LLC in Delaware: Everything You Need to Know
An LLC in Delaware offers some of the most flexible benefits in the country due to the state’s business-friendly laws. 3 min read updated on February 01, 2023
An LLC in Delaware offers some of the most flexible benefits in the country due to the state’s business-friendly laws. An LLC is created when you file a Certificate of Formation at the Secretary of State office. Overall, it yields the following primary benefits:
- Low cost startup
- Affordable franchise taxes
One of the few mandatory requirements is that all LLC members must have an appointed registered agent in the state. A registered agent forwards any legal documents to your LLC. Regardless of who you choose, the registered agent must have a physical address located in Delaware.
Creating a Delaware LLC is easy as well, as you need minimal documentation and information to register in the state. Further, your information is kept secure, and you don’t need to include information on any public documents. Delaware is known to be friendly to corporate entities, but many do not know that the state offers a wide array of benefits to LLCs.
Other benefits include:
- No requirement to obtain a business license
- No requirement to register with Department of Revenue
- No need to pay Delaware Gross Receipt Tax
It is worth pointing out that Delaware did not allow the creation of LLCs until 1991, the year it passed the Limited Liability Company Act. This is due to the fact that LLCs are still a relatively new phenomenon when compared to corporations. Since the passing of the liability act, LLCs are provided the same benefits and protections as corporations.
Two-thirds of all companies created in Delaware are LLCs. It is a great option for business owners who want to start a company, but do not intend to make the company public or dispense stock shares. Like all other LLCs, a Delaware-based entity provides personal protections for LLC members as they conduct business.
The state has such a stellar reputation that its business laws are studied in law schools around the country. Delaware is considered a business-friendly state, but it is often mischaracterized as a safe tax haven. Nevertheless, Delaware does offer certain benefits that other states do not.
For instance, the state does not tax what is called “intangible income,” which includes trademark leases and patents. Because of this, Delaware is an attractive place for holding companies, where LLCs and corporations are designed to hold certain tangible or intangible assets.
Moreover, Delaware offers an advantage to LLCs not created in the state. One example is the ability to pay no income taxes, so long as the LLC does not conduct business in the state.
Delaware is so business friendly that it has its own business-centered court called Court of Chancery. Cases in the Court of Chancery are heard in front of judges instead of juries, and your legal dispute may have already been settled in Delaware’s legal history, allowing you to know ahead of time if legal proceedings are worth pursuing. Reviewing past cases also allows you to save time and money on legal fees.
A pass-through entity is a process where profit and losses pass from the LLC to individual members to file on their tax returns. This also means that creditors cannot seize your assets, such as cars or boats, if a judgment is held against you. Additionally, creditors cannot take over another company if a member must satisfy debt obligations to creditors. However, a creditor can obtain an LLC’s distributions, but only for that certain member.
LLCs can be taxed in two forms: S-corp or C-corp. Delaware corporations are classified as C status by default. C corps can be taxed twice, once as corporate income and the second as personal income. As a result, profits go from the LLC to the individual member’s personal income. With that, an LLC can be taxed as an S or C corporation, depending on what LLC members decide.
Another benefit of LLCs is that you do not have to file annual documents in Delaware, but you need to pay a $300 annual tax. It is a tax you pay each year in June, and you can pay it online. Delaware LLCs provide a low-cost burden, which is a great path for start-up business owners who are working with limited capital.
To learn more about how to create an LLC in Delaware, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s lawyers have knowledge in areas pertaining to Delaware business law, and we will help you through the filing process, whether it is an in-state or out-of-state entity. Our lawyers will help you maximize the wide swath of benefits that Delaware offers so you can grow your business and save on taxes in the process.