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Delaware, also known as the Diamond State, is one of the best states to start a business in. It has a business-friendly climate that encourages foreign investors to set up businesses in the state. Limited Liability Company (LLC), as the name suggests, is a type of business entity in the United States where the owners of the company have limited liability, i.e., they are not personally responsible for the debts and liabilities of the company. Apart from protecting owners from being personally liable for debts and liabilities, LLCs have several other advantages, like flexible management and tax benefits. With these advantages, an LLC is a treasure for small business owners and entrepreneurs. So, in this blog, we will provide a step-by-step guide to Delaware LLC formation for those willing to enjoy the benefits of an LLC in the “Diamond State”.
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LLC is a type of business entity that ensures that its owners are not personally liable for the repayment of company debts and protects the owners’ personal assets from the company’s liabilities. LLC also offers flexible management, which makes it an attractive choice for small business owners and entrepreneurs.
Apart from its business-friendly climate, which attracts foreign investors to form a limited liability company in Delaware, Delaware offers various benefits, such as:
Delaware offers flexibility in the ownership structure of your LLC, i.e., if you don’t want to manage the LLC by yourself, you can hire professional managers to manage your company.
Delaware LLC formation provides the benefit of limited liability to the owners of the LLC, i.e., creditors can’t go for the owners’ personal assets to recover their debts. The liabilities and debts of the organization are limited to the assets of the organization only.
It provides an option to form a series LLC.
There is no public disclosure of important information about the members of the LLC. Delaware LLC formation includes drafting a certificate of formation, but that only contains the name of the LLC along with the registered agent details.
Below mentioned is the step-by-step guide to Delaware LLC formation:
The very first step in your Delaware LLC formation is the selection and registration of the name of your LLC. The name you have chosen for your Limited Liability Company (LLC) should be unique and should not resemble any other existing business entity registered in Delaware. To assist you in the process of name selection, a tool has been provided by the Division of Corporations of Delaware. You can use this tool to search for the name that you have chosen for your LLC, and if it doesn’t resemble any existing names registered with the Division of Corporations, you can go ahead with your chosen name.
Another important thing you should note is that your company’s name should contain either “Limited Liability Company” or its abbreviations L.L.C. or LLC.
A registered agent can be an individual or a business entity that agrees to receive official letters, documents and mail on behalf of your LLC. Delaware State law requires the registered agent to be above the age of 18 years and have a physical address in Delaware. The registered agent must be available to receive the state’s communication mail and documents, such as notice of the lawsuit or a letter of service, during working hours on weekdays. The LLC owner or employee can also be appointed as the registered agent. Still, they need to be available during working business hours throughout the year to receive the official documents. They will also need to disclose their name and physical address publicly as a requirement under the certificate of formation, which we will discuss in the next step mentioned below.
A certificate of formation of an LLC is also known as an article of organization. It is the most crucial document for Delaware LLC formation, as it establishes the LLC as a legal entity within the state. This certificate should contain important information about the business, i.e., the LLC’s name, the registered office’s address, and the registered agent’s name and address. There is no requirement to mention the member’s or owner’s name in the certificate of formation. Along with these, an amount of $90 has to be paid as the state fee for Delaware LLC formation for a domestic LLC and $200 for a foreign LLC.
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The operating agreement is one of the most important documents for the Delaware LLC formation, as it is your company’s backbone. Drafting an operating agreement is not a legal necessity as per Delaware state laws, but having an operating agreement for your LLC is highly recommended. An operating agreement is considered the constitution of your LLC, as it contains information regarding the division of profits and losses, rights and duties of the members, capital contributions by the members, voting power, dissolution process and taxation clauses. It helps in avoiding legal disputes in the future by stating the roles and responsibilities of the members and also aids in an effective decision-making process.
The next step in the step-by-step guide to Delaware LLC formation is to obtain an employer identification number from the Internal Revenue Service (IRS) for the tax purposes of the LLC. The IRS uses this EIN to track your company’s tax filings. Apart from tax purposes, EIN can also be used for hiring employees for your LLC, conducting business with vendors, obtaining business loans from banks, creating a bank account for your LLC and applying for licenses and certifications based on the nature of your business. The EIN can be applied through traditional methods like mail or online application with the IRS, which is much easier and more straightforward.
This is an additional step for some LLCs that may be subject to any license, certification or permit based on their jurisdiction and nature of the business. The members of the LLC should conduct a thorough evaluation of all required permits and certifications in order to minimize the chance of non-compliance with Delaware state laws.
Delaware is one of the best destinations for foreign investors owing to its business-friendly environment and flexible business structure. It is the best place for small business owners and entrepreneurs to set up their businesses. Delaware LLC formation benefits the company owners from limited liability and protects them from being personally liable for their company’s debts and liabilities. Our step-by-step guide to Delaware LLC formation describes the process of forming a limited liability company in Delaware in six easy steps. Delaware LLC formation is not a tough task, but you need to be fully aware of the process and rules to ensure the legal compliance of your LLC.
Delaware is one of the best states in the US for setting up a business. It has a business-friendly environment that encourages foreign investors to start a business in the state. It provides various additional advantages, such as limited liability of owners, the privacy of important information like the names and physical addresses of the members, the flexibility of ownership structure, and the option to go for a series LLC.
Yes, there is a process in which you can reserve the name for your LLC without registering it for a period of 120 days by paying a fee of $75.
Selecting a name for your LLC is the first step in your Delaware LLC formation process. You should choose a name that connects to your target consumers and is easy to remember. The name of your LLC should be appealing and catchy so that the consumer can remember it for a long time; this will help you build a brand name for your LLC. The last and most important thing is that your name should not be identical or similar to any existing registered business entity in Delaware.
Anyone who is above the age of 18 years and has a street address in Delaware can be appointed as the registered agent for Delaware LLC formation. The registered agent should also be available to receive official communication from the state during working business hours all through the year.
Yes, the owner of the LLC can be its own registered agent. But for that, you need to be available during working hours on all weekdays throughout the year and publicly disclose your details, such as name and address.
Yes, you should definitely opt for a registered agent service to hire a registered agent for your LLC. A third-party registered agent remains easily available during working business hours all through the year to receive all your official mail and documents. Hiring a third-party registered agent helps you keep your details private, like your name and address.
EIN is a unique nine-digit employer identification number used for tax purposes by the LLC.
The employer identification number is mandatory for all LLCs having more than one employee or member. If an LLC has only a single member, it is not mandated by Delaware law to obtain an EIN.
There are two ways to obtain the employer identification number for your LLC, i.e., via mail or online application through the online platform of the Internal Revenue Service (IRS).
No, a single-member LLC without any employees and excise tax liabilities can use their SSN (social security number) for tax purposes and all other documents requiring the employer identification number.
A series LLC includes one or more LLCs operating under the umbrella of a parent LLC. Every LLC under the parent LLC has its own members, purposes, goals and assets separate from the parent LLC.
No, it is not compulsory to have an operating agreement for Delaware LLC formation, but it is always recommended to draft an operating agreement for your LLC in order to avoid any future disputes regarding the profits of the company or the duties of a member.
An operating agreement acts as the constitution for your Delaware LLC formation as it contains crucial information like the role and duties of members, division of profits and losses, dissolution procedure, capital contribution by members, etc.
An amount of $300 is paid as an annual tax by all the LLCs registered in Delaware.
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