Why Register LLC in Delaware: Everything You Need to Know
Why register LLC in Delaware? This is a fair question to ask when trying to start an LLC, especially if one has heard about establishing an LLC in that state.3 min read
Advantages of Establishing an LLC in Delaware
Why register LLC in Delaware? This is a fair question to ask when considering starting an LLC, especially if one has heard a great deal of praise for establishing an LLC in that state. However, this praise is well justified, because those who establish an LLC in Delaware will find that they enjoy far greater benefits in the areas of privacy, asset protection, and taxation than in most other states, as well as numerous other benefits, too. Some of these benefits include:
- Greater asset protection from creditors. In Delaware, if a judgment is made against an LLC, neither the LLC’s assets nor the LLC itself can be attacked or acquired by the creditor. Only the charging order can be used by creditors, meaning that only economic interest related to the LLC’s member distributions is available as compensation.
- Statutory limit on personal liability. This means LLC members are not liable for the debts of a failed LLC. An LLC member can only lose those assets which they have already put into the LLC.
- Simple start-up. One does not need to provide a great deal of information to start a Delaware LLC, and the filing fee is only $90.
- Simple maintenance. Maintaining your LLC in Delaware requires only filing an annual form, paying the $300 franchise tax fee, and paying the $50 registered agent fee. Within the LLC, meetings and votes are not required.
- Increased privacy. In Delaware, one is not under any requirement to disclose personal information to the state when forming an LLC or after their LLC has been formed. Only having a registered agent and designated contact person is required.
- Increased legal power. Delaware features the Court of Chancery, a 200-year old court that specializes in resolving business disputes. In this court, LLC members have the same power as corporate shareholders in filing derivative actions to bring an LLC’s claim against another company or individual if they feel such a claim is not being properly charged by the LLC’s managers.
- Geographic freedom. A Delaware LLC can be formed from anywhere in the United States with business taking place anywhere in the United States. You do not have to live or do business in Delaware to form a Delaware LLC.
- Potentially zero business taxes. If you set up an LLC in Delaware but it does no business in Delaware, then your LLC does not have to file a return in Delaware. LLC profits are passed through to the personal income tax of the members, but these will only be taxed in their home state, not Delaware.
- Greater filing convenience. The Secretary of State’s office in Delaware has extended filing hours and expedited filing can be completed in as little as one hour.
- Stable business laws. Delaware’s business laws are generally pro business and slow to evolve, meaning that surprising changes to the legal landscape are unlikely. Additionally, because of the large amount of LLC’s registered in Delaware, the Delaware legal system has much experience with business law, and the outcomes of cases is fairly predictable.
- Series LLC. Delaware is one of only eight states to offer the series LLC, which allows one to have an LLC that can be split into separate units, or series, in order to prevent an unprofitable segment of a business from dragging down the other, more profitable segments. This is especially advantageous for LLCs that operate rental properties.
- Operating Agreement flexibility. In Delaware, one can create an operating agreement that reduces or eliminates the fiduciary duties of managers or managing members. Doing so gives individuals the flexibility to pursue riskier business ventures without being questioned by minority LLC investors, so long as these risks are taken in good faith and self-dealing that is considered unfair to the LLC members does not occur.
- Business operation freedom. Delaware LLC’s can be used to manage almost any type of business, so long as it is legal.
Clearly then, there are many advantages to establishing an LLC in Delaware. If the above features have inclined you towards doing so or you need further help understanding why register an LLC in Delaware, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.