Getting a new business off the ground is a complex process. Even the initial stages of actually forming the business entity can be confusing. If you’re looking to form an LLC in Delaware, this guide is for you.
Delaware Limited Liability Companies, or LLCs, are a popular business entity for many types of companies. They help shield owners from personal liability due to business activities. Among other benefits, they offer personal asset protection, so if an LLC is sued, the owner’s personal assets are protected from the lawsuit. Delaware’s LLC laws go even further, protecting the owner(s) of a company from most liability stemming from business activities.
Delaware is a very business-friendly state, which is why so many companies are incorporated there. There are at least 1 million businesses in the state, which is actually slightly higher than the number of people in the state! Whether you live in Delaware or not, it’s fairly simple to start a company in the state – but you need to ensure each step is done accurately.
In this guide, we’ll explain all there is to know about forming a company in Delaware. We’ll go over the specific steps that entrepreneurs should take to start a Delaware LLC, whether they live in the state or not.
1. Consider using an LLC formation service
If you would like help with the process of forming a new LLC, it is worth using a service to help. Companies like Harvard Business Services (HBS) specialize in Delaware LLCs and corporations, and can make the process quite simple for you.
These companies charge additional fees, but they can save you a lot of time. HBS charges $179 in addition to the standard Delaware state fees, so the cost is still quite reasonable. These firms can also serve as your Delaware Registered Agent service, which is a requirement (see step #3). Budget-friendly alternatives like ZenBusiness can be even cheaper, with fees from just $49 + state fees.
You don’t need to use a service, as forming an LLC can definitely be done on your own. But if you want to save time and ensure that everything is done accurately, it may be worthwhile to work with an LLC service provider.
Check out our roundup of the Best LLC Services
2. Select a company name
Naming your LLC is the next step. You must find a name that is unique (not used by another Delaware company), and that satisfies the requirements set out by the state. Here are some key rules:
- The name must contain “Limited Liability Company” or the abbreviations “L.L.C.” or “LLC.”
- The name must be distinct from other established firms in the state of Delaware (you can search the business name database to confirm this)
- You can reserve an available name for 120 days by paying a $75 fee (if you are not yet ready to register)
Naming your business is an important step. However, keep in mind that you can have an LLC name and a separate name that you actually do business as.
Using a Doing Business As (DBA) or trade name
Most states, including Delaware, allow LLCs to elect “doing business as” names, or DBAs. This allows you to do business under a different name than your actual LLC name. This allows you to operate a storefront or restaurant under one name, while the actual technical business name may be different.
DBAs are a very useful feature for small business owners. It also takes some pressure off of choosing the “perfect” LLC name. Applying for a DBA is usually done on the county level when you apply for a business license. There may be a small additional fee to elect a DBA, and businesses can usually choose several DBAs if they want.
3. Appoint a Registered Agent
Every business formed in Delaware (and most other states) must have an agent for service of process or a Registered Agent. This agent is appointed by the business to handle legal correspondence, and be served in the case of a lawsuit. The registered agent must have a physical street address in the state of Delaware and must be either a resident of the state or a company licensed to do business in Delaware.
If you live in the state, you can be your own registered agent – or you can appoint an employee. However, many firms opt to hire a professional firm to handle this. It’s relatively inexpensive, generally costing $50 to $150 per year. Hiring a professional registered agent ensures that you won’t miss anything important, and also helps protect your privacy.
Check out our roundup of the Best Registered Agent Services
4. File a Certificate of Formation
The Certificate of Formation is the main filing you’ll need to complete with the Delaware Secretary of State in order to form an LLC there. The form can be filled out and submitted via fax or mail. Full instructions, including mailing addresses, are included on the form itself. A list of the forms you need can be found here.
This form will ask for the LLC name, the information of the LLC’s registered agent (name and address), and a signature of an authorized representative of the company. The process is relatively simple, especially compared to some other states, so you should be able to complete the form on your own.
There is a $90 filing fee to file this certificate, which is paid directly to the state of Delaware. You can simply include a check with your mailed form, or pay online. The full fee structure can be found here.
5. Prepare an LLC Operating Agreement
An operating agreement is an internal document that lays out the operating procedures of your new company, as well as the ownership structure of the LLC. It’s very important for multi-member LLCs with complex management structures, but even single-member LLCs should have one on file.
This is an internal document, which means that it’s not actually submitted to any government agency. As such, it’s not technically required to start a company in Delaware. However, most companies should still have an operating agreement on file.
Operating agreements can be drafted based on a template, or you can use the services of an attorney to draft a custom agreement. If you use an LLC formation service, they usually have tools or templates to help you draft an operating agreement.
6. Wait for your documents
Once you’ve filed the Certificate of Formation, you’ll need to wait for the Delaware Division of Corporations to process your application and deliver your formation documents. This process can take up to 10-15 business days, but expedited processing may be available for an additional fee.
During this waiting period, it’s wise to look into any other applications you may need to file. The steps above will form the basic LLC in Delaware, but you will likely need additional licenses and permits, such as a county-level permit. If you plan to operate within Delaware itself, check out this Business First Steps guide to move forward. If you are forming an LLC in Delaware, with plans to operate in another state, you’ll need to look into requirements in the actual state you are operating in.
Steps to take once your LLC is formed
Once you receive your documents, there are some other important steps that most businesses should take. This includes both immediate tasks, as well as ongoing responsibilities that you should be aware of.
1. Obtain an Employer Identification Number (EIN)
An EIN, or Employer Identification Number, is a federal tax identification number assigned by the IRS. It’s used on tax forms and is essential if you plan to hire employees. Even if you’re a single-member LLC, it’s still worth getting an EIN.
Fortunately, the application is very quick, and it is free. You can file for an EIN online at the Internal Revenue Service’s website.
Once you have an EIN, you’ll use this number for most or all tax forms. It’s also necessary to open a bank account for your business, and it’s often required for many other business activities.
2. Open a business bank account
Keeping your business and personal finances separate is very important, and it should be handled from day one. As soon as you have a business license and an EIN, you can open a business bank account at most financial institutions.
You can choose to open a business account with a bank that you already have a relationship with, or you can look into a new financial institution. Regardless, strive to completely separate your business and personal accounts for accounting and tax purposes.
This is also a good time to start establishing an efficient accounting and bookkeeping system. Whether you choose to use accounting software, or simply use spreadsheets, starting off on the right foot from day one is very helpful.
3. Keep your LLC in good standing
There are various ongoing requirements for Delaware companies that you should be aware of. The specific requirements vary depending on the type of business, and whether it’s a foreign LLC or a company actually operating in Delaware. Regardless, you’ll want to pay close attention so that you can keep your company in good standing.
Some things to keep an eye on are requirements for annual reports, annual franchise tax returns, state and federal income tax, collecting and filing sales tax returns, and other Delaware business requirements. There will be additional requirements on the city and county level, as well.
When you’re just getting started, the various requirements can feel overwhelming. But this is the perfect time to start off on the right foot. We recommend researching all the requirements, and adding reminders to your calendar so that you can stay on top of filings and reports.
Why form a Delaware LLC?
Delaware is one of the most business-friendly states in the US. Delaware law is easy to navigate for firms, and the process of starting a new company is also relatively simple. There are many benefits to forming a new company in Delaware, including:
- Increased asset protection for owners
- Statutory limitation on member personal liability
- Relatively easy to form a Delaware LLC even for non-residents
- Beneficial tax treatment
- Simple formation process
- Easy ongoing filing requirements
- Low annual fees
- Simple maintenance
- Privacy improvements for owners
- Business-friendly, efficient courts
More than 66% of Fortune 500 firms are incorporated in Delaware, and the state’s rules can be beneficial for small firms, as well. There are over 1 million businesses in Delaware, which means that there are actually more businesses than people! Whether you’re a single-member LLC or a larger company, it’s well worth looking into the benefits of a Delaware LLC.
The state also makes it quite easy for those living outside of Delaware to form a company there. This means that even if you live elsewhere, the tax and liability benefits of a Delaware LLC may be worth your time to apply for.