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Why Form an LLC in Delaware?

By IncNow | Published October 19, 2018

Delaware flagTo have access to the gold standard of business laws, you should form an LLC in Delaware. Delaware offers an abundance of protection for business owners who choose to form a Delaware LLC no matter where you live and work. The shield of Delaware protects business managers from litigation risks and compares favorably to businesses chartered in other states. Delaware maintains this top position largely because of the cooperative relationship between the Delaware State Bar Association and the Delaware General Assembly adopting laws to ensure Delaware remains at the top with the latest and greatest laws to achieve success. This cooperative relationship makes the Delaware legislature responsive to the needs of the legal and business community.

Delaware Has a Favorable Legal Climate for LLCs

Outside of state legislature, the fair legal climate is nurtured in Delaware courts that attract businesses with predictability and well-reasoned decisions. There is a good explanation why in eight separate studies conducted by the US Chamber of Commerce, Delaware has been ranked #1 in state legal systems. More particularly, Delaware offers unmatched business judges who are appointed by the governor to the Court of Chancery to handle business disputes both efficiently and effectively. This system without juries ensures the arbiters of disputes are competent.

Delaware’s Limited Liability Company Act provides both protection and unmatched contractual flexibility in structuring organizational documents. It protects members from any debt, obligation, or liability of the Delaware LLC solely by virtue of such party’s status as a member. Unlike Corporations, Delaware LLCs also provide protection in reverse to shield a member’s creditor from either voting the member’s ownership interest or liquidating the company. This is because the exclusive remedy of a member’s creditor is only to receive the LLC member’s distributions from the LLC. The creditor can’t become a member nor cause the LLC to be foreclosed upon and/or liquidated. That type of protection from LLC members’ personal problems is not available in most states outside Delaware. In addition, Delaware empowers the LLC to “indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.”

How to Form a Delaware LLC

To form an LLC, you don’t need to be physically located in Delaware, have a bank account in the state, or even visit the state. All that is needed is a Delaware registered agent. Forming a Delaware LLC allows you to conduct legal business outside of Delaware while being protected by the Delaware shield from personal liability. Small businesses can benefit from what big businesses have known for a long time. More than half of the Fortune 500 companies are incorporated in Delaware and for each one of those publicly traded corporations many have dozens or even hundreds of subsidiaries organized as Delaware LLCs for added protection.

MORE: What You Need to Know About Delaware LLCs

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When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go