16 Benefits of Having a Delaware LLC (Advantages of a Delaware LLC)

Do you wonder why many entrepreneurs prefer creating an LLC in Delaware? It's because they know all the benefits that the state of Delaware provides to LLC companies, including minimal start-up requirements and simple maintenance. LLC members can create their company structure and many other enticing benefits.

Delaware LLC is one of the most flexible business forms in the world. Delaware laws, such as the Delaware General Corporation Law and the Limited Liability Company Act, offer more benefits to Delaware organizations than any other state. Delaware LLC has earned popularity among legal and accounting specialists and many entrepreneurs.

LLCs have several inherent advantages, which are helpful in different cases. They are most beneficial to firms that own real estate, manage family businesses, engage in estate planning, own patents, franchises, and other properties that involve risky investments such as apartment houses or fleets of vehicles, partnerships between firms and individuals, or bid for contracts or government licenses.

This guide will explore how to form an LLC in Delaware and its benefits.

Benefits of creating Delaware LLC

1. Solid protection for you and your company

By forming a Delaware LLC, one is well protected from any monetary loss of personal assets such as a house or a car in the business venture. This barrier protects your personal property if your business is out of debt or against any legal suit.

Delaware also has a very peculiar rule called the "Charging Order." This charging order effectively protects the business from being taken by creditors. Creditors cannot take equity and receive management rights of your LLC, nor can they compel the dissolution of your LLC's profits' distribution. This goes the extra mile to protect your business from financial risks.

2. Accessibility

Anyone can form a Delaware LLC without having to live or visit Delaware. Delaware's laws are comparatively liberal, and people from the state and other countries can also start an LLC without needing to be physically there. This ease, along with the friendly laws of Delaware, lured business people worldwide.

3. Credibility

Another strength of operating the business as an LLC or corporation is that it comes with more credibility to a business. Buyers are always more comfortable conducting transactions with a company than an online account holder. Overall, an LLC increases the business's image, which may be desirable for customers, suppliers, and business partners who perceive the automobile business as a legally protected entity with limited liability. This can significantly help increase clients' confidence and trust in your business.

4. Operate anywhere

By creating a Delaware LLC, you don't have to be restricted from operating your business in one state, let alone the U.S., but anywhere in the world. There is no necessity to have a bank account and a physical office in Delaware. You only require a registered agent from Delaware, like Foundeck, to deal with your official notices and legal letters.

5. Customized business structure and rules

The legal framework of an LLC and its rules are described in a legal document called the LLC Operating Agreement developed by the members. This means the members can negotiate other LLC provisions to fit their needs and desires, dissolving this agreement. This sort of freedom is known as freedom of contract. Compared to other forms of business organization, this strength of an LLC permits the organization's governance to tune to the members' particular objectives.

6. No restrictions for non-residents

No law prevents anyone from becoming an owner of a Delaware LLC, provided that one is not from a banned country. This free economy is an advantage to Delaware LLCs, enabling them to operate internationally. The regulatory environment enables international entrepreneurs to quickly control and develop their LLCs in the state, thus providing smooth and unhampered international business processes.

7. Asset protection

Another benefit of Delaware LLC over other states is the higher protection of its members' property from creditors. A judgment creditor cannot proceed directly against a member, nor can they access any of the LLC's property. As a protective feature, it guarantees that the LLC's assets are well protected and shields all the members within the company from the creditor's claim.

8. Low start-up cost

The basic state fee for incorporation in Delaware is $89. This includes your Division of Corporation fees of $50, filing fee tax of a minimum of $15, and the county fee of $24. This price depends on a corporation having 1,500 shares without par value; therefore, the filing fees will differ depending on the number of shares you want and the par value of the share.

9. Perpetual existence

An LLC's perpetual existence indicates that the entity will continue operating regardless of ownership changes. Partnerships and sole proprietorships might be shut down after the owner leaves, while an LLC can conduct its business as usual.

10. Flexibility in management and ownership

The LLCs' flexibility in management and ownership is much higher than the structures of other types of businesses. They are member-managed, in which the owners manage the company. It can also be manager-member-managed, in which appointed managers take charge of the industry even though they are not owners. Also, there is no restriction on the number of members in LLCs, although there must be at least one member who can be of different types at a given point.

11. Low maintenance fee

Delaware limited liability companies are subjected to a $300 annual Franchise Tax and a $75 State Business License fee payable to the Department of Revenue. These are the only yearly fees you must pay to keep your LLC in 'good standing' as the state requires.

You may need more business permits depending on the kind of business you are into and your business location. Note that you may pay annual license fees depending on the area from which you conduct your business.

12. No Delaware income tax

Delaware LLCs will not be subject to paying Delaware state income tax if they conduct their business outside Delaware. Incorporation in Delaware becomes a feasible option for business people who conduct their businesses in other states in a way that cuts down the amount of tax they pay, thus improving their businesses' profitability.

13. Delaware is business-friendly

Delaware has a distinct edge because it harbors its own Court of Chancery, designed exclusively for handling business cases. The Chancery Court is famous for its highly erudite judges who specialize in corporate law. This court aims to dispense business disputes quickly and equitably. It offers firms a dependable legal environment that deals precisely with most issues affecting commerce.

14. Strong case law

Delaware's legal system encompasses numerous well-developed cases dealing with LLCs and other enterprises. This extensive legal framework offers business owners and their attorneys a significant advantage: the ability to predict judicial decisions more accurately. Case law minimizes the social risks involved when handling legal cases. This means law firms in Delaware provide legal certainty, enabling them to conduct their business legally and without many complications.

15. Tax benefits

Yet another advantage of a Delaware LLC is its tax versatility. Unlike corporations, LLCs can be taxed differently depending on the owners' choices: partnership, S corp, C corp, or sole proprietorship. The IRS does not recognize sole member LLCs and hence does not pay taxes. However, the test tax exposure is transferred to the member. This tax treatment is one of the reasons that the Delaware LLC formation fees are some of the lowest charges.

16. A broad range of companies

A Delaware LLC is a highly flexible business entity that may be used for almost any enterprise and any size from a one-person home-based business to a large commercially based company. 

 Delaware LLC is ideal for: 

Solo Entrepreneurs: Delaware LLC benefits self-employed people as it offers liability and professionalism to the owners. 

Creative Ventures: This LLC best shields the IP rights of artists, writers, and musicians on their buildings. 

• Hospitality Businesses: It offers legal defenses to restaurants and food trucks in cases that make them liable for legal proceedings. 
• Online Businesses: Provides a suitable legal environment and legal overlay for e-commerce businesses. 
• Real Estate: Oversee and protect stocks of properties, whether of small size or significant investments. 
• Import/Export: Provide credibility in the foreign transactions. 
• Tech Startups: It is a good entry point for tech businesses because it protects businesses and structures to support operations. 
• Professional Services: This is ideal for consultants, accountants, and marketers as it provides a formal structure and limited liability. 
• Event Management: Most suitable for conducting business, including contracts and other possible legal exposures. 
• Retail: Covers physical and online storefronts with a robust legal basis in its favor

Steps to Forming LLC in Delaware

A company formation service provider like Foundeck will make your company formation process easier and faster in the US or abroad. Here are the easy steps:

1. Selection of Business Name

You can name your Delaware LLC any name you choose, but it has to be unique. It cannot align with any other business entity already in the Delaware register. You can search for your desired business name in the Secretary of State of Delaware records. Additionally, your LLC name must include one of the following endings: L.L.C., LLC, or Limited Liability Company.

2. Select a Delaware Registered Agent

Delaware law mandates appointing a Delaware Registered Agent. If you reside elsewhere in Delaware, hiring a firm like Foundeck to act as your Registered Agent is possible.

A Delaware Registered Agent receives important papers, known as "Service of Process," official papers such as a lawsuit or subpoena and state tax notices. According to the regulations of the state of Delaware, a Registered Agent for a company must have a physical office in Delaware and be available during business hours (9 AM and 5 PM) from Mondays to Fridays. If you are creating a Delaware LLC but do not physically reside in Delaware, you must sign up for a Registered Agent service.

3. File a Delaware Certificate of Organization.

To register a limited liability company in Delaware, you must submit the Certificate of Formation to the Secretary of State. This document legally forms a Delaware LLC since it puts the LLC on the public record.

 Most of the formation documents have information like:

• The name of the LLC
• The name and address of the Registered Agent,
• Signature of an authorized person

The names and addresses of the owner or managers shouldn't be disclosed in the Certificate of Formation filed with the office of the Secretary of State of Delaware.

Foundeck will sign as authorized and submit the Delaware Secretary of State document. After filing, Foundeck will send you an officially stamped Certificate of Formation, either by email or post. However, if you request, we can include the names of members and managers on your certificate of formation.

4. Create and Execute an LLC Operating Agreement

An LLC Operating Agreement explains how an LLC is run after formation. You can contact your attorney for a professionally drafted LLC Operating Agreement tailored to your company's specifications.

An LLC Operating Agreement is an internal agreement between Members of an LLC that defines business management and its Members. It should be in writing, and every member should sign. A suitable format of the Operating Agreement should encompass:

• Name of all the members
• Ownership ratio
• Management responsibilities
• Manager's identities
• Voting rights
• Initial capital contribution

Ways of amending the agreement

The Operating Agreement is relevant in settling the disputes in the LLC, shielding the member's personal property from business creditors, and designing precise operational guidelines. Every LLC must have an Operating Agreement as per Delaware statute. However, it is not necessary to submit the document to the state. You should retain the signed copy with the company documents to refer to it in case of a dispute.

5. Getting an EIN Number

An LLC based in Delaware requires an EIN for Federal tax purposes to get employees on the company's payroll and open business bank accounts. You require an EIN for your LLC, and Foundeck can complete the application process through Form SS-4, which you need to fill out with the Internal Revenue Services.

What Is an EIN Number:

An EIN is a number issued by the IRS for use by a business, just like an SSN is for an individual. It is used for federal tax payments, creating business bank accounts, hiring employees, tracking payroll, obtaining licenses and permits, and some tax benefits.

An LLC can get an EIN using the IRS website or by mailing the IRS Form SS-4. This form will demand the following:

• The Legal Name of the LLC and trade names
• Individual taxpayer identification number of a responsible person
• The mailing address of the LLC
• Nature of the business
• Number of Members
• Accounting period and tax year

Before you file for the LLC, you must also decide on the company's tax status. The IRS's Check the Box rules allow LLCs to determine whether they want to be taxed as pass-through entities, C-corps, or S-corps.

Final Thought

Deciding to incorporate as a Delaware LLC presents some benefits that a person should consider whenever deciding on incorporation. Growing your business and becoming financially secure is the ultimate goal of any entrepreneur. That's why creating your company in the most favorable state is beneficial.

Delaware law and its court system are relatively friendly to businesses, and LLCs have many good characteristics in this state. To anyone interested in starting a business, this post helps you decide where to set up your company. If you have any questions about the benefit of having a Delaware LLC, kindly contact one of our experts here .