LLC In DE: Everything You Need to Know
An LLC in DE is a business structure created by filing a Certificate of Formation with the Delaware Secretary of State.4 min read
An LLC in DE is a business structure created by filing a Certificate of Formation with the Delaware Secretary of State. First formed on October 1, 1993 upon the enactment of the Delaware Limited Liability Company Act, the LLC has since been a legitimate business structure.
Currently, approximately two-thirds of all Delaware companies are LLCs. In 1998, there were 30,793 LLCs created in Delaware. The number jumped to 96,831 in 2006 and in 2014 the number is a whopping 121,592. The reason for this is because a Delaware LLC is extremely flexible with a combination of low start-up costs and a very affordable Franchise Tax.
LLC structure is more flexible than a corporation. LLC members can organize the company any way they see fit. The members have flexibility to create their own terms in respect of governing, operating and overseeing their LLC venture.
The Delaware LLC, specifically, is unique in that the company structure and the governing rules are contained in the Operating Agreement, which is a contract drafted by the members. What’s more, the terms set forth in the LLC Operating Agreement can be amended, if need be.
When drafting the Operating Agreement, members can structure the contract as they see fit. That is to say, members of the Delaware LLC have the freedom to structure the terms and rules of the LLC to relate to specific needs. Once signed and agreed to by the relevant parties, the Operating Agreement can be enforced by all parties.
How to form a Delaware LLC
Step 1: Delaware LLC Name
Registering a name in Delaware requires 2 things:
- Filing a Certificate of Formation with the secretary of state; and
- Documenting the Operating Agreement.
Prior to filling out the Certificate of Formation, check whether your business name is available by searching the Delaware Secretary of State website for a conflict. (this can be done at Incnow.com.)
Step 2: Registered Agent Requirement
The Delaware LLC Act requires that any company who incorporates in Delaware must have a Delaware registered agent that has a Delaware street address.
After formation, the Registered Agent will receive notices from the state and must be available during business hours for service of process. Note that a registered agent will be required for the life of the company, so it is imperative to find one that is professional and reliable.
Step 3: Certificate of Formation
To be a valid LLC, it must file a Certificate of Formation with the Secretary of State’s Division of Corporations so that the LLC is on public record. A Certificate of Formation includes:
- The LLC’s name;
- The registered agent’s name and address; and
- A signature of an authorized person.
Step 4: Operating Agreement
An Operating Agreement will set forth the ownership and management and other required procedures. While it is a requirement to create an Operating Agreement, there is no requirement to file the Operating Agreement with the secretary of state. Moreover, the operating agreement need not be in writing.
Nonetheless, it is strongly recommended that an LLC have a written and signed agreement. The Operating Agreement is very important because it is a decision-making roadmap that benefits the LLC when it deals with other entities and it increases the LLC’s credibility when vying for financial transactions.
A well-drafted operating agreement will outline issues like liability, ownership structure, dissolution of the LLC, and any transfer of company interest.
Step 5: Executing the Operating Agreement
Once the operating agreement is approved, all of the members should sign it. Practically, Delaware LLCs, will not finalize the Operating Agreement until after formation. Note that while an operating agreement may be enforceable even if it has not been executed, it is important to sign and execute. It may be very difficult to demonstrate that an unsigned operating agreement has been agreed to by all members. This is especially true with respect to multi-member LLCs.
Step 6: Tax and Regulatory Requirements
Other tax and regulatory requirements may apply to an LLC, including:
- Employer Identification Number, or EIN: If the LLC is multi-member, it must procure an IRS EIN, regardless of the fact that it has no employees. A single-member LLC must obtain an EIN only:
- if it will have employees; or
- it elects to be taxed as a corporation.
- A Business License: an LLC may be required to get other local or state business licenses.
- Annual report: LLCs in Delaware are not required to file annual reports.
Step 7: Tax Obligations
LLCs must pay $300 as an Alternative Entity Tax annually by June 1 of each year.
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