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Updated on July 18, 2024
How to Start Your Own LLC in Delaware
Name Your Delaware LLC
Select a Registered Agent
Determine Your Management Structure
File a Certificate of Formation with the Delaware Division of Corporations
Draft an Operating Agreement
Get Your Employer Identification Number (EIN)
Obtain Business Licenses and Permits
Determine Your Tax Status
Other Requirements
How Much Does it Cost to Start an LLC in Delaware?
When starting a new business, one of the first big decisions is which type of business entity to form. Many entrepreneurs choose a limited liability company (LLC) because of its many benefits. An LLC provides personal liability protection, for example, so that your assets are not at risk if your business is sued or cannot pay its debts.
Also, an LLC is a “pass-through entity” in taxes, meaning income passes through the company to the LLC owners or members who report it on their tax returns.
LLCs also offer flexibility in management and tax status, yet another reason it’s popular in Delaware.
Here are the steps that you need to take to form an LLC in Delaware.
If you prefer video content, we offer an extensive visual guide on how to form an LLC in Delaware.
1. Name Your Delaware LLC
Naming your business can be challenging. You need a name that’s unique and easy to remember and conveys what your business does. To choose a name, you can try a few different methods:
Decide on a Business Concept: Before you name your LLC, you need to have a clear idea of what your business will do.
Ask People You Know for Suggestions: Reach out to people whose opinions you value and trust. Explain your business concept and ask for their thoughts on a name.
Do a Web Search: Once you have a few name ideas, check their online presence. Is the domain name available? Are there companies with similar names that could create confusion?
Use an Online Business Name Generator: They can provide inspiration and help you think about your business from different angles. Keep in mind, though, that these generators can’t replace human creativity and may not understand the nuances of your business as well as you do.
Your business name is your business identity, and the first impression people will have of your company, so be sure to take your time with this step and get it right.
Once you have a few business name ideas, you’ll want to ensure they’re available. First, do a business name search on the Delaware Division of Corporations website. Here’s how to conduct a Delaware LLC name search and check the availability of your desired entity name.
Your LLC name must include “limited liability company” or an abbreviation (LLC or L.L.C.) and cannot have words that could confuse your LLC with a government agency.
Additionally, your business name must be distinguishable from all other business names in the state and cannot include words like bank, insurance, or university without state approval or imply that you’re involved in unlawful activity.
Next, check with the US Patent and Trademark Office to ensure the name is not trademarked and is thus available nationally.
Once you’ve confirmed these, it’s a good idea to reserve the name with the state using its Name Reservation form.
2. Select a Registered Agent
Delaware requires LLCs to appoint a registered agent, a person or company authorized to accept and respond to official business correspondence, such as legal, tax, or financial documents.
The registered agent ensures all important notices and documents are received. In Delaware, the registered agent can be an LLC member or an individual or entity that meets state requirements. In Delaware, a registered agent must:
Be 18 years or older
Have a physical address in Delaware
Be available during regular business hours
Be registered to operate in Delaware, if it’s a business
Many business owners hire a registered agent service to ensure their LLC stays fully compliant and for convenience.
If you choose to be your registered agent, you must be at your registered agent’s address for all business hours. A registered agent service allows you to be wherever you need to be to run and grow your business.
Members or managers can manage LLCs. In a member-managed LLC, members handle all management duties. In a manager-managed LLC, non-member employees oversee operations and management duties.
Note that with a manager-managed LLC, a member can be a manager, but only in cooperation with another manager who is not a member.
Member-managed LLCs generally work best for LLCs with few members, all of whom can take an active role in day-to-day operations. Conversely, manager-managed LLCs are best for LLCs with multiple members, some of whom want to be “silent” or passive members and not involved in day-to-day operations.
Most LLCs are member-managed, as they are small businesses that cannot afford a management team.
In Delaware, your LLC is considered member-managed if it’s not otherwise specified in the articles of organization.
Division of Corporations John G. Townsend Bldg. 401 Federal Street, – Suite 4 Dover, DE 19901
(302) 739-3073 option 2
5. Draft an Operating Agreement
An Operating Agreement is a legal document that outlines the ownership and member duties of your Limited Liability Company (LLC).
Delaware requires an Operating Agreement at some time before, during, or after filing LLC formation paperwork. This agreement can be implied, written, or oral.
Here are the elements an LLC Operating Agreement should typically include:
LLC’s name and principal address (primary location where business is registered)
Duration of the LLC
Registered agent name and address
Membership Information
Management and voting
Financial matters (e.g. the way profits and losses will be divided)
Changes and amendments (e.g. procedures for adding or removing members)
Disputes, legalities, and policies
Record keeping and communication
You can find operating agreement templates online, but it’s best to have them drawn up or reviewed by an attorney. The language of an operating agreement is crucial and can often help determine how member disputes will be resolved. For more information about the operating agreement, refer to our comprehensive guide on the Delaware LLC operating agreement, and you can also obtain a free template.
6. Get Your Employer Identification Number (EIN)
The IRS uses an EIN to identify your company for tax filing purposes. An EIN is required if your LLC has more than one member or if you are hiring employees.
Obtaining an EIN requires applying on the IRS website, as detailed here:
All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the ‘responsible party,’ controls, manages, or directs the applicant entity and the disposition of its funds and assets. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.
Depending on the nature of your business, you may need to apply for various licenses and permits at the federal, state, and local levels.
At the federal level, licenses and permits are generally industry-specific and may include health licenses and permits from the Occupational Safety and Health Administration (OSHA). Check the SBA guide for specific licenses required for your business.
All businesses in Delaware must obtain a state business license annually. This license is distributed by the Division of Revenue. The One Stop Business Licensing and Registration Service provides an online platform for license registration. The necessity for additional permits or licenses, dispensed by various state agencies, may arise depending on the particular nature of your business.
Delaware does not have any state or local sales taxes. However, Delaware does impose a tax on the gross receipts of most businesses.
For information about local licenses and permits, check the websites or offices for any cities or counties where you will do business.
Here are some standard licenses and permits you may need:
Industry-specific licenses for certain professions and industries, such as construction, plumbing, electrical, childcare, food handling, liquor, architecture, and finance
Building and zoning permits
Doing business as (DBA) permits using a name other than your LLC.
Health licenses and permits at federal, state, and local levels
Fire permits
Sign permits
This is a very important step in the LLC formation process, so make sure that you check with your state and local government offices to find out all the licenses and permits you need.
You could face steep fines and penalties if you operate without the proper licenses and permits.
It’s a good idea to consult with a business attorney to make sure you’re in full compliance. You can also use a service like MyCorporation to do the research and provide you with all the forms you need to license your business fully.
8. Determine Your Tax Status
By default, an LLC is a “pass-through” entity, which means the business itself does not pay income taxes. Instead, the business’s profits or losses are passed through to the members’ individual tax returns. The taxes are then paid at each member’s individual tax rate.
Single-Member LLCs: If the LLC has only one member, it’s taxed like a sole proprietorship by default. This means the income from the LLC is reported on the member’s personal income tax return on Schedule C, and they’re responsible for paying self-employment taxes (Social Security and Medicare taxes) on that income.
Multi-Member LLCs: If the LLC has more than one member, it’s taxed as a partnership by default. The LLC must file an informational tax return (Form 1065), but the income and deductions are passed through to the members. Each member reports their share of the income and deductions on their personal tax return. As with single-member LLCs, members must also pay self-employment taxes on their share of the profits.
An LLC can also choose to be taxed as a corporation by filing an election form with the IRS (Form 8832 for a C-Corp and Form 2553 for an S-Corp). This can be beneficial under certain circumstances:
C-Corporation Taxation: Electing to be taxed as a C-Corporation can offer benefits to an LLC, particularly if the members want to retain earnings in the company. The corporation pays tax on its profits at the corporate rate (which was 21% as of 2022). If the profits are distributed to the members as dividends, the members must report these dividends on their tax returns and pay tax on them. This is known as “double taxation.” However, members aren’t subject to self-employment taxes on their dividends.
S-Corporation Taxation: Choosing S-Corporation status can also be beneficial for an LLC. Under this scenario, the LLC does not pay corporate income tax. Instead, the income, deductions, and credits pass through to the shareholders, who report them on their individual tax returns. However, unlike a standard LLC, an S-Corp is required to pay its members a “reasonable” salary for the work they perform for the company. This salary is subject to payroll taxes, but any additional profits distributed to the members aren’t subject to self-employment taxes. This can result in significant tax savings, especially for businesses with high net income.
When you have an LLC, it’s important to keep your business and personal finances separate for accounting and tax purposes. Commingling your business and personal funds can threaten your liability protection since the line between business and personal assets will not be clear.
Most banks offer business bank accounts, so check with your local bank. You’ll need your EIN and a copy of your articles of organization. Your bank may require other documents as well.
Apply for a Business Credit Card
A business credit card can help establish business credit so that if you apply for a business loan or line of credit in the future, you’ll have a better chance of getting approved. A business credit card can also help pay startup expenses, reducing out-of-pocket costs.
Get Business Insurance
Insurance is the right choice to protect the investment you’ve made in your business. There are several different types of insurance you may need.
General liability: A comprehensive type of insurance covering many business elements. It includes coverage against bodily injury and property damage.
Professional liability: Protects against claims from a customer who suffered a loss due to an error or omission in your work. It’s also known as errors and omissions (E&O) insurance.
Workers’ compensation: Provides compensation to employees injured on the job.
Property: Covers your physical business space.
Business Property: Covers equipment and supplies.
Equipment Breakdown Insurance: Covers the repair or replacement of broken equipment due to mechanical issues.
Commercial auto: Covers your company-owned vehicles.
Business owner’s policy (BOP): This option combines the above insurance types.
LLC Records
You’ll want to keep copies of your formation documents and operating agreement in a safe place. Any other official documents, such as vendor contracts and legal or financial documents, should also be kept in your records.
Annual Reporting
LLCs in Delaware do not need to file an annual report, but they are required to pay an annual tax of $300.00 by June 1st each year.
How Much Does it Cost to Start an LLC in Delaware?
