How to Start a Series LLC in Delaware
Today Delaware is one of the most attractive states for businesses, especially for startups. The state offers beneficial taxation, predictability of court practice, and the most well-thought-out LLC formation procedure.
In 1996, Delaware became the first state where it was possible to form a series LLC. The minimum required to form it was to pay the filing fee of $90 and submit your Certificate of Formation to the Delaware Secretary of State’s Division of Corporations.
In addition to an "umbrella," "master," or "parent" company, your series LLC also includes "sub-LLCs" or "cells," separated from each other for liability purposes (each cell or "division" has its assets separated from other "cells"), which also have to be registered.
Therefore, it's advisable to hire a professional attorney or the best LLC formation service to help you properly prepare your registration documents.
Table of Content
- 1 How to Form a Series LLC in Delaware: Step-by-Step Instructions
- 1.1 Step 1: Name Your Series LLC
- 1.2 Step 2: Appoint a Registered Agent to Get a Series LLC in Delaware
- 1.3 Step 3: File Your series LLC Certificate of Formation
- 1.4 Step 4: Prepare Your Operating Agreement
- 1.5 Step 5: Register for Delaware State Tax
- 1.6 Step 6: Get an EIN for Your Delaware series LLC Registration
- 2 LLC Delaware Cost: How Much is a Series LLC in DE?
- 3 First Things to Do After Creating a Series LLC in Delaware
- 4 FAQ
How to Form a Series LLC in Delaware: Step-by-Step Instructions
Before you find out how to start a series LLC in Delaware in full, you should know that there's no need to register with the IRS immediately. This is an additional advantage for startups since the number of formalities is reduced.
Step 1: Name Your Series LLC
To file a series LLC in Delaware, you should choose a distinguishable business name and check its availability on the Secretary of State's website. The name doesn't have to include the word "series," but can contain the name of the owner or other members of the company.
You can check if the name you have chosen is available by using the Name Availability Search page. The state of Delaware does not require name reservations, but you can reserve your name online if you wish.
These rules apply to umbrella LLCs. That said, Delaware is one of the few states that doesn't impose strict requirements for cells. This provides an opportunity for business owners to choose the most suitable name for their company.
Step 2: Appoint a Registered Agent to Get a Series LLC in Delaware
Before you can start a series LLC in Delaware, you'll need to appoint a registered agent (RA). An RA is an official point of contact between the company and the state. This can be:
- An individual over 18 years old with a permanent physical address (not just a P.O. box) in Delaware;
- A commercial entity registered in the state.
An RA receives service of process and other tax/legal documents, as well as official communications from the state on behalf of the LLC.
In reality, the RA function is best to be performed by a professional RA service provider, since the main responsibility of such an agent is to provide quality support to all series LLCs operating in the state, and they know exactly how to do the job right.
Your RA can be one of the national service providers that have offices in all 50 states. Alternatively, you can also use the services of Delaware Registered Agent. This is where for $180, you will get all the necessary filing services and required support for your series LLC.
If you want, you have the following options:
- Be your own RA for the series LLC;
- Ask your friend, family members, or colleague to do the job.
The good news is that your umbrella LLC and cells can be serviced by the same registered agent. This significantly reduces the cost of registering and maintaining a company, since you don't need to hire a registered agent for each cell.
Step 3: File Your series LLC Certificate of Formation
Next, you will need to complete and file a Certificate of Formation with the Secretary of State. Before you learn how to form a series LLC in Delaware, note that you will only need to do the filing procedure for your parent company.
This lowers the final Delaware series LLC cost since you don't have to pay a fee to register an unlimited number of cells.
The filing fee for a series LLC in Delaware is $90. If necessary, you can add specific wording about the company to the standard text in the certificate. To do so, you will need the services of an attorney.
The Certificate of Formation includes the following information:
- Series LLC name;
- Legal address;
- Information about the registered agent;
- Names and addresses of members and organizers;
- Type of management;
- Effective date and purpose of the company;
- Information on whether the venture is "perpetual" or temporary.
The document should also state that in addition to the "umbrella" LLC, your business structure contains an unlimited number of "cells" or "protected series." Each is protected from liability by the members of other cells.
In fact, you can add or remove protected series to/from your Delaware series LLC. For this, you will need to amend a specific LLC Agreement.
Note that forming a separate protected series requires filing the Certificate of Registered Series and paying a $90 filing fee. The certificate must be filed with the Delaware Division of Corporations for each protected series that you plan to add to your company.
Step 4: Prepare Your Operating Agreement
The next step in Delaware series LLC registration is the preparation and submission of an Operating Agreement (OA). The procedure is not mandatory in Delaware, however, it's highly recommended to have an OA for your series LLC in written form.
After all, this document will help you regulate inner disputes and controversies between all members of your parent company and cells.
In particular, an OA protects the umbrella LLC from financial debts and lawsuits of the cells. To register new cells, they need to be included in your OA.
The main task of your operating agreement is to:
- Formalize the structure of the series LLC;
- Outline the responsibilities of the members;
- Regulate the distribution of ownership interests, assets, financial obligations, and so on.
Step 5: Register for Delaware State Tax
The basic requirements for how to create a series LLC in Delaware do not include filing an initial tax return. That said, we still recommend consulting an accountant or tax professional for help in tax planning and filing for your venture.
After all, all Delaware series LLCs are required to file and pay an annual franchise tax. That said, your annual report must be filed by the umbrella company on behalf of all of the cells.
Step 6: Get an EIN for Your Delaware series LLC Registration
To complete your Delaware series LLC registration, you'll need to obtain a federal tax number (FEIN or EIN).
To obtain an EIN, you need to apply online and then fill out a special form that includes the business name of the company and the effective date. You can get an EIN in 2 ways:
- Online;
- By mail.
In most cases, the time to obtain an EIN is 1 business day. If the IRS needs additional information after the application is processed, the processing time can be up to 2 days.
LLC Delaware Cost: How Much is a Series LLC in DE?
One of the reasons to open a business in the state is the low Delaware series LLC cost. At the very least, there's a $90 state filing fee (or $100 for expedited filing).
The list of additional costs includes:
| Service | Cost |
|---|---|
| Registered agent services | from $49 to $300 per year |
| Business Name Reservation | $75 |
| Certificate of Good Standing | $50 |
| Franchise Tax | $300 per year (flat) |
| Federal tax | from 15% to 38% |
| Corporation tax | payable based on the location and specifics of your business |
Note that the Delaware series LLC cost does not imply filing an annual tax return. Instead, you will need to pay a monthly franchise tax of $300.
First Things to Do After Creating a Series LLC in Delaware
Once you know how to create a series LLC in Delaware, you will need to complete all the formalities to make your company fully compliant and meet the necessary requirements of the state.
The list of such formalities typically includes the following:
- Opening a business bank account to separate your personal and business finances;
- Hiring an accountant. The list of functions of an accountant usually includes wage formation, business plan preparation, standardization of payments, and so on;
- Obtaining business licenses and permits. Depending on your business activity and location, certain businesses must obtain special licenses.
You can get the necessary license online or by mail by applying to the correct licensing or regulatory board in the state. Consult your local government office for additional information.
Your venture also needs business insurance. The list of popular DE business insurance types includes:
- General Liability Insurance;
- Commercial Auto Insurance;
- Corporate Real Estate Insurance;
- Property Damage Insurance;
- Workers' Compensation Insurance;
- Business Income Insurance, and so on.
The last insurance type is required in case you, after some time after starting your series LLC in Delaware, decide to temporarily suspend the operation of the business.
Keep Your Company Compliant
After finding out how to get a series LLC in Delaware, keeping your business in good standing is a must. To do this, you will need to:
- Comply with tax requirements. Delaware's tax system is one of the easiest in the U.S., the main one is the franchise tax;
- Pay your annual fees and maintain an RA.
If your business activity involves obligatory licensing, obtaining the necessary license should be added to the list. A full list of business licenses and permits required by federal and state agencies can be found on the SBA website.