Why Delaware LLC? Everything You Need to Know
Why Delaware LLC? Creating an LLC in Delaware gives you certain advantages that you cannot get in other states such as minimal start-up and easy maintenance.3 min read
Why Delaware LLC? Creating an LLC in Delaware gives you certain advantages that you cannot get in other states. Delaware offers minimal start-up mandates, and the LLC itself is easy to maintain. A Delaware is the most flexible choice you can make as a business owner, and an LLC is a popular choice among small business owners due to its flexibility and few restrictions.
LLCs have a variety of benefits in regards to:
- Real estate holdings
- Real estate planning
- Starting a family-operated business
- Holding ownership of assets that are deemed dangerous in the form of fleet vehicles or apartments
- Creating a joint agreement between two individuals or businesses
- Handling government contracts or licenses
Delaware created LLC laws in 1992, also called the Limited Liability Company Act. Such an authorization approved the creation of a new entity that mixes the best aspects of a partnership and corporation. Although states such as Nevada are just as favorable in terms of business climate, Delaware has the best business laws in the nation.
Court of Chancery
The court system in Delaware is unique because of its Court of Chancery, which is a special court solely reserved for business disputes. This court is also for shareholder lawsuits, and it will only accept business cases. Moreover, only judges hear the case and not juries. The Chancery is most notable for its experience in corporate law, which has been fostered more than 200 years. Also, Delaware LLC laws mandate that the Chancery accept LLC-based cases.
Delaware member LLCs have the same rights as corporate shareholders regarding the filing of derivative action, which enforces an LLC claim against a company or individual that’s not being sufficiently pursued by LLC managing members. Regarding larger corporations (those with hundreds or thousands of shareholders), the Chancery can be an especially favorable option.
The company structure and rules that manage company members are contained in an operating agreement. An operating agreement establishes operating procedures and the internal management structure of your business, and you may tailor the rules to your liking. An operating agreement is not mandatory, but you should draft one to establish a cohesive management structure, and so all members know their roles and duties within the organization.
An operating agreement should contain the following:
- Compensation model
- Voting rights
- Roles and responsibilities
- Management structure
Delaware Business Climate
Delaware has a reputation of hosting a healthy business climate, and an operating agreement will certainly help you thrive in Delaware. Moreover, Delaware enforces a freedom of contract and protects the rights of all parties within the business.
In 2010, Delaware officials created a Delaware LLC amendment to afford the same contract principles to LLCs in the same manner as other legal entities. The amendment also overrode the effect of the state Supreme Court decision determining that oral-based operating agreements could not be enforced because such agreements failed to comply with fraud statutes. State LLC law also benefits owners who wish to remain confidential and keep their information private when filing for a Delaware LLC.
For instance, when forming an LLC, all states mandate a document called an articles of organization to create the LLC, and all information contained in the document is available to the public. Unlike most states, the formation certificate necessary in Delaware does not have to include addresses and names of managers or members. You only need to have a contact person and a registered agent in Delaware when creating the business.
A special version of an LLC called a series LLC is only available in eight states, and Delaware is one of those states. A series LLC allows owners to form cells or a series of LLC cells to separate assets and stop the profitability of a single asset from incurring liabilities of under-performing assets.
LLC Safeguard Breakdown
By creating a Delaware LLC, you safeguard your assets through the construction of a shield between the assets and the liabilities of the business. If the business itself cannot pay creditors, LLC protections prevent creditors from going after personal assets. Your personal assets include the following:
- Personal bank accounts
Delaware makes a charging order the exclusive answer for the creditors of LLC owners. Such an order stops creditors of LLC members from gaining control of the company. The creditors of members can only get an economic stake in LLC distributions to that sole member and not a controlling interest, and creditors cannot liquidate the business.
Why Delaware LLC? If you have more questions on creating an LLC in Delaware, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s attorneys will provide greater insight into the benefits of registering an LLC in Delaware. Moreover, they will help you determine if creating an LLC business in Delaware is the best choice for your business endeavors.