Starting an LLC in Delaware: A Step-by-Step Guide for New Founders

Did you know that 73% of business entities formed in Delaware in 2023 were LLCs? Learning to start an LLC in Delaware has become crucial for entrepreneurs across the country.

The high number of Delaware LLC formations isn't by chance. Delaware offers big benefits through its Court of Chancery that settles business disputes without juries. Also, Delaware LLCs don't pay state income tax on money made outside the state making it appealing whether you run your business or in many states. The state also gives more privacy, as member names can stay hidden in paperwork.

Forming an LLC in Delaware is easier than you might think. You'll pay $110 for the Certificate of Formation, whether you file online or by mail. Each year, you need to pay a $300 franchise tax by June 1. Every Delaware LLC must have a registered agent with a physical address in the state to get legal documents.

This guide will take you through each step to set up your Delaware LLC. We'll cover everything from picking a name to understanding your tax duties under the upcoming Corporate Transparency Act.

Step 1: Pick a Name for Your Delaware LLC

Picking the right name is the first crucial step when setting up your Delaware limited liability company. This name will stand for your business on all official papers and be your brand identity for years to come. Let's look at how to name your Delaware LLC.

Check if the name is available online

Before you file formation papers, you need to make sure your chosen LLC name isn't already taken. Delaware offers an official Name Availability Search tool through the Division of Corporations website to check if a name is available in real-time. This search is the ** reliable way to confirm a name is available in Delaware, as other search tools often give outdated or wrong results.

To see if your chosen name is available:

1. Go to the Division of Corporations' Name Availability Search tool

2. Pick "Limited Liability Company" as your entity type

3. Type in your desired name (without the LLC designation)

4. Hit "Search"

The system will tell you right away if the name is free or already taken. Keep in mind that the Delaware Business Entity Search tool is not the same as the Name Availability Search and shouldn't be used to check if a name is available.

Get to know naming rules and limits

Delaware has specific rules and limits for LLC names:

Must-have elements:

• Your name needs to include "Limited Liability Company," "L.L.C.," or "LLC"

• You can choose whether to use a comma before the LLC designation

Elements you can't use:

• The word "bank" or anything similar without getting the okay from the Delaware Banking Commission

• Words the Secretary of State thinks are crude, racist, or unacceptable

• Words that single out protected groups

• Words that might help people commit crimes

• Words that could trick people about what your business does

Elements you can use if you want:

• Names of members or managers

• Words such as "Company," "Association," "Club," "Foundation," "Fund," "Institute," "Society," "Union," "Syndicate," "Limited," or "Trust"

• Numbers and words in other languages (with their meanings)

Also, your LLC name needs to stand out from other companies registered in Delaware. Just changing uppercase to lowercase letters or adding "The" won't make a name different enough.

If you want: Save your LLC name

If you've found a name that's free but you're not set to start your LLC right away, you can hold it for 120 days. To do this, file an Application for Reservation with the Delaware Division of Corporations and pay $75. You can keep this reservation for another 120 days by filing to reserve it again and paying another $75 fee.

Name reservation isn't usually needed. Many formation services point out, "It's simpler (and cheaper) to just file the new company without reserving a name". When you submit your Certificate of Formation, your LLC name gets secured within 2-3 business days.

Reserving a name makes sense in certain cases:

• You aim to secure an unique or valuable name

• You need to postpone formation until a specific date

• You worry someone else might register your preferred name before you're ready to form

Most business owners skip the reservation fee and go straight to filing their LLC formation documents.

Step 2: Choose a Registered Agent in Delaware

Once you've locked in your LLC name, the next big thing you need to do for your Delaware limited liability company is pick a registered agent. Delaware law says every business has to have a registered agent with an actual office in the state.

Who can be a registered agent?

Delaware gives you a few ways to meet this legal requirement:

1. Your LLC - If your business has an office in Delaware, it can be its own registered agent.

2. Someone who lives in Delaware - Any adult with a real street address in Delaware can act as your registered agent.

3. A friend or family member - Someone you know with a Delaware address can act as your agent as long as they don't mind their address showing up in public records.

4. A professional registered agent service - A business that focuses on getting legal papers for companies. These services charge between $50 and $300 per year.

No matter which choice you make, your registered agent has to meet certain rules set by Delaware law. They must:

• Have a real street address in Delaware (P.O. boxes aren't allowed)

• Be around during regular work hours (9am-5pm, Monday to Friday)

• Take in legal papers and other official messages

• Send important documents to your business

Advantages of hiring a registered agent service

While acting as your own registered agent might cut costs at first most business owners—especially those without a physical office in Delaware—choose professional registered agent services for several good reasons:

Better privacy - Using a service keeps your home address off public records cutting down on junk mail and keeping your information private.

Trustworthy document handling - Professional agents make sure you get important legal notices and tax papers on time helping you avoid missed deadlines or automatic court decisions.

Help with following rules - Many registered agent services offer extra perks like reminders for yearly reports and keeping an eye on compliance to help keep your LLC in good standing.

Business flexibility - When a registered agent handles document receipt, you can do business without being tied to one place during work hours.

Specialized expertise - Commercial registered agents often have direct computer access to file documents with the Delaware Division of Corporations, which leads to quicker processing.

Multi-state convenience - If you run your business in several states, using the same registered agent service across different areas can make compliance management easier.

If you don't keep a registered agent, you could face serious problems, including losing good standing, state fines, or even forced closure of your LLC. So, picking the right registered agent is a key decision that has an impact on your Delaware LLC's ongoing compliance and legal protection.

Keep in mind that a registered agent isn't just a good idea—it's a legal must-have for your Delaware LLC's entire existence.

Step 3: File the Delaware Certificate of Formation

After you pick a name and choose a registered agent, you're set to make your Delaware LLC official by filing a Certificate of Formation. This paperwork, which you submit to the Delaware Secretary of State's Division of Corporations creates your business.

What information you need to provide

The Delaware Certificate of Formation asks for less info than other states needing three key things:

1. Your LLC name (with "Limited Liability Company," "LLC," or "L.L.C.")

2. Your registered agent's name and Delaware street address

3. An authorized signature

While you can include extra info like member names or business address most experts advise against it. Any changes to this extra info would need an amendment filed with the state—leading to unnecessary fees.

Filing online vs. by mail

You have two ways to submit your Delaware Certificate of Formation:

Online Filing:

• Quicker processing (documents received right away)

• Online payment options (credit card, debit card, ACH)

• Better use of expedited service options

• Best for those who need quick approval

Mail Filing:

• Needs you to complete both the Certificate of Formation and Cover Letter

• You can pay by check or money order

• It takes longer to process because of mailing time

• We'll send your documents back by regular mail unless you give us a shipping account

New business owners think filing online is easier. The state gets your paperwork right away instead of waiting for the mail to come

Filing fees and processing time

The standard filing fee to form a Delaware LLC has a cost of $110. This one-time fee stays the same no matter how you choose to file.

How long it takes to process depends on how busy the state is and if you pick faster service:

• Standard processing (Priority 7): 10 business days - No extra charge

• 24-hour service (Priority 4): Processing in 24 hours - $50 extra fee

• Same-day service (Priority 3): Processing on the same day - $100 extra fee

• 2-hour service (Priority 2): Processing within 2 hours - $500 extra fee

• 1-hour service (Priority 1): Processing within 1 hour - $1,000 extra fee

What's more, once they give the green light, you'll get your Certificate of Formation in your inbox within 2-3 business days. If you choose to speed things up online, Priority 2 and Priority 1 approvals show up in your email within the promised timeframe (1-2 hours).

Keep in mind that after you set up shop, your Delaware LLC will need to pay a yearly franchise tax of $300 by June 1 each year. Knowing these ongoing duties is key as you get your business off the ground.

Step 4: Create an Operating Agreement

Writing up an operating agreement is a big deal when you're starting your Delaware limited liability company even though you won't submit this document to the state. This private contract sets the stage for how your business will run and who'll be in charge of what.

Why it's important even if not required

Delaware law states that every LLC must have an operating agreement, which can be written, oral, or implied. The law mentions that a "limited liability company agreement" refers to any agreement about an LLC's affairs and how it conducts its business. However, a written agreement has significant advantages over verbal understandings.

An operating agreement has an impact on several key areas:

1. Shields your limited liability status - A formal agreement shows courts that your business runs as a separate legal entity boosting liability protection

2. Stops business conflicts - By setting clear expectations for all members from the beginning, the document helps dodge expensive lawsuits

3. Spells out ownership structure - The agreement lays out each member's exact ownership stake, rights, and duties

4. Gives operational freedom - Delaware lets you shape your LLC to fit your specific needs, thanks to its flexible contract laws

, without this document, state laws would govern your Delaware LLC by default, which might not match your business aims. Also many banks want to see an operating agreement before they open a business account.

Member-managed vs. manager-managed LLCs

When you create your operating agreement, you need to decide on your Delaware LLC's management structure. LLCs are member-managed by default unless the operating agreement states otherwise.

Member-managed LLCs:

• Every owner (member) takes part in running the business daily

• Members share in making decisions voting based on how much of the company they own

• Each member can act for the LLC and commit the company through what they do

• Works well for smaller companies where owners want hands-on control

• Members have a duty to look out for the company and other members' interests

Manager-managed LLCs:

• Members pick one or more people (who may or may not be members) to run business operations

• Managers make everyday business choices while members keep control over big decisions

• Only managers can commit the LLC through their actions in regular business

• Works well when some members want to be hands-off investors

• Managers have a duty of loyalty to the company and members

Picking between these setups depends on whether all owners want active roles in management or if some prefer to be passive investors. Your operating agreement should state which setup you've chosen, along with how you'll vote on important decisions.

Keep in mind that you can change your operating agreement as needed without filing changes with Delaware letting your business setup grow over time.

Step 5: Get an EIN and Register for Taxes

Getting a Federal Employer Identification Number (EIN) is the last key step to form your Delaware limited liability company. This nine-digit number acts as your business's tax ID with the Internal Revenue Service.

How to apply for an EIN

You can get an EIN for your Delaware LLC and at no cost. The IRS gives you several ways to apply:

1. Online application: This is the quickest way. You'll have your EIN in just 15 minutes after you finish the process

2. Mail or fax: You can send in Form SS-4 if you can't apply online

It's crucial to wait for your Delaware LLC's official approval before you apply for an EIN. Also, if you're not a US resident and don't have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), you'll need to apply by mail or fax.

Once you get your EIN, you'll receive an official EIN Confirmation Letter (CP 575). You'll need this document to open a business bank account and handle other money matters.

When to register for state taxes

After you get your EIN, figure out if you need to register for Delaware state taxes. This mainly depends on:

• Whether you do business in Delaware

• If you hire Delaware residents as employees

• What your business does

For companies doing business in Delaware, signing up through the state's One Stop Business Registration and Licensing Portal is a must. This sign-up lets you get a Delaware business license ($75) and register for sales tax, withholding tax, or unemployment insurance tax if needed.

Annual franchise tax rules

Unlike some states, Delaware LLCs don't have to file annual reports. However, all Delaware LLCs must pay a flat annual franchise tax of $300 by June 1 each year.

Remember, this payment due date is enforced – Delaware charges a $200 penalty plus 1.5% monthly interest on late payments. The tax applies whether your company did business or made money during the year or not.

Delaware corporations and LLCs have different deadlines for franchise taxes. Corporations must pay by March 1 each year, while LLCs have until June 1. The state charges the full tax amount even if your LLC operated for only part of the year.

Conclusion

Setting up a Delaware LLC proves to be a smart choice for business owners who want to protect themselves from liability, enjoy tax benefits, and have business flexibility. This guide has outlined five key steps you need to take to set up your Delaware limited liability company .

Delaware stands out for its business-friendly laws, specialized Court of Chancery, and strong privacy protections. Starting a business here is easy - pick a unique name, choose a trustworthy registered agent, submit your Certificate of Formation, draft a detailed operating agreement, and get your EIN.

Don't forget that Delaware LLCs must pay $300 in franchise tax by June 1 to stay in good standing. Missing this deadline leads to big fines and possible forced closure. Also, companies doing business in Delaware need to sign up through the One Stop Business Registration website and get the right licenses.

Delaware attracts businesses to form there because it has low filing requirements and reasonable costs, no matter where you plan to run your company. Many business owners like that Delaware keeps member information private in public filings. So, your Delaware LLC protects your personal assets, gives you flexibility in how you operate, and keeps your information private.

This full guide gives you all you need to set up your Delaware LLC with confidence and start your business. At first, the process might look tough, but if you follow these five simple steps, your business will start on a strong legal base.