Delaware, also known as the First State, is widely regarded as one of the best states for business. In fact, small businesses, including those classified as LLCs, account for over 98% of Delaware businesses.
Despite the pandemic, Delaware has seen an impressive 8.72% growth in LLC formations in the previous year. Nearly a third of the state’s revenue is said to be generated by LLC formation and incorporation fees, as well as LLC and corporate annual taxes.
Backed by major rating agencies, Delaware’s Triple-A status speaks of a favorable economic environment, reasonable debt burden ratios, and strong financial opportunities.
In this article, we will discuss how to start an LLC in Delaware in basic steps, turnaround times, prices, and more. We still strongly urge you to consult professional attorneys and accountants before you actually make any large financial investments for a startup. Our article is meant to be an easy introduction to the process and covers the following steps:
Table of Content
The popularity of the LLC as a formal structure can be largely attributed to its broad limited liability benefits, guarantees of privacy, and potential tax concessions. The following how to create an LLC Delaware guide goes through each formation step to help you understand how this process works at the state level.
Every venture starts with finding a good name for your LLC. Aside from your personal preference, however, setting up an LLC in Delaware requires you to follow a set of naming rules set out by the state.
According to Section 18-102 of the Delaware Limited Liability Company Act, every LLC name must reflect its designation by including:
Delaware allows the names of members or managers to be included in the company name, as well as the following words:
That said, it’s forbidden to include the word “bank” or any other words that could imply the LLC’s connection to a financial institution without explicit permission from relevant federal and state agencies to do so.
Delaware LLC names must also be distinguishable from other formal entities registered in the state. It’s easy to check if your preferred name hasn’t already been taken by using the free entity search on the Delaware’s Division of Corporations website.
In some cases, it might be prudent to reserve your preferred name. If you already have a good idea of what you want to call your company but are still working on how to set up an LLC in Delaware—compiling the required paperwork and looking for funding—it could be months before you are ready to apply for the actual certificate.
In the meantime, you can file an Application for Reservation Of Limited Liability Company Name and keep your name safe until the formation. Delaware reserves names for 120 days, but you can re-reserve it for successive 120 periods until there is no longer a need for it. Each reservation application costs $75.
Names can only be reserved as long as they meet Delaware’s naming requirements for limited liability companies.
Under Section 3101, any Delaware LLC may register a trade name also known as DBA or Doing Business As. Trade names are especially useful for LLCs that were unable to register under their desired name or companies that wish to diversify their services. You can also use a trade name if you don’t want to include your company designation in every aspect of your work.
In Delaware, trade names must be registered in every county where you plan to do business. To do so, you must submit the notarized Registration of Trade, Business & Fictitious Name Certificate to each individual Office of the Prothonotary by mail or in person.
The filing fee for Delaware DBAs is $25 per name. Be sure to check trade name availability before proceeding with the application. You can find more about trade names on the Delaware Courts website.
The requirement to maintain a registered agent applies to LLCs throughout the country, Delaware included. Under Section 18-104 of the Code, every Delaware LLC must appoint a registered agent for service of process and maintain a registered office in the state.
Delaware registered agent for the service of process is an individual or company authorized to receive legal papers on the LLC’s behalf. Be aware that it’s impossible to run a business without an agent.
That said, there is a certain degree of flexibility that Delaware awards such candidacy. As it stands, an LLC can appoint:
There are certain financial benefits to doing this job yourself or with the help of a friend, but this method may also put your whole enterprise at risk. Most professional guides on how to register an LLC in Delaware warn against this method, and for a good reason.
By acting as your own agent, you open yourself to the following disadvantages:
In Delaware, service of process may be delivered to LLC managers/members, should they choose to represent their company, or even to their place of residence. The best way to keep your privacy is undoubtedly to appoint a professional who will maintain a registered office apart from your home or even business address.
Also called articles of organization in other jurisdictions, the certificate of formation is the defining legal document for Delaware LLC registration. Under Section 18-201, any business owner that wishes to legally form an LLC in Delaware must file this certificate with the Delaware Division of Corporations.
The certificate must include:
To make matters easier, the state’s official website lists all mandatory corporate forms and LLC applications, including the template and filing instructions for the formation certificate. Note that many sources on how to get an LLC in Delaware refer to the certificate as the articles of organization, but it’s essentially the same thing.
The certificate is typically signed by the organizer, who must be authorized by the LLC to do so. Under Section 18-204, this executive power can be given to one or more individuals, in most cases actual LLC members, though it’s not uncommon to relegate such powers to an agent or attorney-in-fact.
Please note that applications must come with a filing cover memo. You can find cover sheet memos on the Delaware Division of Corporations website.
You can submit your application online or by post at:
Division of Corporations, John G. Townsend Building, 401 Federal Street, Suite 4, Dover, DE 19901.
The base cost for Delaware LLC registration is $90 which is what you pay for filing this certificate. It will also cost extra to expedite the application ($50 for 24-hour and $100 for same-day review) or get a certified copy ($50 per copy).
An LLC operating agreement is a form of contract outlining the rules and regulations of a limited liability company in relation to its members, managers, and general business affairs.
Under Section 18-101 of the Delaware Limited Liability Company Act, an operating agreement is not subject to publication and can be drafted in writing, orally, or even implied.
That said, the majority of business owners choose written operating agreements, often with notarial services involved. Since the operating agreement is a contract, all concerned parties must authorize it with their consent, i.e. it must be signed by all LLC members. Once the agreement is signed, each member should get their own copy.
Given that the operating agreement is not mandatory—at least not in the same way that the certificate of formation is—there is no single state-approved form for this document, making its structure more flexible. Every LLC is free to draft its own version of this contract and customize it to fit the company’s business model.
It should be noted that a typical operating agreement tends to follow a well-tried framework of business contracts, as it has to be able to stand up in court and do its job unequivocally.
A typical operating agreement may outline the following provisions:
If you are not sure how to structure an operating agreement, you can solicit the help of an attorney or an LLC formation service. Alternatively, you can use one of the many free LLC operating agreement templates available online and tailor it to your LLC.
One of the most important steps of forming an LLC in Delaware is tax ID registration. Also called the Employer Identification Number or EIN, this federal tax ID is assigned by the IRS to keep track of your LLC’s financial transactions. Not every company may need an EIN as far as federal requirements go. An LLC will need to apply for this number if:
Most formation companies charge quite a lot of money for this service by including it in their essential packages. Considering other fees that you will need to pay to start an LLC in Delaware, this filing is not something you should pay someone else to do for you.
In fact, you can do it for free by applying for an EIN on the IRS website or by sending Form SS-4 via mail or fax. Online submissions are usually processed immediately.
Compare the conditions for opening an LLC in Delaware with other states:
Following the Department of Corporations fee schedule numbers, we can assess the basic minimum cost for creating an LLC in Delaware.
Note that each formation may vary greatly based on your LLC’s maintenance needs and other aspects of its management, and it could greatly exceed the UCC filing numbers, i.e. the base cost to file LLC Delaware certificates of formation.
|Domestic LLC Certificate of Formation||$90|
|Foreign LLC Certificate of Formation||$200|
|24-Hour Filing Service||$50|
|Same-Day Filing Service||$100|
|Registered Agent Subscription||$99-$300+|
|DE Business License||$75+|
If you choose to open LLC in Delaware by handling every aspect of the entire process by yourself, it’s fairly feasible to keep the basic formation within the $264 margin. For instance, the LLC Delaware cost for standard filing is only $90 plus $75 for the first location business license and a budget registered agent at the rate of about $99 per year.
It is theoretically possible to keep the overall cost down to about $165 if you find a way around registered agent fees. This can be done by appointing yourself or your friends or family members who are willing to do it free of charge.
The real expenses start piling up when you begin arranging the maintenance for your LLC. If you need regular notary services, be ready to pay up to $20 per signature. Business bank accounts tend to start at about $25 of required deposits, and business insurance can add a couple more hundreds on top of that, plus an annual tax of $300 minimum.
Fortunately, there are no publication or initial report requirements, which is good news for the overall Delaware LLC cost, at least at the formation stage.
Once you are done with the basics of starting an LLC in Delaware, it’s time to take care of a few follow-up steps. These are meant to assist with day-to-day business management as well as long-term compliance.
Plenty of entrepreneurs choose to use their personal bank accounts for business purposes, namely sole proprietors or those who run single-member LLCs, which are often managed from home offices.
While cutting admin costs involved in business banking may be tempting, it’s highly recommended for traditional multi-member LLCs to have separate bank accounts from those registered to their owners.
There are three major benefits of a dedicated LLC bank account:
Account management is crucial for running an efficient and compliant company, especially in a state like Delaware, where you need to pay close attention to your business-specific taxes. If you decide to let LLC finances flow through your personal account, be prepared for a nightmare tax season—after all, you will end up having to go through your financial statements point by point to separate your personal and business transactions one at a time. A dedicated business bank account will keep all your books clean and straightforward, which in turn can reduce costs that would otherwise be mounting to cover professional accounting services.
Asset protection in this context directly concerns your personal assets, including your savings, property, estate, and other securities. The entire concept behind the limited liability company as a formal entity is built on the guarantee of limited liability and personal asset protection. This means that your personal assets cannot be legally seized in case of litigation, since they are separate from the LLC itself. To ensure that you actually have this guarantee, it’s important to legally separate your personal and business finances. Having a business bank account is the best way to strengthen your liability protection.
Business loans can be difficult to obtain without certain qualifications, and taking out personal loans to sustain your company rarely bodes well for your financial stability. If your LLC already has a business account, it can certainly help you access loans at low-interest rates.
Getting your company registered won’t be enough to legally do business in the state. In most LLC formation Delaware cases, you will also need to purchase one or more business licenses in order to do any commercial activity in your jurisdiction. You can find out more on the state’s business licenses FAQ page.
To obtain a license for your LLC, you must first go through the registration process with the Delaware Division of Revenue. The fastest way to do it is to register online via One Stop Business Licensing and Registration Service.
One-year and three-year licenses are meant to be purchased for each business activity the LLC plans to engage in. Temporary licenses can be printed right after you register, while permanent licenses are typically issued within 10 working days.
Apart from state licenses, you will likely need other licenses and permits from your county and municipal government. To learn more about these requirements, always contact your local rep beforehand.
Be aware that additional licenses may be enforced to regulate certain industries and professions. You can check the list of professions subject to licensing and the index of Delaware business licenses and registrations to see whether your LLC falls in that category. To obtain such a license, you need to register with the Delaware Division of Professional Regulations.
Operating a business opens you to risks that you wouldn’t normally think about in your daily life. To run a safe enterprise means protecting it against risks that are directly connected to your workplace. This covers everything from property damage and personal injury to employee safety and transportation.
There are dozens upon dozens of insurance policies and packages, some extremely industry-specific or even location-based. We suggest starting with the following policies for your Delaware LLC:
Other popular policies include:
Pricing for Delaware business insurance varies greatly depending on the type of policy, your industry, and the insurance provider itself. It can start as low as $25 per month for some general liability insurance, but a more accurate average rate would fall somewhere in the range of $50-70 per month, amounting to over $1000 per year just for the GLI alone.
After you’ve figured out how to form an LLC in Delaware and covered the immediate basics, your priorities will shift to maintaining your company throughout its run. An LLC is only legally operational as long as it remains in good standing with the state, and it’s your job to look after each aspect of your company’s compliance.
Let’s start with the most vital requirement in Delaware—annual LLC taxation. Delaware LLCs are classified as disregarded entities, meaning the state treats them as partnerships (or sole proprietorships in case of single-member LLCs) for tax purposes.
Every LLC operating in Delaware is subject to the annual state tax of $300 due before June 1st. You can pay your annual taxes online.
Similar to annual report requirements in other states, this annual tax filing is designed to inform the state of the company’s status. If you fail to pay the state tax, your company will be issued a penalty of $200 with subsequent added interest rate of 1.5% for each month of non-payment.
In addition, LLCs with employees are required to register with the Delaware Division of Unemployment Insurance and the Delaware Office of Workers Compensation in order to pay employer’s taxes.
Unless elected otherwise, the IRS classifies LLCs as flow-through entities on the federal level. Unlike traditional corporations, LLCs don’t pay taxes directly—all profits and losses are reported on the personal returns of the owners.
Companies with employees are also subject to FICA tax, which they must withhold from their wages. The rate for Social Security and Medicare taxes is set at 15.3%, half of which (7.65%) is paid by the employer and another 7.65% is paid by the employee, except it’s the employer’s responsibility to withhold the relevant sum from each taxable paycheck.
Delaware does not have an annual report or statement of information requirement for LLCs. Instead of sending annual reports and paying the filing fee each year, LLCs are required to pay the state’s annual franchise tax. This tax report should be filed with the Division of Corporations every year before June 1, otherwise, the company will be fined and eventually rendered non-compliant.
A limited liability company is a welcoming legal structure for many businesses. Start an LLC is easy. Select your state to start.