A limited liability company (LLC) offers liability protection and tax advantages, among other benefits for small businesses.
LLC formation in Delaware is easy. Just follow these seven steps, and you'll be on your way.
1. Name your Delaware LLC
You'll need to choose a name to include in your articles before you can register your LLC.
Names must comply with Delaware's naming requirements. The following are the most important requirements to keep in mind:
- Your business name must include the words Limited Liability Company, LLC, or L.L.C.
- Your name must be different from an existing business in the state. You can do a search on the Secretary of State's website to determine if a particular business name is in use.
- The business name cannot contain words used to name a government agency (i.e., State Department, CIA, FBI, Treasury, etc.)
- Certain restricted words (bank, lawyer, attorney, credit union, etc.) may require additional documentation and licensure paperwork.
See a complete listing of Delaware's naming rules.
- URL availability. Even if you don't think you'll need a webpage, you probably will. At the very least, you should reserve the option of having one in the future by buying your domain name now. Before finalizing your LLC name, it's a good idea to check if the URL is available.
- Reserve your name. If you aren't ready to register your LLC but are concerned your name might be taken by someone else, you can reserve it for a small fee. Names may be reserved for up to 120 days by paying the fee and submitting the proper form to the state authority.
2. Choose your registered agent
Delaware requires you to appoint a registered agent for your LLC.
A registered agent is the person or entity authorized to receive service of process and other official legal documents and notices on behalf of your LLC.
A registered agent can be a person (including yourself or an employee of your LLC) or an entity that offers a registered agent service. They must meet the following criteria:
- Entities (or companies) must provide registered agent services.
- The agent must have an address in Delaware.
- The agent must be on-site and available to accept documents during regular business hours.
3. Prepare and file a Certification of Formation of a limited liability company
The Certificate of Formation (commonly called Articles of Organization in other states) is a document that officially establishes your LLC by laying out basic information about it.
Prepare a Certificate of Formation and file them with the Delaware Division of Corporations to register your Delaware LLC properly. Though it sounds like a big job, that simply means filling out a relatively simple online form and submitting it. You can also send it by mail.
To prepare your articles, you'll usually need the following information:
- Your LLC name.
- The name and address of the LLC's registered agent.
- The street address of the LLC' s principal place of business.
- The signature of an authorized person.
Once you file your Certificate of Formation, the Delaware Division of Corporations will review the filing. If the certificate is approved, the LLC becomes a legal business entity.
4. Receive a certificate from the state
The state will issue you a certificate that confirms the LLC formally exists after the LLC's formation documents are filed and approved.
This certificate will allow the LLC to obtain an Employer Identification Number (EIN), business licenses, and business bank account.
5. Create an operating agreement
An operating agreement is a document that outlines the way your LLC will conduct business.
Delaware does not require an operating agreement, but it is an essential component of your business. Having a readily accessible, written operating agreement is helpful for various reasons, including settling disputes that may arise over financial agreements and other potential litigation. Without an agreement in place, the courts make determinations based on state law, not necessarily what is in the best interest of the LLC and its members.
The operating agreement can include, but is not limited to, the following:
- LLC's name and principal address
- Duration of the LLC
- Name and address of the registered agent
- Information about the Articles of Organization
- Purpose of the business
- Members and their contribution
- The way profits and losses will be divided
- Procedure for admitting new members, as well as outgoing members
- Management of the LLC
- Indemnification and liability clauses
6. Get an Employer Identification Number
The nine-digit Employer Identification Number (EIN) is assigned by the Internal Revenue Service to identify your LLC for taxes. You can obtain your EIN by mail or online through the IRS.
The purpose of an EIN is to assist with the following:
- File and manage taxes at the state and federal level
- Open a business bank account.
- Hire employees.
7. Pay an alternative entity tax
Delaware LLCs must pay an alternative entity tax (sometimes called annual tax) annually. The tax is $300 and usually due on June 1 every year.
Registering your LLC gives you a legal foundation to conduct business. Plan to keep your LLC compliant and in active status on the state's website.
Delaware LLCs are not required to file an annual report. You may need to pay a gross receipts tax if you sell goods and have employees, quarterly tax payments and may also need to maintain a registered agent for your business.
A registered LLC also makes it possible for you to do the following: