How to Register an LLC in Delaware
- Last updated on . Written by Offshore Protection.
Since as early as 1965, the US State of Delaware has been able to develop beneficial offshore structures for company formation and has become an attractive offshore jurisdiction due to its friendly corporate legislation and other key advantages.
The preferred type of corporate vehicle in Delaware is a Limited Liability Company (LLC). A Delaware offshore LLC offers numerous advantages and uses, such as zero corporate taxation, high levels of financial privacy, fast and affordable incorporation processes, and few reporting requirements.
In this article, we will outline the practical steps required to register an LLC in Delaware. We will also discuss why you should choose to register an LLC in Delaware, and some other factors to consider.
Table of Contents:
- How to Register an LLC in Delaware
- Why Should You Register an LLC in Delaware?
- Advantages of a Delaware LLC
- Fast And Easy Incorporation Process
- Disadvantages of a Delaware LLC
- How Much Does It Cost to Register an LLC in Delaware?
- How Long Does It Take to Register an LLC in Delaware?
- Complying with Regulations
How to Register an LLC in Delaware
In order to form an offshore company in Delaware, you will have to register it with the Delaware Division of Corporations. This state agency manages all types of business formations in Delaware. It defines the rules and regulations for business owners who want to incorporate an LLC in Delaware. In order to successfully register your Delaware LLC, you will need to go through the following steps:
Step 1: Choose a Company Name
The first step before proceeding with registering an LLC in Delaware is choosing a name. The name of the LLC must adhere to the following requirements:
- It must include the suffix “limited liability company”, “LLC”, or “L.L.C”.
- The name must be unique and should not imply association with any government agency.
- You may not include the word “bank” or anything similar in the name; however, words such as “company”, “association”, “institute”, etc. are permitted.
- The name should not be offensive.
- The name may contain the name/s of any managers and/or members in it.
In order to ensure that the name you choose has not already been taken, you may use the Division of Corporations’ name availability tool.
Once you have found a unique name, you have the option of reserving the name for up to 120 days for a $75 filing fee, but this is not a requirement in order to register your LLC.
Step 2: Select a Registered Agent
The next step is to designate a registered agent for the LLC. A registered agent is the person or company that receives official mail on the LLC’s behalf. They have the responsibility of notifying the company owners of any important legal or tax related notices.
A registered agent is especially important for non-resident LLC owners, as the registered agent must be a resident of Delaware. Other than that, there are few restrictions on who can act as a registered agent for a Delaware LLC.
Step 3: Acquire a Business License
Delaware is one of the few states that requires businesses to hold a general operating license in order to engage in business activities inside Delaware state. The entire process of acquiring a business license in Delaware can be completed online. The fee is anything from $50 to $450 depending on the type of business.
Step 4: File a Certificate of Formation
Once you have completed the preliminary steps of choosing the company name, selecting a registered agent, and acquiring the necessary business license, you can proceed to officially register your LLC by filing a Certificate of Formation of Limited Liability Company with the Delaware Division of Corporations. It is also known as the ‘articles of organisation’. The form must include the following information:
- The name of the LLC.
- Registered agent’s name and address.
- The name and signature of the authorised member/organiser who is filling out the form.
The form may be submitted via mail, fax, or uploaded electronically. The filing fee is $90 in all cases. It usually takes about 3 – 4 business days for the application to be reviewed and returned. If the filing is approved, you will receive a stamped copy of your certificate of formation, as well as an official business identification number.
Step 5: Prepare an Operating Agreement (optional)
The next (optional) step is to draft an internal operating agreement for your LLC. While this is not strictly required in Delaware, it is highly recommended. The operating agreement outlines the rights and responsibilities of the LLC members and managers. It is important so as to avoid future disputes and help provide proof that the LLC is indeed a separate business entity which will help to maintain limited liability protection.
The operating agreement should include the following:
- The purpose/objectives of the LLC, including the products and/or services that it plans to offer.
- The names and addresses of the members and managers.
- The financial contributions made by each of the members, as well as non-monetary value offered.
- The percentage ownership interest of each of the members, including an agreement of voting rights and share of profits/losses.
- The processes required to admit new members and elect new managers.
- Schedule for meetings along with decision-making and voting procedures.
- Dissolution process if ever required.
To make the agreement firm and binding, it should be signed by each of member of the LLC. The operating agreement is internal and so does not have to be filed with the state.
Step 6: Obtain an EIN
An Employer Identification Number (EIN) is required in the following instances:
- If the LLC has more than one member.
- If the LLC hires employees.
- If the LLC elects to be taxed as a corporation.
An EIN is obtained through the IRS website and acts as a unique tax number for the LLC. There is no filing fee attached to the application.
Why Should You Register an LLC in Delaware?
Delaware is recognised as one of the best US states to form an LLC, and is even considered one of the top jurisdictions in the world for offshore company formation. This is due to its low fees, friendly tax regulations, privacy, and numerous other benefits. The main advantages and disadvantages are outlined below:
Delaware offshore LLC’s which do not conduct their business within the state enjoy 0% Corporate Income Tax. In addition, an LLC is not liable for US federal income tax if it is owned by non-resident members who do not have any income source from inside the US.
Privacy and confidentiality
Information about members is not publicly reported. Company information and accounting records are also not available to the public.
Delaware has a history of few litigations, and their corporate legislations make it difficult for asset claims to be won by creditors.
Fast and easy incorporation process
A Delaware LLC can be incorporated in as little as three business days, and the process is straightforward.
Other benefits include:
- No minimum capital requirements
- Only one member is required, who can be of any nationality.
- No requirement to file accounts and no audit requirements
- Stable and reputable jurisdiction for company operation
- Sound legal system (US Common Law) with well drafted and friendly corporate law.
- Filing fees: Although the setup fees for a Delaware are by no means exorbitant, it does require filing and maintenance fees which may be higher than many other states.
- Business license required: Delaware is one of the few states where it is mandatory to acquire a business license for general operations inside of the state.
- High self-employment taxes: Although Delaware has a friendly corporate tax regime, the LLC members will be subjected to high taxes on self-employment.
- Compulsory insurance: It is mandatory to take out workers compensation insurance after hiring your first employee.
Aside from these minor drawbacks, Delaware is an excellent jurisdiction to incorporate an offshore LLC, and the many benefits far outweigh the downside.
How Much Does It Cost?
The minimum cost to register an LLC in Delaware is $140. This includes $90 filing fee for the certificate of formation, and a minimum of $50 for a state business license. The license fee could be much higher (anything up to $450) depending on the type of business. You may also incur the following additional costs:
- $120 fee to reserve a name if you so choose.
- $25 fee per county if you wish to operate as a DBA.
- A higher filing fee of $200 for foreign LLCs registering in Delaware for operations.
- An additional $50 for a certified copy of the certificate of formation.
- $50 - $100 if you wish to expedite the process.
- A minimum annual tax of $300.
*fees subject to change, get in touch for a current estimate
How Long Does It Take?
The entire process of initiating your application for an LLC in Delaware can take only a few hours. The time required to fully register and receive approval from the state is usually about 3 to 4 days.
Complying with Regulations
It is important to familiarise yourself with all corporate regulations in Delaware and fulfil the necessary requirements. The rules which apply to your business will depend on the nature of your activities, whether it is an offshore LLC or domestic, as well as your specific location within Delaware. However, some general issues to keep in mind include:
As previously mentioned, if you have employees, more than one owner, or elect to be taxed as a corporation, you will need to apply for an EIN (federal tax ID number). This number will be used when filing business taxes.
Delaware has a friendly tax regime, especially for offshore LLCs. However, you will still have to adhere to the tax requirements which are in place. These include self-employment taxes, payroll taxes, and state taxes. All LLCs must pay an annual tax of $300 over and above their other taxes. The LLC will also be liable to pay gross receipts taxes. Finally, the individual members will of course be required to pay state income taxes at the personal level if they are residents of Delaware or another state in the US.
If you hire employees for your LLC, you will have to meet certain employer requirements such as reporting new employees, providing payroll and unemployment taxes, and taking out workers’ compensation insurance.
The state of Delaware provides an ideal corporate landscape in which to register an LLC, especially for non-residents who can make use of their friendly offshore taxation policy, privacy, and other attractive benefits. It is no surprise that a large proportion of US businesses continue to choose Delaware to incorporate in.
While it is a relatively straightforward incorporation process, it is recommended to enlist the services of a professional incorporation service to help you in registering your Delaware LLC in the most efficient and cost-effective way.
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