Do you have a groundbreaking idea that can transform the market? Incorporating a company is the first step to achieving your dreams. Forming an LLC opens the door for tax savings, limited liability, and security to personal assets. Delaware is one of the most popular destinations in the USA to incorporate an LLC; close to 68% of all Fortune 500 companies are incorporated in the StateState. Delaware also offers great tax benefits to LLCs and investors. The company courts of the State are efficient and accurate in the resolution of disputes; this makes Delaware a great choice to incorporate your LLC.
This guide will walk you through every step in incorporating your LLC in Delaware. Keep reading to find detailed information about filing methods, costs, taxes, and anything else you may need.
Naming your Delaware LLC
Your LLC’s name gives it a unique identity and defines its brand image. It conveys your company’s core values and reputation. This name will be present on advertisements, websites, bank accounts, contracts, invoices, directories, etc. Picking a creative name will attract new customers.
The name of your LLC has to meet certain requirements. The phrase ‘Limited Liability Corporation’ or the abbreviation (LLC/L.L.C) must be present in the name of your business.
Any word(s) that could potentially cause it to be confused with a Government Agency (State Department, FBI, etc.).
Words like ‘Bank’, ‘University’, ‘Attorney’, etc., and other restricted words which require the respective licensed individual ( Lawyer, Doctor, etc.) to be part of the LLC.
Your LLC’s name must be different and unique, i.e., distinguishable, from any other business (Corporation, Company, etc.) registered in Delaware.
Does your business require a DBA?
DBA or “Doing Business As” is a fictitious or Trade name under which you can choose to conduct your business. It is different from your LLC’s name, and you can choose to register a DBA for your Delaware LLC if you wish to.
Your LLC’s name may be sufficient to represent your brand, and you can conduct any day-to-day operations ( like accepting and making payments) under the same name. However, as your LLC’s business grows and you want to enter a new market or completely change the marketing strategy of your LLC, your LLC’s registered name may no longer be suitable, which is when you would obtain a DBA.
In Delaware, to obtain a DBA, you must fill out the application and mail or hand-deliver the ap to the respective officers of each County, the Prothonotary. You can access the addresses and mailing details of the respective Prothonotaries from the official website.
Doing a Name Search
You can use the Name Availability Search on the Delaware Department of State website to ensure that your name is available and not already under use by an existing Corporation/LLC.
If the name you want for your LLC is deceptively similar to the names in the list, you cannot use that name for your LLC. Instead, you will need to either develop a new name or think of a unique variation of the same name.
Reserving a Name for your LLC
If you have chosen a name but have yet to complete incorporating your LLC, you can reserve a name for 120 days at the State of Delaware official website.
Registering your business domain
Ensure that the domain name corresponding to your Delaware LLC name is not already in use and is available. Buying the URL gives you the option to set up a website for your LLC, should you wish to. A website is extremely useful to grow your LLC and attract new customers.
Nominate a Delaware Registered Agent
Your registered agent is essentially a liaison between the StateState of Delaware and your business. A Registered Agent is an individual or a business entity that receives legal documents, tax notices, service of process in case of lawsuits, and any other government correspondence on your LLC’s behalf and forwards similar communication to the State of Delaware.
They ensure that your business can receive documents when you are away from home, out of the office, or if your business is registered outside Delaware. Every Delaware LLC is, by law, required to have a Registered Agent under the Delaware Code § 18-104.
Who can be a Registered Agent?
Anyone, including yourself, your family, or friends, can be a registered agent, provided they:
- Are aged over 18 years, if they are an individual;
- Have a street address in Delaware;
- If the registered agent is a legal entity, then it must be permitted to do business in Delaware;
- Must be available to receive communications during regular business hours.
Individual vs. Commercial Registered Agent Service
Alternatively, you could also hire a commercial registered agent. Hiring a professional service agent range from $30 to $500 per year. Although this may be a high cost, hiring a professional registered agent has certain advantages.
To protect your privacy and ensure that your home address is not publicly accessible on the Delaware General Information Name Search, your commercial agent will use their address in your Certificate of Formation instead of yours.
A Registered Agent Service ensures that your LLC files Annual Reports, taxes, etc., and ensures responses to lawsuits on time by sending you periodic reminders. This helps your LLC remain in good standing, avoid unnecessary fines, and maintain its immunity status.
A Registered Agent Service scans and uploads all legal, commercial, and other documents your LLC receives online, thus allowing you to download them as PDFs at any time.
As your business grows, you may wish to expand to other states. Any major Registered Agent services will deliver the same documents in a new state for a small extra fee. Appointing a Commercial Registered Agent is safer, more reliable, and gives you greater peace of mind.
Filing the Certificate of Formation
The Articles of Organization, called the Certificate of Formation in Delaware, are the documents you must file with the StateState to set up and register your LLC. You need to download the Certificate of Formation PDF, print it out, and fill in the required sections. Once the form is completed, you can file it – Online or Offline (By Mail).
To fill out the application online, you need to download and sign the Certificate of Formation from the linked Delaware Department of State website below. After signing, scan and upload a copy of the form on the Onestop Delaware website linked below.
Create the Operating Agreement
An operating agreement is a legally binding, internal document that establishes the structure of ownership, processes, and operating procedures of your LLC. In addition, it provides legitimacy to your LLC, which is essential for court cases, banking, etc.
You are NOT required to file your LLC’s operating agreement with the StateState of Delaware as it is an internal document for your business.
Why do you need an LLC Operating Agreement?
The State of Delaware recommends that all the members of an LLC enter into a written operating agreement (Section 18-101(7) of the Delaware Limited Liability Company Act). It prevents conflict among the partners in your company, especially in the case of a multi-member LLC. In addition, an operating agreement lays out the roles, functions, and responsibilities of every member of your business.
An Operating Agreement also helps to preserve the Limited Liability status of your business. In the case of a single-member LLC where you are the sole owner, an operating agreement ensures that courts uphold the limited liability status of your company.
What should your LLC Operating Agreement contain?
Some of the essential components which have to be included are –
- Organizational structure and Changes to the membership structure
- Management and Voting
- Capital contributions and Distributions
Writing The Operating Agreement Yourself vs. Hiring a Service
Write it yourself
You could choose to write the agreement for your LLC by yourself. However, numerous guides and free templates are available online to assist you, thus saving you money and time.
There are templates for single-member, multi-member, member-managed, and manager-managed LLCs.
Hire a Service
A service provider will create a robust Operating Agreement with all the necessary details and no important omissions for a small fee. This will save you valuable time and effort, which you would have otherwise spent writing it yourself.
Hiring a service is more convenient, gives you greater peace of mind, and allows you to devote more time to other aspects of your business.
Limits of Operating Agreement
Additionally, you cannot use your Delaware LLCs Operating Agreement outside the StateState. Therefore, if you decide to expand your business outside Delaware or set up a Foriegn LLC, you need to create another Operating Agreement, which follows the laws of that particular StateState.
Obtaining an EIN
What is an EIN?
An EIN or Employer Identification Number is a nine-digit number assigned by the Internal Revenue Service (IRS) to identify a business for tax and filing purposes. It is, quite simply, a Social Security Number (SSN) for your LLC.
An EIN is also known by other names – Federal Tax Identification Number, Taxpayer Identification Number (TIN), etc. Applying for an EIN for your Delaware LLC is completely free of charge.
If your Delaware LLC hires employees or has more than one member, you are required by the IRS to obtain an EIN for your business.
Benefits of obtaining an EIN for your Delaware business
- Allows you to file federal, StateState, and local tax returns
- Helps you open a business bank account for your LLC
- Obtain a business credit card for your company
- Hire employees and manage payroll
- Apply for a business license
- Helps you secure business loans and lines of credit
How to apply for an EIN
If you are filling out your EIN application online, you must complete this application in one session. You cannot save it and finish it later. Each session also lasts for only 15 minutes and times out if it is inactive. The website will generate your EIN as soon as you finish this process. A valid SSN or TIN is needed to apply online. If you do not have either, you must Fax or mail the application to the IRS.
Annual Reports for your LLC
Unlike many other states, Delaware does not require LLCs to file Annual Reports.
Tax Liability for your LLC
There is a large variation in the taxes paid by a Delaware LLC. Due to the complexities involved, it is advisable to hire a local tax professional to guide you. However, the following is some general information.
Federal Tax Liability
Your Delaware LLC is required to file an income report with the IRS every year. One of these forms are to be used –
- Form 1065 Partnership return – Most multi-member LLCs use this Form.
- Form 1040 Schedule C – Single-member LLCs generally use this Form.
State Tax Liability
State Income Tax
If your Delaware LLC has a multi-member structure, you must file a tax return using the Delaware form 300-I.
Download the Form using the link and fill in the necessary details. There is NO filing fee for this Form. You can file it by mailing the completed Form to –
Division of Revenue
P.O. Box 8703
Wilmington, DE 19899
Delaware Sales Tax
Delaware does not charge a sales tax on saleable goods and services.
Delaware Gross Receipt Tax
The Gross Receipt Tax for Delaware is determined based on the total gross revenue generated by all the companies and businesses in Delaware. Therefore, your LLC may have to pay this tax at a special rate depending on the type of business.
Delaware Employer Tax
You will have to register for the Unemployment Insurance Tax if your LLC hires employees in Delaware.
All LLCs in Delaware are required to pay an annual Franchise Tax. It can be filed Online using the Delaware Department of State website .
The total amount of tax is fixed at $300, and there is no filing fee. The due date for filing and paying this tax is on or before June 1st each year.
If you miss the deadline (June 1st), you can still file the Franchise Tax by paying a $200 penalty along with a 1.5% interest per month.
Permits and Licenses
Your LLC needs to comply with federal, StateState, and local rules and regulations to function. Some examples of permits include Health permits, Liquor licenses, Building Permits, etc.
You may use the US Small Business Administration (SBA) Guide for Federal licenses and permits.
In Delaware, you need to possess a business license to operate your LLC. You can apply either online or offline (By Mail). In addition, you can go to the Delaware State Business One-Stop website and fill in the details online.
Your LLC’s license costs depend on the type of business, and the month of incorporation. The first license is active for one year, after which you can renew it for one year or three years.
You may also need to obtain specific professional licenses for your Delaware LLC. Visit the Division of Professional Regulation website for more details. In addition, if certain counties or cities in Delaware require specific permits, you will have to inquire with the local government.
Business Bank Account & Phone Number
After receiving your EIN, you may also set up a business bank account separate from your personal account for your LLC. This account helps you protect your assets by separating them from the LLC’s assets and also makes accounting and filing taxes more convenient.
Establishing a separate phone number for your LLC ensures that your customers have direct access to your business for any questions or concerns.
You need to ensure that your LLC’s name, contact information (phone number, email ID), and office address are registered with the directory and present in any advertisement your company runs in newspapers, television, etc.
Make sure that the contact information is prominently displayed on your LLC’s website to ensure that it shows up when a customer runs a Google Search for your business.
With the last step, you will complete all the procedures required to form an LLC in Delaware. Double-check all the documents and information before you file your application, and if you’re still hesitant about the process, you can always use an LLC registration service that suits your needs. Enjoy your new LLC!