Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
Forming a company in a new state can seem complicated, especially if you don’t understand all the rules and regulations governing that state. There are a lot of processes involved in this journey, the preparation phase, filing of documents, payment, and finally, your company.
However, forming an LLC in Delaware isn’t that difficult. Below is a detailed step-by-step guide to creating a Delaware LLC.
Step 1: Naming Your Delaware LLC
The first and most vital step is choosing a name for your company. How will people refer to your Delaware LLC? That’s the name you should provide. But ensure clients can easily search it online and that any other business in Delaware does not use it or has reserved it already. It should also comply with the Delaware LLC naming requirements.
Here are Delaware’s LLC naming requirements:
- The name must be easily distinguishable from any other name registered or reserved with Delaware
- Your LLC name must end with “Limited Liability Company,” or abbreviations LLC.
- Don’t include words used in government agencies such as FBI, state department, or treasury
- Including terms such as Bank, College, and University to your LLC name may require additional paperwork
- Words related to specific licensed individuals and professions like Doctor, Attorney, Engineer, etc., are restricted. Delaware requires an individual in the specified profession to be part of the LLC
The next process is to ensure your LLC name isn’t already registered or reserved by another company in Delaware. Confirming this from the Delaware search entity names website will rule out all your doubts.
It’s also necessary that you check and reserve your domain name online at this point.
Step 2: Choosing a Registered Agent for Your Delaware LLC
An essential requirement in forming your Delaware LLC is appointing a registered agent. Take a registered agent as your LLC’s point of contact. The agent can be an individual or a business entity.
The agent’s primary duty is to receive petitions and summons on behalf of your Delaware LLC should it be part of a lawsuit.
You, the owner of the LLC, can be your own registered agent, or you can also elect someone from your LLC to be your registered agent.
The registered agent must reside in Delaware and maintain an actual physical address in Delaware.
Some of the registered agents include:
- Acme Filings Corp.
- Aero Incorporated Inc.
- Business Filings Incorporated
- Best Delaware Registered Agent LLC
- State Street Corporate LLC
- Tunnell & Raysor
You can find an extensive list of LLC registered agents from the Delaware Division of corporations. Keep in mind that the state does not regulate these agents.
Step 3: Obtaining a Delaware Business License
After choosing a registered agent for your LLC, continue the process by obtaining a license. Delaware requires that any business operating within the state get a business license from the Delaware Revenue Department.
To obtain the business license for your LLC in Delaware, you can create a Onestop Delaware account and complete the process online. The filing fee depends on the kind of business you want to operate in Delaware, ranging from $50 to $450.
The Onestop process gives your LLC an immediate temporary license valid for 60 days. That said, the department sends a permanent license within ten working days after completion of filing.
Certain cities and counties in Delaware State may need an additional license on top of the Delaware business license. To be sure, you can confirm with the Delaware local government agency to see if operating your LLC in Delaware requires other permits.
Step 4: Filing the Certificate of Formation
Filing a Certificate of Formation with Delaware’s Division of Corporations is mandatory when forming a Delaware LLC. The filing fee for this certificate is a non-refundable $90 and is only payable by cheque to the Delaware Secretary of State.
You can use two ways to submit the certificate of formation after filing, either online using the document upload service or by mail. Should you decide to do it by mail, you must include a cover letter indicating your name, telephone number, and address.
Step 5: Creating an Operating Agreement
Unlike other states, drafting an operating agreement isn’t mandatory in Delaware. But still, having an operating agreement for your LLC is a good practice.
The operating agreement is a legal document that outlines your LLC’s operational and financial decisions, including the LLC’s provisions, rules, and regulations.
This document ensures all LLC members read and operate from the same page, reducing future conflicts.
Step 6: Getting an Employer Identification Number (EIN) For Your Delaware LLC
EIN is a number required for all LLCs operating in Delaware. It’s a nine-digit number given for your Delaware LLC by the Internal Revenue Service-IRS. The primary purpose of this EIN is to help in the business identification process for taxation purposes. It is more of a social security number for your LLC in Delaware.
You need an EIN for your LLC for three main functions:
- To open an LLC business bank account
- To hire employees
- To file state and federal government taxes
Contact the IRS either online or by mail/call to get your LLC’s EIN. It’s worth noting that this process is free, and many third-party companies that offer LLC formation services give it as a bonus to their clients.
Step 7: Comply With the Law
There are several laws and regulations from the state, federal, and local government that you must comply with to form and run your Delaware LLC. These regulations differ from one business service to the next.
For instance, your Delaware LLC needs to fulfill various tax requirements. You have to pay federal taxes if you have employees, including payroll taxes. On top of it, there are state taxes, such as the annual franchise $300 tax, that you should pay by June 1st. If you miss this deadline, there’s a $200 charge plus 1.5% monthly interest to pay.
Also, see if your LLC needs a permit to operate in Delaware. Running a restaurant, for instance, requires you to get a health permit to start.
Cost of Starting an LLC in Delaware
The cost of starting a Delaware LLC is $90. This fee is payable to the Delaware Department of State when filing your LLC Certificate of Formation online. There’s also an optional $50 fee if you want a certified copy of the certificate, bringing the total cost to start an LLC in Delaware to $140.
Other costs may also arise in starting an LLC in Delaware, although they aren’t necessary. The following are additional costs you might incur when creating a Delaware LLC.
- Name reservation fee for 120days – $75
- Foreign LLC in Delaware registration fee – $200
- Receive a certified copy of your certificate of formation – $50
- Expedited LLC in Delaware services – $50
- Finally, there’s an annual franchise tax of $300 to Delaware State
What To Do After Forming Your LLC in Delaware
Below are recommended steps to take after forming your Delaware LLC.
Protect Personal Assets
Start by opening a business account and separating your business and personal assets. You will lose personal assets mixed with company assets if someone sues your LLC.
This is also the right time to get a business credit card and build your credit score. Doing so will help you in the future if you’re applying for a business loan.
Hire an Accountant for Your LLC
Consider hiring an accountant to help manage the LLC’s finances as you handle other essential tasks.
Hiring an accountant for your Delaware LLC is quite advantageous. You get to save both time and money in the long run, which are the two most essential requirements for your LLC’s growth. Other benefits include:
- Preventing penalties/fines
- Balancing books
- Reducing tax liabilities
- Preserving limited liability
Get Business Insurance
As much as you want to separate and protect personal assets from your LLC, it’s also necessary to protect your company assets. The best way of safeguarding LLC assets is by getting insurance coverage. The cover protects your LLC against liability claims that might arise from your business, products, or employees.
Business insurance will help manage your LLC’s risks as you concentrate fully on its growth. There are several business insurance covers to choose from, including:
- Professional liability insurance
- Workers compensation insurance
- General liability insurance
Create a Website for Your LLC
A company website is necessary for growth in today’s digital business world. If you don’t create a website for your LLC, know that you’ll miss out on potential clients.
Hire a professional web developer for the job if you lack web-development skills. Doing so may add overheads but will bring you more customers in the long run.
How To Keep Your LLC Compliant in Delaware
Keeping your LLC compliant in Delaware is necessary for its smooth running.
Before anything, ensure your LLC has all permits and required licenses, such as the Delaware business license. Fees for additional licenses and permits will vary, depending on the license type.
Also, pay the required annual franchise tax to the Division of Corporations, whether yours is a brick-n-motor LLC or online.
The LLC franchise tax is $300 annually, due on or before June 1st. Failure to pay this amount on time attracts a $200 charge plus a monthly $ 1.5% interest rate.
Failing to comply with this will make your LLC in Delaware lose its good standing status until you fully pay the taxation fee, charge, and interest.
Tax Filing Requirements for LLCs in Delaware
Delaware doesn’t require an LLC to file the annual report like most states. However, depending on the type of service your LLC renders, you may be required to register for one or several state tax forms. These are:
Delaware Business Taxes
Delaware imposes an annual tax on all LLCs operating within the state. This flat $300 tax is due every June 1st, and failure to comply gets your LLC a $200 penalty and 1.5% interest.
Delaware Employer Taxes
Every LLC with employees must pay employer taxes at the state and federal levels. Note that even before you can start hiring employees for your LLC, you must first register the LLC with the Department of Revenue. Then, you can begin filing the withholding taxes either monthly or quarterly.
Also, file an annual reconciliation of your tax withholding using a Form W-3. If you’re required to pay the employee withholding tax, you must register online through the Delaware Division of Revenue.
The Gross Receipts Tax
Although there’s no sales tax in Delaware, all LLCs must file a gross receipts tax, depending on their gross revenues.
Frequently Asked Questions
How long should it take to register an LLC in Delaware?
The whole registration process can take up to 4 weeks to finish, whether you filed your certificate of formation online or by mail. This period is enough for the Delaware state to review the LLC filing to ensure you have all the requirements and enter it into the system.
If you want your LLC in Delaware to be registered faster, you can pay an extra $50 to expedite the process, which may take 2 to 3 working days. Once they approve your documents, you’ll receive them back by mail.
What tax structure should I choose for an LLC in Delaware?
There are three tax structures, partnership, corporation, and disregarded entity. Many multi-member LLCs choose the partnership tax structure, but if you know that your LLC will one day seek financial funding outside its members, it’s better to select the corporation tax structure. If it’s a single-member LLC, it will be taxed as a disregarded entity by default.
When choosing the best tax structure for your LLC in Delaware, consider your LLC’s goals, size, and financial plans.
Should you hire an LLC formation service in Delaware?
Forming an LLC in Delaware involves a straightforward process. For this reason, it isn’t necessary to hire an LLC formation service. However, some entrepreneurs find the process tedious and time-consuming, and they would rather employ an LLC formation service to handle it all. If that’s you, check out our recommendations for the best LLC service.
One advantage of hiring an LLC formation service in Delaware is that you get the time to plan on growing your LLC before the state approves it.
Filed under: Delaware Business Guides