How to Form a Delaware LLC

Choose a Delaware LLC Name

Registering a Delaware LLC requires 2 things:

• Filing a Certificate of Formation
• Documenting your Operating Agreement

Before filing the Certificate of Formation, you must first check the prospective business name with the Delaware Secretary of State for conflicts, which can be done online at Incnow.com.

Additionally, Delaware law requires that all new LLCs have either “Limited Liability Company”, “LLC”, or “L.L.C.” in the company name. If, at a later date, you want to change your LLC name, you can do so through an Amendment to the Certificate of Formation.

Delaware Registered Agent Requirement

You can form an LLC in Delaware without visiting, opening an office, or maintaining a bank account in Delaware; however, the Delaware LLC Act requires any company incorporated in Delaware to have a Delaware Registered Agent with an in-state street address. Agents and Corporations, Inc. (IncNow) will act as Registered Agent for companies incorporating in Delaware for a small annual fee.

After formation, the Registered Agent receives State of Delaware notices and is required to be generally available during business hours to accept and forward court notices to you (service of process). The Registered Agent will be there for the life of your company, so it’s important to find one that is professional and reliable. Agents and Corporations (IncNow) has been a Delaware Registered Agent since 1974, and at the same office since 1982. IncNow is family operated by Delaware attorneys who specialize in corporate law.

Delaware Certificate of Formation Requirements

Our office will sign as the authorized person (also known as an organizer) and file a Certificate of Formation with the Secretary of State’s Division of Corporations to form the Delaware LLC on public record. Your name and address are not listed on public filings unless requested by you. Other states refer to this document as Articles of Organization, but Delaware does not use that term.

A Certificate of Formation must include:

• The name of the LLC
• The name and address of the registered agent
• The signature of an authorized individual

Of special note, if the Delaware LLC is a Series LLC, which protects assets of parts of the LLC from the liabilities of other parts of the LLC, then this must be indicated on the Certificate of Formation (more information on the Series LLC may be found elsewhere on this site). Many optional provisions could also be included in the Certificate of Formation. Upon special request, we can include the names of members and/or managers on the Certificate of Formation.

Delaware LLC Operating Agreement

With our complete package, we draft an Operating Agreement to set forth the ownership and management structure and procedures. Delaware requires that LLCs have an Operating Agreement that will govern it; however, Delaware does not require that the Operating Agreement be filed with the state, or even be in writing.

It is recommended that you have a written, signed agreement. Even in a single-member Delaware LLC, the Operating Agreement is important because it provides a decision-making structure that will benefit the LLC when dealing with other entities, increase protection, and increase credibility for financial transactions. The Operating Agreement will include provisions such as liability, ownership, dissolution, and transfer of interest, among others.

Many incorporation services use boilerplate agreements without provisions to prevent common problems. A well-crafted Delaware Operating Agreement should serve like a prenuptial agreement to avoid any partnership disputes between members should any member decide to go in a different direction.

Signing the LLC Operating Agreement

Once the Delaware Operating Agreement has been drafted and approved, all members should execute it. Most Delaware LLCs, as a practical matter, will not draft and finalize the Operating Agreement until after formation. Many formal requirements of corporations, such as those related to voting and annual meetings, are not required by LLCs.  To this extent, many well-crafted Operating Agreements will avoid bureaucracy to streamline your business operations.

While an Operating Agreement can be enforceable unsigned, it is more difficult to prove that an unsigned Operating Agreement was agreed upon by all members. In multi-member LLCs, it is especially important to have a signed Operating Agreement. Should you change the agreement or ownership structure, an amended and restated LLC Operating Agreement should be signed each time the agreement changes.

Top 10 Reasons to Form a Delaware LLC

1. Delaware LLCs offer the most protection for you and your business with two-way protection

By forming a Delaware LLC, you safeguard your personal assets by building a shield between them and your business liabilities. This means that, if the business itself cannot pay a creditor, then this shield makes it difficult for creditors to penetrate into your personal assets, such as your house, car and other personal possessions.

Delaware explicitly makes the “Charging Order” the sole and exclusive remedy for creditors of LLC members. This prevents creditors of your business partners from taking over the company. Creditors of a member can only get an economic interest in the LLC’s distributions to that member, not a control interest or a right to liquidate the LLC.

2. Delaware’s laws provide the strongest shield of any state

Delaware governs the internal affairs of your company, including its liability shield. The corporate protection or “corporate shield” afforded by the Delaware LLC Act, which protects the personal assets of individual owners from creditors of their business, is thicker than any protection offered in any other state.

3. Delaware LLCs can operate in almost any State or Country

You can form a Delaware LLC no matter where your business activities take place or where you live in the United States. Outside the United States, there are very few countries and individuals restricted from using a Delaware LLC, and a Delaware LLC does not need to have a bank account or office in Delaware. A Registered Agent, such as IncNow, maintains a physical address in Delaware required to forward court and Delaware government notices to you.

4. Delaware treats you like an adult and lets you manage your business

When entering into a Delaware LLC, it is flexible in ownership and management structure. One individual can serve as both the owner and manager. An LLC is governed by its Operating Agreement, allowing you to arrange your business affairs between owners as you see fit and have that arrangement enforced as written. Since the LLC is a contractual entity, it is important that the Delaware courts honor the contract between the parties as written. Furthermore, there is no required annual general meeting, and there is much less administrative paperwork in general, compared to a corporation.

5. Managers are protected from lawsuits

The LLC Agreement in Delaware can reduce or eliminate fiduciary duties. This allows business managers and controlling, managing members the flexibility to take risks that are not readily questioned by minority investors, provided such actions are not in bad faith. Even if the fiduciary duties are not waived or reduced, business managers have the freedom to make business decisions, even if losses result without manager liability, provided the decisions are not self-dealing. Even self-dealing is not entirely prohibited; instead, self-dealing needs to be “entirely fair” to the other members.

6. No Delaware income tax if your operations are in other states (and other business tax loopholes)

There is no Delaware tax return to file for LLCs that are formed in Delaware, provided they conduct no business in Delaware.

As with LLCs in other states, profits are taxed personally at the member level, but not at the LLC level. An LLC is taxed as a sole proprietorship or partnership, unless it elects S-Corporation or C-Corporation tax status.

Having an LLC that elects to be taxed as an S-Corporation can save thousands in self-employment taxes because your income can be split 50/50 between self-employment income and “S-Dividend” income. The S-Dividend can reduce your taxes by thousands. For example, splitting $200,000 of income would save the S-electing LLC member more than $4,000 in social security and Medicare taxes. Learn more about these advantages in our LLC tax tips section.

7. Delaware’s speedy approvals and filings

The Delaware Secretary of State’s office maintains extended hours for filing and can expedite filings to as fast as one hour.

8. You can use a Delaware LLC to own and manage almost anything

The business uses can range from one person sales or consulting businesses to multi-million dollar commercial properties. It may operate an active business or simply hold passive assets, like real estate or intellectual property.

Most common uses include:

• To hold real property, such as personal or business real estate
• To operate a service business
• To hold tangible personal property or intangible assets such as airplanes, automobiles, boats and patents

9. Delaware’s business courts handle business disputes in weeks, not years

Delaware has a separate court for the resolution of business disputes, the Court of Chancery. Its appointed judges are highly experienced in business cases, and effectively solve corporate disputes in a way that other states do not. There are no jury trials in the Court of Chancery, so Court’s expertise is brought to bear in the decision of every case before the Court.

The Delaware court system can act very quickly. Sometimes, the whole process, from start to finish (discovery and motions to trial decisions), can be over in two months. Written decisions from the Court of Chancery are the standard, and are often 100 pages long. This well-reasoned process avoids arbitrary outcomes. Even appeals to the Delaware Supreme Court can be expedited. The Delaware judges do their homework and read all the pleadings carefully before hearings and trials.

10. Delaware has the most pro-business laws of any US state

Delaware’s law is generally thought to be pro-business, and has a “goldilocks” balance of being stable and slowly evolving – to be cutting edge without upsetting existing businesses. Because of the maturity of Delaware’s law and the high volume of corporate cases handled by Delaware’s judicial system, there is predictability in outcomes.

This means if there have been several similar cases to the one facing your LLC, there is less uncertainty about the judicial outcome, which can be key in deciding to settle a dispute or invest the time and capital to litigate. Even when judges change, it is not a favoritism or political system. Judges in Delaware make reasoned, non-political decisions.

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