Steps to Forming an LLC
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How to Form an LLC in Delaware
Forming an LLC in Delaware will help protect your personal assets from lawsuits and judgments against your business. An LLC is a business structure that separates your business and personal assets. By not having your business in a separate legal structure, you can be held personally liable for certain debts and lawsuits incurred by the company. Forming a Delaware Limited Liability Company does not require an attorney and you can save a lot of money if you do it yourself with the six simple steps below.
Before getting into the six steps, there are a few things to know about Delaware LLCs.
Any business doing business in Delaware are required to obtain a business license from the Delaware Division of Revenue and this license is required before starting to transact business.
The easiest way to get the business license is through the Delaware One Stop Business.
How Much Does It Cost to Get an LLC In Delaware?
The state filing fee for a Delaware Limited Liability Company is $90, payable to the Delaware Secretary of State’s Division or Corporations. Typical time of approval is 1-3 weeks but if you need it faster, you can pay $50 for expedited, same day processing
Delaware Annual Report and Annual Fees
Delaware requires all LLCs to file an annual report. Delaware LLCs are subject to a $300 Delaware Annual Franchise Tax annually.
- Minimum Number – one or more
- Members/Managers- at least one is required to be listed in the Articles of Organization
- Residence Requirements – none specified
- Age Requirements – none specified
In addition to forming your Delaware LLC, you will need to check for Delaware business licenses and permits.
Steps to Forming a Delaware LLC
Step 1. Naming Requirements
Delaware LLC Name Search
Before settling on a business name, you want to be sure nobody else is using it as each LLC must have a unique name. Here’s how to search available LLC names in Delaware. You can also visit our page to do a free Delaware LLC name search.
If you find the name you want, but aren’t ready to form your LLC, the Division of Corporations allows a name reservation. This holds the name at a cost of $7.
Your company name must end with the words Limited Liability Company or an abbreviation of these words (“LLC,” “L.L.C.,” “Limited,” “LTD.,” “LTD”.). Check out our article on naming your LLC for all of the requirements that you must follow when naming an LLC.
Also, there are some words that aren’t allowed to be used in the state, like those that could refer to a state agency or that require licensing from the state.
Step 2. Choosing a Registered Agent
What is a Registered Agent?
A registered agent is the central point of contact for the LLC, that can be either an individual or business entity, that receives important legal documents, tax notices or communications with the state.
Registered Agent Requirements
The registered agent must have a physical presence in the state of Delaware must have a physical street address and be available during normal business hours to accept delivery of documents. A Post Office Box or personal mailbox is not acceptable. If the registered office includes a suite number, it must be included in the registered office address.
Who can be a Registered Agent in Delaware?
A Delaware registered agent can either be a resident of the state or a corporation authorized to do business in the state.
Provided you as the business owner have a physical presence in Delaware, you can be the registered agent, however, there are some privacy benefits to having a third-party registered agent.
Check out our article on LLC Statutory Agents for more details.
Step 3. Filing the Certificate of Formation
The Certificate of Formation (known as the Articles of Organization in most states) is the paperwork used to form an LLC with the state. This is the most important step and many people believe that you need an attorney to file.
While we don’t discourage having an attorney, filing a Delaware LLC can be done by most people, but you can save considerable money over an attorney and make sure to file a Certificate of Formation correctly by using a formation service such as LegalZoom.
See more about the Delaware Certificate of Formation.
The Certificate of Formation is sent to:
Delaware Division of Corporations
401 Federal Street – Suite 4
Dover, DE 19901
Step 4. Creating an Operating Agreement
An LLC operating agreement is not required in Delaware but is typically a good idea, especially for an LLC owned by multiple people. The primary function of the operating agreement is to govern the relationship between the owners of the business, but also outlines who makes what decisions, how profits or losses are distributed and the operating procedures of the LLC.
Step 5. Getting an EIN
What is an EIN?
The Employer Identification Number (EIN), or Federal Tax Identification Number (FEIN), is used to identify a business entity. It is essentially a social security number for the company.
In addition to the EIN being an identifying number for the LLC it serves a few other purposes such as:
- Opening a business bank account
- Federal and State tax purposes
- The business account to pay payroll taxes for employees paid by the company
How to Register an EIN for a Delaware LLC
To file an EIN for your LLC, visit the Internal Revenue Service (IRS) or obtain the SS-4 form. They show the steps on how to apply, but here is a video on how to apply for an EIN for more details. In about five minutes, you will have your number free of charge. Be sure to wait until your LLC is approved before applying for your EIN as the name that is registered for the LLC must be the same as the EIN.
Step 6. Selecting the Tax Status of the LLC
One of the key benefits an LLC versus the other business entities is the flexibility in the tax structure as there are four ways an LLC can be taxed, compared with two ways for a corporation.
- Single Member LLC – An LLC with one member automatically becomes a single-member LLC with the IRS. The owner simply files their Schedule C with their 1040 at the end of the year. Filing as a single-member LLC means the entity does not pay sales tax and goes to the owner which is called pass-through taxation. The owner pays self-employment taxes on the net profit of the LLC, which while simpler to handle taxes, may be more costly.
- Partnership LLC – An LLC with two or more members is automatically considered a Partnership with the IRS and will file Form 1065. Like the sole-proprietorship as a pass-through entity, the LLC taxed as a Partnership pays no income tax and profit and losses flow to each member’s Form 1040s via Schedule K-1 of Form 1065.
- C Corporation LLC – An LLC can elect to be taxed as a C Corporation by filing IRS Form 8832. The major difference as an LLC that is taxed as a C corporation is that now the LLC pays tax on the profits and losses and are not directly passed down to the members. Most, but not all will find filing as a C Corporation will cost more in taxes as now the LLC has double taxation where there is a tax on the profits and dividends.
- S Corporation LLC – To get S Corporation status, you will file Form 2553 with the IRS. What makes the S Corp attractive unlike the sole proprietorship or partnership is that you can potentially shield some of the profits from being subject to self-employment taxes. Dividends aren’t subject to this tax which is a large potential savings. There will be more work in accounting an LLC that elected S Corp status.
Each of the four ways for an LLC to be taxed in Delaware can have a major impact on the taxes that are charged depending on the business and the member’s personal finances. It’s a very good idea to work with an accounting professional to see which one is most efficient for the business and members.
Don't want to go it alone but don't want the expense of an attorney? Another alternative is to use an LLC formation service that will do the formation at a low cost. Take a look at our comparison page of popular LLC formation services.
IncFile has a special offer right now to form an LLC for only the cost of the state fees and a free registered agent for the first three months. Opening a separate LLC bank account is important as it establishes a clear division between your personal and business finances. Should the LLC be sued and you are using a personal bank account for your LLC’s finances, that would be considered a commingling of funds, which may make it difficult to maintain the liability protection of the LLC. To open a bank account for your LLC, you will need to bring the following with you to the bank: A bank resolution may be needed depending on the bank and the tax election of the LLC. A banking resolution is a formal document that provides authorization for who has access to the LLC bank account. Learn more about opening a bank account for an LLC Living in a state outside of Delaware but wanting to start an LLC in Delaware because you heard it’s better to do so? You will likely need to file as a foreign LLC in your home state in addition to your Delaware LLC. In addition to paying two filing fees there will be multiple tax filings as well. Be sure to do your research and weigh all the pros and cons before making this decision.
Step 7. Open a bank account for your business
Opening a separate LLC bank account is important as it establishes a clear division between your personal and business finances. Should the LLC be sued and you are using a personal bank account for your LLC’s finances, that would be considered a commingling of funds, which may make it difficult to maintain the liability protection of the LLC.
To open a bank account for your LLC, you will need to bring the following with you to the bank:
A bank resolution may be needed depending on the bank and the tax election of the LLC. A banking resolution is a formal document that provides authorization for who has access to the LLC bank account.
Learn more about opening a bank account for an LLC
Living in a state outside of Delaware but wanting to start an LLC in Delaware because you heard it’s better to do so? You will likely need to file as a foreign LLC in your home state in addition to your Delaware LLC. In addition to paying two filing fees there will be multiple tax filings as well. Be sure to do your research and weigh all the pros and cons before making this decision.