How to open your LLC in Delaware?
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[seopress_breadcrumbs]Delaware is one of the most popular US states for registering an LLC. In fact, almost 67.6% of Fortune 500 companies are incorporated here.
This is no surprise, since Delaware offers excellent benefits for entrepreneurs: anonymity, tax advantages, fast resolution of business disputes, low registration and maintenance costs... It makes sense, then, to consider this option for forming your LLC in the USA.
If you want to register your LLC in the state of Delaware but aren't sure yet whether it's the right option, or you don't know the steps to register it, we're here to help. So let's start our complete guide with everything you need to know before forming your LLC in Delaware. Let's go!
Table of contentsThe advantages of registering an LLC in Delaware
As mentioned earlier, Delaware is one of the most famous US states for registering an LLC. Here are the advantages of opening an LLC that are exclusive to this state:
Anonymity
For business owners or entrepreneurs who value privacy, registering their LLC in the state of Delaware is a great option. In Delaware, you don't need to list the names or addresses of the LLC's owners or managers. The only details required to open the LLC in Delaware are:
- the name of the LLC
- the details of the registered agent in Delaware
Note: By anonymity, we mean that the owners' names will not be publicly disclosed, but the Secretary of State or the IRS can access that information.
Favorable tax conditions
LLC taxation in Delaware is very advantageous. LLC members can choose how the IRS will tax the LLC's income. There are four options:
- Disregarded
- Partnership
- S Corporation
- C Corporation
Remember that if your LLC is "foreign owned", the concept of tax transparency applies, which means your LLC does not pay taxes in the USA; instead, each member pays taxes personally in their country of tax residence.
If you don't do business with companies in the state of Delaware, you'll have additional tax benefits, such as:
- You won't pay income tax
- There is no sales tax.
- There are no taxes on intangible income
Favorable legislation
Delaware has an independent court dedicated to resolving business disputes, called the Court of Chancery, which is renowned for resolving disputes quickly and fairly.
Delaware has a well-established body of case law regarding LLCs, which means it benefits from predictability in court decisions.
Delaware law is generally quite favorable to LLCs and business owners, which adds an additional layer of protection for companies.
Limited liability
Delaware LLCs put a barrier between personal assets and business liabilities. The company's owners are protected from its business creditors.
This is one of the basic principles of the Limited Liability Company (LLC), and you'll have this advantage in any other state where you open it.
Affordable formation and renewal costs
The cost of registering an LLC in Delaware is $90. This is paid when filing your LLC's Certificate of Formation with the Delaware Department of State and can be done online. Processing usually takes 9 to 12 weeks, but to speed it up, you can pay a $50 fee.
After that, there is a $300 annual "franchise tax", regardless of income or business activity.
What are the requirements to open an LLC in Delaware?
LLCs in the state of Delaware can be opened by US residents or foreigners who are over 18 years old. It can be done online, so you don't need to travel to Delaware to register it.
No minimum capital contribution is required, you don't need a Tax ID, and you can open it either on your own or with partners.
How to open an LLC in Delaware?
Now that you know Delaware is the best state for you to open your LLC in the United States, let's go step by step through the stages to follow to register your LLC in this state.
1. Choose your LLC's name
Choosing your Delaware LLC's name is the first step. LLC names in Delaware must meet some requirements, which we summarize below:
- Your business name must include the words Limited Liability Company, LLC, or L.L.C.
- There cannot be another LLC registered with the same name in Delaware. If you want to check availability, you can do so with this LLC name checker.
- The company name cannot contain words used to name a government agency (Department of State, CIA, FBI, Treasury, etc.)
- Certain words are restricted (bank, attorney, credit union, etc.) and may require additional documentation and licensing procedures to be used.
2. Choose your registered agent
Whether you decide to register your LLC in New Mexico, open it in Florida, form it in Wyoming or or Delaware, every LLC must have a registered agent. The registered agent is the person who receives lawsuits and other legal documents on behalf of your company and then forwards them to the owners or managers. The registered agent can be any Delaware resident over 18 who has a physical address in the state.
You can also use companies that offer registered agent services (these are the companies recommended by our team). These companies may offer only the registered agent service, or handle the process of registering your LLC from start to finish.
3. Complete the Certificate of Formation
To form an LLC in Delaware, you must file a Certificate of Formation. Submitting this form costs $90, and it can be done by mail or online.
This document sets out the LLC's articles of organization, providing key information such as the LLC's name, the registered agent, and optionally the owners' names, the LLC's purpose, etc. The document must be signed by one of the members or by the organizer, if anonymity is desired.
Once the document is completed, you must submit the application to the Delaware Division of Corporations. The process usually takes 2-3 weeks, but for an additional $50, it can be expedited to 24 hours.
Once your LLC is registered in Delaware, its details will be published in a state database (only the company name, the registered agent and the formation date are listed) and the registered agent will also receive the stamped Certificate of Formation by mail. Done, your LLC is formed in Delaware!
5. Draft your operating agreement
An Operating Agreement is basically an internal agreement among the members on how the LLC functions and operates. If you opt for an anonymous LLC, it's important to have this document, since it will be the only thing that lists the members' names, along with other details such as dividend distribution, exit and non-compete clauses, capital contributions and other legal, financial and operational matters...
Having an operating agreement for your Delaware LLC is important to make sure all LLC members agree on how it is operated and thus avoid future conflicts.
What goes into this operating agreement will depend entirely on you and any partners, based on your business's specific needs. This is an internal document and does not need to be shared with any public entity.
Here is a free sample Operating Agreement you can use as a basis for drafting the one for your Delaware LLC.
Download the Operating Agreement template
6. Get an EIN
Now that your LLC is formed and your operating agreement has been signed by all the members of your Delaware LLC, it's time for the last step: getting an Employer Identification Number (EIN).
The EIN has several uses for a company. The main one is that it is used by the IRS to identify your business for tax purposes, for both state and federal taxes.
In addition, an EIN lets you apply for business resources, you'll be asked for it to open a business bank account, and it's essential if you need to hire employees, among other things.
EINs are free and available on the IRS website.
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[elementor-template id="459"]What to do after opening my LLC in Delaware?
Now that your Delaware LLC is ready to operate, there are a couple of additional matters that are important to keep in mind.
Get a bank account dedicated to your Delaware LLC
Separating personal assets from business assets is essential to benefit from the personal asset protection that opening an LLC in Delaware offers.
If you keep your business assets mixed with your personal ones, you can put this protective veil at risk. That's why it is highly recommended that you open a business bank account and use it only for your New Mexico LLC's activities.
Having a bank account for your LLC will make your business's bookkeeping much easier, and it will save you a lot of time when preparing your income return and taxes.
If you don't know which bank to use yet, we recommend the following: Mercury, Relay, Revolut, AirWallex, Wise, Bank of America, Chase. All of these let you open an account with your LLC's documents, whether you are a US resident or a foreigner.
Plan your Delaware LLC's taxes
There are some tax obligations for State of Delaware LLCs that you'll need to be sure to meet.
- In Delaware, there are no sales taxes, so that's one less thing to worry about.
- If you carry out business activity in the State of Delaware, you may have to pay the Gross Receipts Tax ("Delaware Gross Receipts Tax"), which ranges from 0.0945% to 0.7468%, depending on the business activity.
- If you have hired employees in Delaware, you must register for the "Unemployment Insurance Tax". In addition, companies that must pay the "Employee Withholding Tax" register online with the Delaware Division of Revenue.
Meet Delaware's annual obligations
Delaware does not require LLCs to file an annual report, but they must pay a $300 "Franchise tax", which is due June 1 and carries a late penalty of $200 + 1.5% for each additional month.
If you fail to pay your Franchise Tax, you risk the automatic dissolution of your LLC and losing limited liability protection.
That's why having a trustworthy registered agent who notifies you and helps you handle these matters is key. Don't forget to renew it every year if you have hired an outside service.
What is an LLC?
A limited liability company, or LLC, is a business structure in which the company is legally separate from its owner or owners. An LLC combines the advantages of a corporation (protection from personal liability) and a Partnership (pass-through taxation to its owners). Because the company has a separate legal existence, members are not personally liable for the company's debts and obligations.
How much does it cost to have an LLC in Delaware?
The Certificate of Formation required to register your LLC in Delaware has a filing fee of $90 (one time). After that, there is the "Franchise Tax", which must be paid by June 1 and costs $300 per year. You should also factor in the cost of renewing your registered agent if you choose to outsource it to a service (recommended).
How long does it take to register an LLC in Delaware?
Approval of an LLC by the State of Delaware, after filing the "Certificate of Formation", usually takes 2-3 weeks. You can speed up the process for an additional $50 so that it is expedited within 24 hours.
Is it difficult to form an LLC in Delaware?
Thanks to the business-friendly policies and streamlined legal structures offered by the state of Delaware, forming a company there is a simple, digital process, made even easier by Delaware.gov's "One Stop" website.
How many members can a Delaware LLC have?
There is no minimum number of members required to form an LLC in Delaware. They can be formed with just one member (single-member LLC) or with dozens of partners. Members do not need to be US citizens or US residents, and they can be individuals, trustees, corporations or other entities, foreign or American.
Do Delaware LLCs have to file an annual report?
Delaware LLCs do not have to file an annual report; they only have to pay a $300 Franchise Tax annually.
What are the differences between an LLC and a C Corp in Delaware?
If you want to open a company in Delaware, you can choose between a C Corp and an LLC. Unlike LLCs, C Corps must file an annual report naming an officer and the board of directors, which is public record. They must also hold an annual shareholder meeting and pay an annual tax of $125 (vs. $300 for LLCs). Finally, although both entities can raise investment, LLCs cannot be publicly traded, unlike C Corps. As for similarities, both offer limited liability and "Pass-Though Taxation".
How do you dissolve an LLC in Delaware?
To dissolve an LLC in the state of Delaware, you will need to file a Certificate of Cancellation. Although there are two types of forms, one for domestic entities and another for foreign LLCs, both cost $200 for the dissolution.
What taxes does a Delaware LLC pay?
If you open an LLC in Delaware, you will have to pay $300 in franchise tax annually, you won't have to pay sales taxes, and you may have to pay gross receipts taxes and employer taxes. Find out here about the taxes of a Delaware LLC.
Written by
Ignacio Navarro
Ignacio Navarro is a Certified Public Accountant, founder of Start Companies and a specialist in U.S. companies for entrepreneurs, freelancers and digital businesses in Latin America. With training in international taxation and studies at UCEMA, he advises non-resident clients on forming and maintaining LLCs, opening bank accounts, invoicing, accounting and taxes. His experience combines tax strategy, compliance and practical vision for operating in the U.S. in a simple, organized and professional way.
