change your name in the future with an amendment to the Certificate of Formation
The Delaware Registered Agent Requirement
The Registered Agent should be available during business hours to accept and forward court notices to you and receive notices from the State of Delaware.
Delaware Certificate Of Formation Requirements
If you haven't heard of a Certificate of Formation, it is like the Articles of Organization. They are more or less the same documents with different names.
The following information needs to be included in your Certificate of Formation:
- The name of your Delaware LLC
- The name and address of your Delaware Registered Agent
- Duration of LLC ("perpetual" is fine)
- Any information members wish to add
- Formation date and the name and signature of a person authorized to form the LLC
If the Delaware LLC is a series LLC this must be stated on the certificate of Formation.
Mail Or Fax the Completed Certificate of Formation To The Division Of Corporations
The fee is $90, which should be paid by check or a credit card number provided along with the Division of Corporations cover sheet. Registration takes about three weeks but an extra $100 you can get same-day registration, and for $50 you can get it done inside 24 hours.
Note: fax filings are faster than mail.
Signing The LLC Operating Agreement
As the owner of a Delaware LLC, you have freedom of contract when drafting the LLC Operating Agreement. This means you get to make the terms and rules suit you.
All Delaware LLCs require an Operating Agreement to govern the business, though there's no need for this to be filed with the state. They can be implied, oral, or written, meaning you've probably formed an agreement without realizing it, But it's always best to write it down.
The Operating Agreement for single-member LLC owners still matters, as it helps create a decision-making process for dealing with other entities, protects you, and increases your trustworthiness with the bank
Other provisions in the Operating Agreement involve:
- transfer of interest
An Operating Agreement is like a prenuptial. It helps avoid disputes in the future if a member decides to go another direction. When the Operating Agreement has been drafted and approved, all members should execute it. For practical reasons, finalizing the Operating Agreement doesn't usually happen until the LLC has been formed
A good Operating Agreement removes bureaucracy and makes day-to-day proceedings run smoothly. With an unsigned Operating Agreement it is a lot harder to prove it was agreed upon by members. Therefore aim to have operating agreements signed by all members of multi-member LLC's to ensure LLC ownership is agreed upon.
A restated LLC Operating Agreement should be signed for every change of agreement or change in ownership.
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