Are you looking to form a limited liability company (LLC) in the state of Delaware, but you’re not sure how the formation process works? There are several important steps when it comes to creating a Delaware LLC that is compliant and able to do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
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What is a Delaware LLC?
The Delaware LLC is one of the most popular business structures in state. It's a more casual and flexible type of business than a corporation, but includes personal asset protection that's lacking from sole proprietorships and general partnerships.
LLCs in Delaware have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Forming an LLC in Delaware (in 6 Steps)
Step One) Choose an LLC Name
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In the state of Delaware, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your LLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LLC is to not get too attached to any one business name until you have either reserved the name with the state of Delaware, or you’ve officially formed your business. Delaware makes this process rather easy, as you can search their entire state business database at this link, and if you’re not yet ready to form your LLC, you can reserve your desired name with the application for a Name Reservation form. Reserving your LLC name gives you an additional 120 days to get your affairs in order.
Step Two) Designate a Registered Agent
Every LLC in Delaware is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the Delaware Division of Corporations,
the legal requirements to be a Registered Agent in Delaware are to maintain a street address and office located in Delaware and be open during normal business hours for the purpose of accepting service of process according to 8 Del. C. § 132.”
Without a registered agent, you could lose your good standing with the state of Delaware, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
Step Three) File Formation Documents with State
Once you are ready to form your Delaware limited liability company, you will fill out the Certificate of Formation.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
You can print off a pdf of the form here.
Cost to Form an LLC: The state of Delaware charges a $90 fee to form an LLC.
Processing Time: It takes 1-10 business days for the state to process your Delaware LLC formation paperwork and get your finalized documents in the mail to you. Processing times are largely dependent on how you file; mail-in filings usually take 7-10 days, while faxed filings usually take 4-5 days. The state does not offer online filing to individuals, but some online LLC formation services can give you a faster turnaround time. However, most filings that are completed online are finalized within one business day. Please note that the estimate of business days begins once ALL required paperwork is in order and filed correctly.
Step Four) Create an Operating Agreement
After you register an LLC in Delaware, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements here, but some of the basic information you’ll want to have includes:
- Individual members' ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five) Handle Taxation Requirements
The vast majority of LLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
When it comes to state-level LLC taxes, Delaware levies these taxes based on the nature of your business. For example, LLCs in Delaware are required to pay an annual tax of $300. This tax is due on June 1, and there is a hefty $200 fee plus 1.5% interest per month for late payments. You can pay the annual tax here.
Delaware also requires every business in the state to pay a Franchise Tax. The minimum payment for this tax is $175. Delaware makes it simple to determine what your total Franchise Tax fees will be with a Franchise Tax Calculator.
Beyond that, Delaware is one of the few states that does not require sales tax. However, the state does impose a Gross Receipts Tax. You’ll required to pay if your LLC qualifies as a seller of goods. You can register and file these taxes here.
LLCs with employees on the payroll must also pay taxes for unemployment insurance. There is a minimum tax rate of 0.3%, and the maximum is 8.2%. For an in-depth look at your responsibilities as an employer, please consult the Unemployment Insurance Employer Handbook.
Depending on where in Delaware your business is located, you could also need to pay some local taxes. Some of these include additional income taxes, such as Wilmington. Other taxes include county-specific property taxes, as required by Sussex County and New Castle County. You’ll want to ensure that you don’t overlook this potentially crucial step.
Step Six) Obtain Business Licenses and Permits
Thankfully, the state of Delaware simplifies the process of obtaining a business license: you can apply for new licenses at their One Stop Business Registration and Licensing System.
This portal will register you with the Division of Revenue, the Office of Workers’ Compensation, and the Division of Unemployment Insurance. Please note that for retailers, this license will also include a $15 fee to help fund the state’s efforts to prosecute shoplifting.
In addition to this state license, Delaware also upholds the licensure required by the federal government for certain occupations, including agriculture, aviation, and more. Please consult the Small Business Association’s listings for federally-regulated industries requiring licensure.
Finally, Delaware also requires a wide variety of licenses for different occupations. Midwives, plumbers, chiropractors, and other occupations are subject to these licenses. Delaware’s Division of Professional regulation provides a full listing of professions requiring licensing. Check here to verify which licenses apply to your LLC.
Next Steps: What to do After Creating a Delaware LLC
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Get Business Insurance
Every Delaware business with employees is strictly required to acquire workers’ compensation insurance. (Unemployment Insurance is covered by taxes—see step 5). For more information on workers’ compensation, check out the Delaware’s Division of Industrial Affairs. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. The state of Delaware has several forms based on how your business is set up that you can access; single-member LLCs and partnerships file Form 330, and LLCs taxed as corporations file Form 1100.
Understand annual reporting
Unlike many states, LLCs in Delaware are not required to file an annual report. They must pay the annual franchise tax (as mentioned in step 5), but there is no reporting requirement according to the Delaware Division of Corporations.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how best to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.