- Why Set Up an LLC in Delaware?
- Step 1. Naming Your Delaware LLC
- Step 2. Choosing a Registered Agent
- Step 3. Filing the Certificate of Formation
- Step 4. Creating an Operating Agreement
- Step 5. Getting an EIN/Tax ID Number
- By Mail
- Step 6. Getting an EIN/Tax ID Number
- Step 7. Keeping Your LLC Running
- Paying Federal, State, and Local Taxes
- Filing an Annual Report
- Permits and Licenses
- LLC Bank Accounts
- Delaware LLC Resources
- Delaware LLC FAQ
Starting an LLC in Delaware may seem like a lot of work, but it can offer great benefits to you and your company. The process is pretty simple and it should only take a few days to a few weeks, especially if you do the entire process online. Follow this guide to help you start an LLC in Delaware.
Why Set Up an LLC in Delaware?Delaware is the country’s leading state when it comes to business formation and business HQs, making it an ideal place to set up an LLC. It even has a court dedicated solely for business cases—the Court of Chancery. That’s how you know the state means serious business. If that’s not enough to entice you to set up your LLC in Delaware, maybe the following advantages will:
- No sales or intangible property (such as patents or trademarks) taxes
- No need to file annual reports or hold annual shareholders meetings
- No business license requirement
- Exemption from state income and gross receipts taxes for Delaware LLCs operating outside the state
- Setting up is quick and simple since the Certificate of Formation only requires very minimal information
Step 1. Naming Your Delaware LLC
If you haven’t already thought of a name, deciding on one may be the hardest part of this whole process. You have to make sure it’s easy to remember, but it also has to stand out from the rest. More importantly, it should be unique and must comply with the naming requirements.
Legally Required Designation
The state of Delaware requires every LLC to have “Limited Liability Company” in its name, or any of its qualified abbreviations:
Uniqueness of the LLC Name
The name you choose should not already be taken by any other business in Delaware. To make sure your LLC name is unique, run it through the Delaware Entity Search.
Even if you aren’t planning on starting a website anytime soon, you should go ahead and check if the domain name is available. If it’s not, you might want to come up with a different name so it doesn’t get confused with another business or entity. If it’s available, you should try and buy the domain as soon as possible so it doesn’t get snatched away by someone else.
Before you start brainstorming for a good LLC name, you should also be aware that there are words that the Delaware Secretary of State does not allow in an LLC name, such as words that might have your LLC confused with a government agency, like FBI and State Department.
Other restricted words, like Attorney, will require additional paperwork. Apart from that, your LLC must also have a member with the appropriate license (for example, the license to practice law if you’re including Attorney in the name) in the field.
Reserve a Name
If you finally settled on your LLC name but aren’t ready to start the filing process yet, you can reserve the name for up to 120 days for a $75 fee. This can be done online or by mail.
You may reserve your LLC name online through the State of Delaware Division of Corporations website.
If you want to mail in your reservation, you need to print and complete this form, then mail it to this address:
Division of Corporations
PO Box 898
Step 2. Choosing a Registered Agent
n Delaware, an LLC is required to have a registered agent. The registered agent will be responsible for accepting all legal documents mailed to your LLC, such as notice of lawsuits, tax forms, and other official government correspondence. This can be a person or a business entity.
It’s important to note that the registered agent must have a street address in Delaware. If you or the other members of your LLC aren’t residents of Delaware, you can simply hire a provider from this list.
Step 3. Filing the Certificate of Formation
You’re ready to file your LLC’s Certificate of Formation with the Delaware Division of Corporations once you’ve picked out a name as well as a registered agent. It costs $90 to file the Certificate.
After filing, you will receive a copy of the submitted document stamped with the word “Filed” on it. If you want a certified copy, you’ll need to pay an extra $50.
To file the Certificate of Formation, you will need to complete this form with the following information:
- Name of your LLC
- Complete name and address of your chosen registered agent
- Signature of an authorized person of your LLC
- Printed or typed name of the authorized person
- A cover letter with your name, address, and telephone or fax number
Unlike other states, Delaware doesn’t require you to disclose the members’ names and addresses. This is a huge plus since once the LLC is official, all the information on your Certificate of Formation becomes public record. As long as your registered agent is a third party entity, there’s little to no risk of your personal information becoming available for anyone to look up.
How to File
You can file the Certificate of Formation in three different ways, with online filing being the fastest and most convenient.
Once you have filled out the form, convert or save it as a PDF file. You can then upload it to the Delaware Division of Corporations Document Upload Service.
By Mail or In Person
Download, print, and complete the form. If paying by check, make it payable to the “Delaware Secretary of State.” You may then head down to the office or mail all of the requirements to this address:
Delaware Division of Corporations
401 Federal St., Suite 4
Dover, DE 19901
Step 4. Creating an Operating Agreement
If you don’t know where to begin, you may use this online template to guide you. You can also hire an attorney to help you out. This internal document will help you and the other members of the LLC settle—and even avoid—conflicts that may arise in the future.
An Operating Agreement should include the following information:
- Names of the members of the LLC
- Division of ownership among members
- LLC management (member-managed or manager-managed)
- Money invested by each member
- Division of profits and losses among members
- Process for member buyout or replacement
- Process of dissolution of the LLC
Step 5. Getting an EIN/Tax ID Number
An EIN or Employer Identification Number is a 9-digit number that will be assigned by the IRS. It’s essential that you get an EIN (also known as a Federal Tax ID Number) for your LLC as it is a requirement for the following:
- Opening a bank account for your LLC
- Hiring employees
- Filing and managing State and Federal taxes
You can get an EIN free of charge from the IRS by mail or online. Just note that if you’re the sole member of the LLC and you aren’t planning on hiring any employees, you can simply use your Social Security Number for the procedures mentioned above.
You can complete the application for your LLC’s EIN through the IRS’s online EIN assistant. Your application must be finished in one session. Inactivity for 15 minutes will cause the session to expire, and you’ll have to start all over again.
Download the EIN application form and fill in the information required. Mail the accomplished form to:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
Step 6. Getting an EIN/Tax ID Number
All LLCs are required to get a business license in Delaware. Just visit the registration and licensing portal, Delaware One-Stop, to obtain your business license online.
If you would rather go the traditional route, download and fill out the Combined Registration Application, and then mail it to:
Delaware Division of Revenue
P.O. Box 8750
Wilmington, DE 19899-8750
Step 7. Keeping Your LLC Running
Congratulations, your business is now official! You can now focus on running and managing it properly. In this section, you’ll learn about LLC taxes and your duties to the LLC.
Paying Federal, State, and Local Taxes
By default, an LLC is a pass-through entity (also known as a flow-through entity). This means that the LLC itself does not pay income taxes. Instead, the owners or members who will be receiving profits pay taxes. Any income that LLC members receive must be reported on their personal federal and state tax returns.
Now, the amount of income tax that you need to pay will depend on different factors such as the tax structure of your LLC, as well as its expenses and deductions. You also need to take into account your income tax bracket and how you will choose to file.
If the numbers are too overwhelming, it might be a good idea to hire an accountant. You want to avoid paying too much in taxes—or too little.
Running a single-member LLC has fewer complications when paying taxes. The IRS will consider you as a “Disregarded Entity” and you will be taxed as an individual. You’ll need to report all of the profits of the LLC on your tax return and pay for the subsequent taxes on those.
If you withdraw money from your LLC’s bank account and transfer it to your personal bank account, there are no additional federal taxes to pay. However, it will be subject to a self-employment tax.
With multi-member LLCs, all owners need to pay federal income taxes and self-employment taxes on their portion of the business profits.
Also called the Federal Insurance Contributions Act (FICA), Social Security, or Medicare tax, these taxes are what you and other members of the LLC will need to pay when you distribute profits from your LLC.
The rate is currently 15.3%. Normally, this amount is split between the employers and their employees. But since LLC members are their own employers, they have to pay the full amount.
No doubt, self-employment taxes are costly. However, there is a way to reduce how much you’ll owe in self-employment taxes, and this is by choosing for the LLC to be taxed as an S Corp.
S Corp Taxes
If your LLC has S Corp status, you’ll be able to save on self-employment taxes since you’ll be paying yourself a salary as well as distributions. When you pay yourself a salary (which has to be a reasonable amount for your line of work), you pay both income and self-employment taxes on that. However, you only need to pay income taxes on distributions, saving you some money.
While this sounds like a great idea, it typically only works if the LLC’s income is at least $70,000 annually. If it’s lower than that, you won’t really be saving any money.
C Corp Taxes
You can also choose to have the LLC taxed as a C Corp. This is ideal if you want to attract investors, since shareholders only have to pay income taxes on dividends and aren’t required to pay self-employment taxes.
You do have to note, however, that C Corps pay taxes twice (also known as double taxation).
You and other members of the LLC are required to pay the Delaware state income tax. Standard Delaware tax rates apply, which range from 2.2% to 6.6%.
LLCs operating in the State of Delaware are required to pay the annual $300 franchise tax on or before June 1st of each year. Failure to comply will lead to a $200-late fee and a 1.5% interest for every month the fee is left unpaid.
Unlike other states, Delaware does not have any sales tax. It is one of the five states in the country that do not impose a sales tax.
As an employer, you will be responsible for withholding your employee’s income taxes and paying the full amount to the Division of Revenue every pay run. In Delaware, employers usually withhold 7.65% of the employee’s taxable salary.
Delaware Gross Receipts Tax
This is a tax levied on businesses that sell goods, tangible or otherwise, or provide services. The rate ranges from 0.0945% to 0.7468%.
Delaware offers some of the lowest local taxes in the US. How much you’ll owe will depend on the city or town where your LLC is located. Make sure to contact the local authorities so you’ll know how much exactly to pay.
Filing an Annual Report
LLCs operating in Delaware are not required to file annual reports. However, they need to pay an annual fee of $300—the Franchise Tax discussed above.
Permits and Licenses
No matter what kind of business you have, chances are, you will need a combination of permits and licenses to be able to operate. The permits and licenses that you will need will depend on the nature of your business and its location. You need to comply with local, state, and federal regulations.
To see what federal licenses and permits you’ll need, just go to the US Small Business Administration website. Find the appropriate business activity of your LLC and it will lead you to the necessary issuing agency.
For State licenses, you can head to the One-Stop Delaware website to get you started. As for local licenses and permits, it’s best to call or pay your local county clerk a visit to find out what your LLC needs.
LLC Bank Accounts
One of the main reasons for setting up an LLC is to protect your personal assets, so it’s only right that you open a separate bank account for your business. At the same time, having an LLC bank account can make it easier to do your tax filing and bookkeeping.
You will need the following to open an LLC bank account:
- Certificate of Formation with a stamp of the Delaware Secretary of State
- Operating Agreement
- Passport, Driver’s License, or other appropriate photo ID
Depending on the bank of your choice, you may need to comply with more requirements. It can be anything from proof of physical address in the US to a Certificate of Good Standing.
Additionally, if your LLC has members other than you, you will need a signed authorization agreement indicating you’re authorized to handle the LLC’s bank transactions.
Delaware LLC Resources
- Naming your LLC: Delaware Entity Search
- Domain name search: com
- Reserving your LLC name: online or by mail
- Registered Agent providers
- Forming your LLC: online by PDF upload or by mail
- Operating Agreement template
- Getting your federal tax ID number (EIN): IRS EIN Assistant
- Getting your business license: Delaware One-Stop or by mail
- Unemployment Insurance Tax registration
- Employee Withholding Tax resource
- Franchise Tax filing
- Obtaining federal licenses and permits: SBA list of federal licensing and permitting agencies
- State licenses
Delaware LLC FAQ
Here are some of the commonly asked questions when starting an LLC in Delaware:
It costs $90 to file a Certificate of Formation in Delaware. You’ll also need to pay $50 if you want a certified copy.
Filing your Certificate of Organization online is not only cheaper (as there are no postage fees you have to pay), but it also offers a quicker processing time. The certificate is effective as soon as it is filed.
An LLC does not need to pay taxes by default, as it is a pass-through entity. This means that the LLC’s income flows through to the owners, so the responsibility of paying taxes falls on them. As Delaware has no state income tax, the amount paid will be equal to the federal rate.
There is no requirement to make any kind of regular information report for LLCs in Delaware. However, all LLCs operating in Delaware are required to file and pay the Franchise Tax every 1st of June, which costs $300. Multi-member LLCs are also sometimes required to file an informational tax return.