When it comes to incorporating an LLC, Delaware vs Florida is one of the major topics that pop up, and reasonably so – it’s one of the greatest LLC showdowns which can massively influence your company’s survival and growth. As you would have imagined, both states possess their pros and cons, but determining the most suitable option for your LLC is crucial.
In this ultimate LLC battle, Delaware has enjoyed more popularity over the years mainly because of its absence of sales tax as well as its business-friendly laws. This is not to overlook Florida which has also proven to be a serious contender with its low filing fees as well as its lack of state income tax. In this article, we’ll provide you with a better insight into the famous Delaware vs Florida LLC showdown.
Table of Content
There’s nothing like a one-size-fits-all approach when it comes to LLC formation - all states are unique and therefore, possess different requirements. As wide apart as you imagine Delaware and Florida LLCs to be, they actually have a lot in common. Let’s take a look!
Both Delaware and Florida do not require you to pay a certain amount of capital to kick start your LLC formation journey. This makes entrepreneurship a lot more attractive to individuals and also promotes growth at all business development levels.
When you have laws in place to prevent creditors from taking control of any LLC ownership interests, it becomes a lot more attractive to start a business. In Florida, business-related assets, real estate, financial accounts, and other LLC ownership interests are well protected by the law, so you can rest easy knowing that you are in no danger of losing your properties due to business activities.
Keeping your assets protected is also quite easy in Delaware as it's only via a charging order that creditors can utilize to seize an LLC member’s assets. A charging order is a tedious and complex process, which demands the creditor to file a personal lawsuit against an LLC member and ask the court to issue a charging order, which will be presented to the corporation.
Both states permit corporate action without shareholders or stockholders meeting. However, there must be written permission from the shareholders to propose corporate action (unless the Articles of Organization state otherwise).
For several years, Delaware has been the go-to state whose laws are designed to protect stockholders, create in-state jobs and attract businesses. The state has been able to provide the most flexibility and protection to LLCs, corporations as well as LPs over the years. However, in recent times, the benefits of having a Delaware entity are no longer as significant as other states have also risen to the challenge.
The LLC Florida vs Delaware debate is one that often comes up as Florida has also gone a long way to create a business-friendly environment for entities by liberalizing and modifying their corporate laws in a similar way to Delaware’s. However, there are still some significant differences, which we’re going to consider in this write-up. Let’s jump right in!
There are two methods used when it comes to corporate income tax in Florida (corporations in the state are required to use whichever results in a higher tax). The first is the regular corporate income tax in Florida, which is a state tax of 5.5% on federal taxable income excluding the normal exemptions and adjustments. The second is the Florida Alternative Minimum Tax (AMT) which is gotten by carrying out multiplication of the minimum taxable income by 3.3%.
In Delaware, the corporate income tax is an 8.7% flat rate. State corporate income tax is non-existent in Delaware for Delaware-formed entities who do not operate in the state (although there’s a franchise tax).
In Delaware, the relationship between the owners and managers of an LLC is dictated by Delaware’s General Corporation Law (DGCL). In other words, LLC managers and owners are governed by contract law. However, every corporation must follow federal and state rules for other aspects of business law including securities disclosure, labor, competition, and others.
Florida’s corporate business laws include various stages with the first being verification of your business name to ensure it's available. All applications for an unavailable business name will be rejected.
Florida’s business promoters are required to retain the services of Delaware registered agents for a yearly rate. Meanwhile, in Florida (the home state), it’s likely to be less difficult to have a representative who is already affiliated with the entity and also based in Florida.
Furthermore, while Delaware requires a franchise tax depending on your company’s capitalization, Florida only requires an annual report fee so as to maintain the status of your company.
Delaware is a well-known haven when it comes to incorporation due to a number of reasons, chiefly the business-friendly regulations and anonymous LLCs. The state is home to an array of Fortune 500 companies; however, it must also be noted that being a great business environment for large companies does not automatically make it good for small companies or an individual looking to start an LLC.
To help you make the best-informed decision possible, we’ll be looking at some of the benefits and drawbacks of forming a Delaware LLC.
|Pros of Incorporating in Delaware||Cons of Incorporating in Delaware|
|The laws are business-supportive. The most business-friendly laws in the US are known to come from Delaware;||Dual registration. You’re required to also register in your home state in case you don’t live/work in the state;|
|Efficient and business expertise. In this state, you won’t have to spend much on legal defense as they’re quite knowledgeable and efficient;||Registered agent. As an LLC, you must have a registered agent which should normally come from the entity that formed the company;|
|LLC protection. The state offers adequate protection to LLCs in the event of financial problems;||Additional fees. There’s the need to pay for legal representation if you file a lawsuit;|
|Tax advantages. There is no sales tax in Delaware;||Different LLCs. Only series LLCs are accepted which haven’t been adopted by a lot of states;|
|You don’t have to publicize your name. You’re only required to list the name of the company and the registered agent as well as the address;||Small businesses hardly enjoy the tax breaks.|
|Quick filing. Filing in Delaware is completed within an hour on average.|
Delaware is a desirable state to form an LLC due to its corporate-friendly laws and tax regulations. As a result, corporations and LLCs in Delaware tend to be a lot more inviting to investors that are aiming to go public or simply looking to raise capital. Also known as “America’s Incorporation Center”, Delaware is the most affordable place to form an LLC when compared to other US states.
Here, not only is there no capital stock tax for small businesses but there’s also no income tax for LLCs in the state. Another big factor that keeps attracting business owners is Delaware’s pro-privacy and pro-business legislation.
Although Delaware remains one of the best places you can possibly form an LLC, it also has some drawbacks. The state has potentially high filing fees, which include fees for reserving a business name, drafting Articles of Organization, and more. Additionally, a business license is required which is also going to incur fees.
LLCs in Delaware are required to draft an Operating Agreement which is also positive but it’s likely going to be time-consuming and may require some external support.
Florida is a state that’s also considered to be corporate-friendly. Unlike Delaware, Florida does not impose a franchise tax, and the only renewal fee required by the state is a $138 payment made to Sunbiz. As a result, the annual fees in Florida are relatively low.
To help you make the best-informed decision possible, we’ll be looking at some of the benefits and drawbacks of creating a Florida LLC.
|Pros of Incorporating in Florida||Cons of Incorporating in Florida|
|Anonymity. Here, small businesses can stay anonymous going under the cover of a corporation. These small businesses usually provide valuable services to the community;||A business license may be required. Florida issues a business license at the county level (not state-wide) called a “business tax receipt” for almost every company (LLCs included) which is required to pay a fee;|
|Liability. The owners of a business are no longer liable for its debts after it incorporates. In other words, creditors cannot seize the personal assets of the owner(s) if they default;||The LLC may dissolve if the owner dies. If the LLC owner dies, leaves, is expelled, etc., there’s a great chance the company might be dissolved unless the event has been specifically provided for in the operating agreement;|
|Taxes. There are several tax advantages to a small firm that incorporates which include offering enrichment programs to employees;||Paperwork. The paperwork needed to convert a small company to a corporation is almost always enormous;|
|Ownership flexibility. Florida’s LLC owners are offered a great level of flexibility. You’re able to structure the management of the company as you deem fit so far as it doesn’t break the law;||Legal fees. To form an LLC in Florida, you’ll need to hire the services of a lawyer which can be quite expensive.|
|No operating agreement is required. The state does not require LLCs to draft an Operating Agreement. This should be given a second thought, however, as Operating Agreement gives the company an extra layer of protection.|
Although Delaware might have a slight edge in terms of the advantages, Florida sure does have its own unique benefits and also some shared benefits with Delaware. Leading the advantages of owning a Florida LLC would be its cost-saving benefits relating to your corporate filing fees and expenses. The state also offers liability protection to all incorporated businesses.
All LLCs in Florida enjoy pass-through taxation, which is particularly beneficial to first-time business owners. Incorporating in the state also gives your business flexible ownership as you can structure the management and ownership of your company as you wish as long as it's within the law. It also makes your business a lot more credible to other concerned parties.
As attractive as owning a Florida LLC can be, there are also some drawbacks to it. The disadvantages include the requirement of a business license by the state, the high possibility of liquidation if the owner dies, leaves, is expelled, etc., legal fees, and cumbersome paperwork.
In this section, we’ll be looking at the taxes and fees for an LLC in Delaware/Florida.
|Fee type||Delaware LLC||Florida LLC|
|LLC Filing Fee||$90||$125|
|Same Day Service||Yes - $100||No|
|Annual Franchise Tax||$300||No|
|Change Registered Agent Fee||$50||$25|
|Certificate of Good Standing||$50 - $175||$5|
Delaware LLC vs Florida LLC is a debate that always comes up when it comes to LLC formation. While Delaware has been known, over the years, to be a haven to corporations, LLCs, and LPs largely due to its business-friendly environment and tax regulations, Florida has also gone a long way to liberalize and modify its corporate laws in order to create jobs and attract investors into the state.
Registering an LLC in either state comes with both benefits and drawbacks. Hence, deciding the best and most suitable option largely depends on the needs of your company, your budget, or even your personal preference.