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Do you want to start your own business in Delaware, and you’re wondering if you should form an LLC? Well, a limited liability company (LLC) can offer lots of benefits for your business. An LLC can help you protect your personal assets and more. The guide will provide 7 steps on how to open LLC in Delaware.
From selecting a unique business name and appointing a registered agent to file your articles of organization with the state, this guide will provide you with all the necessary steps to successfully form your LLC in Delaware.
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Pros of Starting an LLC in Delaware
Simple and Low-Cost Formation
Forming an LLC in Delaware is quite easy and affordable, as it costs $90 to start your LLC. Delaware has a user-friendly online portal for submitting LLC formation documents, making the process more accessible and convenient. But before filing your Delaware LLC, you must come up with a name for your business and also hire someone to stand in as your agent
Clear Taxation
Another benefit of starting an LLC in Delaware is that the state supports businesses by offering fair and flexible taxation plans for its LLCs. Now LLCs are taxed based on their business needs or as a corporation or a partnership. The state’s flexibility allows Delaware LLC owners to choose which taxation method suits their business needs, reducing tax issues.
Preferred by Investors
Delaware also has laws that favor businesses as they offer lenient taxes. The state also provides a good environment for businesses to thrive and succeed, thereby attracting investors and developing the state’s economy.
Confidentiality and Asset Protection
Delaware offers strong confidentiality and asset protection for LLC owners. LLC owners are not required to disclose their names or addresses on public formation documents, providing an additional layer of privacy. Delaware also has strong asset protection laws, meaning that LLC owners’ personal assets are protected from potential business liabilities.
Specialized Business Court
Delaware has a specialized court system for business disputes, the Delaware Court of Chancery. This court system is highly respected and experienced in handling business disputes, making it an attractive option for LLCs looking for a reliable and efficient way to resolve legal disputes.
Freedom of Contract
Delaware offers LLCs a great deal of freedom in terms of contract law. LLCs can customize their operating agreements to meet their specific business needs. This flexibility can benefit LLCs with complex ownership structures or unique business requirements.
Cons of Starting an LLC in Delaware
Higher Franchise Taxes
Delaware has relatively high franchise taxes compared to other states. LLCs must pay an annual franchise tax based on their authorized shares or the value of their assets. While the amount may vary depending on the size of the LLC, it can still be a significant expense for small businesses.
How To Start LLC in Delaware 7 Steps Guide 2023
1. Choose a Unique Business Name
The first step to starting an LLC in Delaware is to pick a business name not already used by another business entity. The name should be memorable, easy to spell and unique to your business.
Here are some tips to help you choose a name for your LLC:
- Brainstorm different name ideas that reflect your business values and goals.
- Choose a simple name that is catchy and represents your business.
- Make sure to search for any existing trademarks or logos that could clash with your chosen name.
- Consider the availability of the domain name to create a website.
- Ensure that the name complies with Delaware LLC naming requirements.
- End the name with “Limited Liability Company,” “LLC,” or “L.L.C.”
Once you’ve selected a name, you can check its availability by using the Delaware Division of Corporations’ name search tool. If the name you chose has been used by another business, you need to find a new name.
If you also want to use another name for marketing purposes or other purposes, you can register a DBA. A DBA which means (Doing Business AS), allows you to legally use a different name for your business while maintaining your LLC status. You can file a DBA with the Division of Corporations online, and the process is typically quick and easy.
2. Select a Registered Agent in Delaware
The next step to process your LLC is getting an agent. Your LLC agent will be the middleman between you and the corporation. This means that your agent will be responsible for sending and receiving information and documents for your LLC.
Now you can act as your own agent or employ the services of a professional with expertise in forming an LLC in Delaware. Still, it’s essential to consider the potential drawbacks of this option, such as losing privacy and being required to maintain regular business hours for document delivery.
Most out-of-state LLCs hire a registered agent service or an attorney to act as their registered agent in Delaware. This ensures that important documents are received promptly, and the LLC’s privacy is protected.
3. File Articles of Organization
Now you can process and send your Articles of Organization, also called Certificate of Formation. This is a formal document that establishes the existence of your LLC with the state of Delaware.
Here’s what you need to know:
- Gather Necessary Details: Before processing your LLC, you must provide relevant details about your business like your business name, address, name of agent and address of other LLC members.
- Fill out the form: Visit the Delaware Division of Corporations website and manually fill out the LLC form or use the filing system online. After filing the document manually, you can mail it or fax it to the corporation.
- Pay the fee: After filing the LLC form, you will have to pay $90 for online filing.
- Submit the form: Now, you can submit the LLC form online or by mail.
- Wait for approval: You must wait for the corporations to approve your LLC. The time for approval usually takes some days, and once approved by the state, a document will be sent to you that confirms your business exists as an LLC.
4. Create a Delaware LLC Operating Agreement
As the owner of a Delaware LLC, you need to create a comprehensive operating agreement. You can hire a professional to help you do this or you use a free online template to create it.
An LLC operating agreement is an official document that states how to manage and operate your business.
Things you need to know when you want to make your LLC operating agreement:
- Determine the key provisions: Your operating agreement should cover key provisions such as the LLC’s purpose, management structure, capital contributions, and profit and loss allocation.
- Customize the agreement to fit your needs: You can customize your operating agreement to fit the specific needs of your business.
- Get input from all LLC members: All members of your LLC should have the opportunity to review and provide input on the operating agreement.
- Sign and date the agreement: Once you’ve finalized the operating agreement, ensure all members sign and date it.
5. Obtain an EIN from the IRS
An Employer Identification Number (EIN) is a nine-digit code given to your business to identify and pay taxes. Your EIN is necessary to your business as it can be used to open an account for your business and send in your tax.
Getting your Business EIN is seamless because you get your unique number immediately after applying through the IRS. While applying for your EIN, you will be asked to provide details about your LLC. You may also need to provide information about your LLC’s business activities and the type of business entity it is.
6. Open a Business Account
When starting an LLC in Delaware, choosing the right business bank is important. To open a business bank account for your Delaware LLC, you’ll need your EIN and other documents, such as your LLC operating agreement, Articles of Organization, and proof of identity. It’s also important to consider fees, interest rates, and other features that may vary from bank to bank.
Researching and comparing different business bank accounts can help you find the best option for your LLC’s financial needs. Some factors to consider are monthly fees, transaction limits, overdraft fees, and online banking features. By choosing the right bank, you can streamline your LLC’s finances and ensure your business runs smoothly.
7. File an Annual Report and Pay Franchise Taxes to the State
You are required to file an Annual Report and pay Franchise Taxes to the state on a yearly basis. The Annual Report provides the state with updated information about your company, including the names and addresses of your members, managers, and your registered agent.
The Franchise Tax is a fee that Delaware LLCs must pay for the privilege of doing business in the state. The amount of the Franchise Tax is based on your company’s authorized shares or the number of members in the company. The minimum Franchise Tax is $300 per year.
To file your Annual Report and pay your Franchise Tax, you can do so online through the Delaware Division of Corporations website. You will need your LLC’s file number and your registered agent’s name and address to complete the filing.
Franchise Tax is on the 1st of March every year. All LLCs must file their annual report on time. If not, they may be tasked to pay interest fees and face penalties.
Cost To Set Up an LLC in Delaware
When starting an LLC in Delaware you will be tasked to pay a filing fee of your Certificate of Formation. Delaware LLC filing fee is $90. After filing the document you can either submit it online or through mail. Also, there are other costs that you may need to consider when setting up an LLC, such as the cost of obtaining a registered agent and any necessary business licenses and permits.
FAQS On Starting LLC in Delaware
Conclusion
Forming your LLC by yourself can be difficult, especially if you don’t have experience doing it. But the process can be simplified if you follow the steps in this guide. Remember to research and comply with all necessary state requirements and regulations, including obtaining the proper licenses and permits, filing the necessary paperwork, and paying any required fees.
An LLC offers many benefits, such as limited liability protection and flexibility in management structure, making it a popular choice for entrepreneurs and small business owners. Following the steps outlined for each state, you can confidently start and run your own LLC, turning your business ideas into a reality.
