Though it is small in geography and population, Delaware is an extremely important state to American business. The majority of large American companies are incorporated there, and it is known for being a business-friendly state. In many ways, then, forming an LLC in Delaware is an easy choice.
When you start the paperwork, though, you might find it confusing. The process of forming a business is often filled with strange, technical jargon. You also often have to collect bits of information from lots of different sources.
Never fear, though. We have done the work and collected the important things to know when starting your business. We’ll present them all here in an easy-to-follow, step-by-step format.
In this article, you’ll find all the information you need to start an LLC in Delaware, including:
- Tips on drafting and filing the documents you need for your Delaware LLC formation
- Guidelines for staying within state and federal law
- The actual laws and rules you need to follow
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Step 1: Name your Delaware LLC
The first thing you have to do is pick a good name for your company. Title 6 of the Delaware Code section 18-102 gives you the basic rules for naming your company.
Words You Have to Use
Your LLC name should contain the words “limited liability company” or an abbreviation like LLC. It must also be distinguishable from the names of other companies doing business in Delaware.
Let’s say you want to start an LLC called “Blue Hen Hat Shop LLC.” When you search the state records, though, you find that there is already a corporation named “Blue Hen Hat Shop, Inc.” Despite having different organizational structures, those names are not distinguishable. You’ll need to add words to get your LLC name approved.
In the above example, then, if you change your LLC’s name to “My Blue Hen’s First Hat Shop LLC,” the name will probably be approved.
If you need ideas, Delaware’s statute also specifies several words that you can use in your LLC’s name. Many of these words are not available in other states. For example, The company name may, but doesn’t have to, contain the name of a member or manager.
Remember that you can name the LLC after a non-member manager. So, if you hire a famous person to manage your LLC and want to use their name, you could.
It’s unlikely that you could get Delaware native Ryan Phillippe, for example, to manage your business. If you did, though, “Ryan Phillpe’s Dover Hot Wings, LLC” might get more customers than your name alone.
The law also specifically approves the following words for use in LLC names:
- Public Benefit
Words You Can’t Use
The law forbids you from using the word “bank” or similar words in your LLC’s name without oversight by the appropriate government entities. While other types of names and businesses aren’t mentioned, it’s a good idea not to use words suggesting that your company is in a specific line of business unless you have a license to do that business.
The big rule is this: if you need a license to do your job, double-check with the Division of Corporations to make sure your company name complies with the law.
Keep in mind that the Delaware Division of Corporations has the final say over what words are or are not acceptable in your LLC’s name. (For example, they may think you have picked an offensive or lewd name for your company.) So, even if you think your name is fine under the law, if the Division says to change it, that’s what you must do.
Research the LLC Name You Want
Once you have a good name in mind, you’ll need to make sure it’s not too similar to any other business entity name in the state. To do this, use the free Business Name Search offered by the Delaware Division of Corporations.
The free search will get you the name and agent information. You can get more detailed information for $20, but this is not necessary for naming your company.
Use the search engine not only for your desired name but each of the terms in your name. Those multiple searches will help you find any similar names to the one you want so that you can avoid picking one the Division of Corporations thinks is too similar to that of another company.
Get a Matching Domain
Once you settle on an LLC name, we recommend you get a matching domain, even if you don’t have immediate plans for a website.
Competitors can buy your perfect domain and its variations to block you from using them.
Domain squatters sift through public records of newly registered LLCs and will buy their matching URLs, only to relist them with huge markups.
A domain name from GoDaddy.com or a similar registrar will cost you between $20 and $50 per year, with regular specials and sales where you can get large discounts.
It pays to check now.
Once you have your domain name, you can also create a branded email address through GoDaddy.
Delaware DBA: Using a Fictitious Business Name
Now that you have your LLC’s legal name, you might not be 100% satisfied with the result. Or maybe you want to add something to the name so that people don’t confuse your business with a competitor. If so, you can get a “doing business as” (DBA) name, also known as a fictitious business name.
This is a very common process that is governed by Title 6, Chapter 31 of the Delaware Code. Section 3101 requires that trade names (DBAs) be registered with the prothonotary of each county where your LLC does business.
It may be a weird word, but a prothonotary is just the head court clerk for your county. For example, the prothonotary of New Castle County has an office in the courthouse in Wilmington.
The law requires that the certificate contain the following information:
- Your LLC’s name and desired DBA
- Your LLC’s address
- The first and last name of every member of your LLC
- The date your LLC was formed
- The nature of your LLC’s business
- An affidavit stating that the facts in the certificate are true and correct
The Delaware courts offer a fill-in-the-blank pdf form certificate on the Internet. The form will need to be submitted with a $25 filing fee.
Step 2: Appoint a Registered Agent for your LLC
Title 6 of the Delaware Code section 18-104 requires your LLC to have a registered office and registered agent in the state. A registered agent is your LLC’s point of contact for the public. That agent receives important correspondence and service of process for your LLC.
Service of process is a legal term for business letters or legal papers. In other words, your agent is there for the state or the public to communicate with you.
Though your registered office can be the same as your place of business, it doesn’t have to be.
If your LLC is sued, your Delaware registered agent should get all the legal paperwork describing the lawsuit and how to answer. Your company’s registered agent and office are listed on the Division’s Business Entity Search website for this purpose.
If you are late responding to a lawsuit or, worse, don’t respond at all, you could lose the lawsuit by default judgment. This is a harsh result, but it illustrates how important it is for you to retain a good registered agent for your LLC.
The law gives you options about whom you can appoint as your agent. You can name a Delaware resident at your registered office or an entity doing business in the state as your agent. You could be your LLC’s registered agent. Section 18-104(a)(2) even lets your LLC be its own agent!
Just because you can do the job yourself, though, doesn’t mean you should. Hiring another company is usually the smarter move. A registered agent company lets your LLC use its company’s address as your LLC’s registered office. The agent then gets your important letters and service of process and passes it on to you.
You might be thinking that the job doesn’t sound hard enough to justify hiring someone else. Being your LLC’s Delaware registered agent can be tempting for a few reasons:
- It’s cheap: You’re not paying someone for something you can do yourself.
- It’s simple: The only address and contact information you have to keep current is your own.
- It’s reliable: You will receive all important papers personally.
Those are solid points. But there are also a lot of reasons not to do it yourself:
- No privacy: Your name and address will be public on the Division’s Business Name Search website.
- Junk mail/spam: You will get a ton of junk mail in addition to a small amount of real mail and any service of process.
- No breaks: Agents must be open for service during all business hours. They don’t get time off.
- Business interruptions: If your agency address is the same as your business address, your clients may be interrupted by people serving lawsuits. That could be embarrassing or hurt your reputation.
- It’s your fault if you miss something: You always have to make sure your agency address is correct and up to date. If you make a mistake or miss something, that’s on you.
Registered agent companies are an easy way to avoid these issues. They aren’t pricey, either. They usually cost around $100 per year. Their name and address, not yours, are publicly listed. Depend on your agent to make sure you don’t miss anything. That way, you can focus on your business.
If you are looking for a professional registered agent service, take a look at our Best Registered Agent ranking for some of our recommendations.
A professional registered agent service can also help if your LLC will do business in multiple states and you need to register as a foreign LLC. Just find a company that does business in all those states, pay them a single fee for multiple agents and offices, then let them worry about the details.
Step 3: File Your Delaware LLC Certificate of Formation
Under Title 6 of the Delaware Code section 18-201, your LLC isn’t formed until you file the certificate of formation. In this way, the certificate is like a birth certificate for your company. Before you file the certificate, your LLC is just an idea. After, it can sign leases, buy and sell goods, or act in any lawful way.
If you would like to avoid the hassle of handling your LLC filing yourself, you can also use a professional LLC formation service. Check out our Best LLC formation services article for some of our suggestions.
What to include in my Delaware Certificate of Formation?
Section 18-201 tells you exactly what you need to have in your certificate:
- Your LLC’s name
- The name and address of your LLC’s registered agent
- Any other matters you and your fellow LLC members want to put in (though those items must be legal, of course)
If you would like your LLC to be formed at a later point in time, rather than the time of filing, you may specify such a date (effective date) in your Certificate of Formation.
If you just want a simple, quick option, Delaware offers a template form on the Division of Corporations website.
Delaware LLC Filing Fee
According to the online fee schedule, the filing fee for an LLC certificate of formation is $90. You will get a file-stamped copy of that legal document as part of that fee.
If you want a certified copy, you will have to pay an extra $50.
Delaware LLC Processing Time
Processing time varies based on the volume of documents being handled, but generally, you can expect a processing time of three to four business days.
If you need your certificate processed more quickly, the Division of Corporations offers several expedited service options:
- One Hour Service: $1,000 (must be filed by 9:00 p.m. local time)
- Two Hour Service: $500 (must be filed by 7:00 p.m. local time)
- Same Day Service: $100 (must be filed by 2:00 p.m. local time)
- Next-Day (Business Day) Service: $50 (must be filed by 7:00 p.m. local time)
Step 4: Draft your Delaware LLC Operating Agreement
Operating agreements are contracts between you and the other members of your LLC. Delaware law more commonly refers to these as “limited liability company agreements,” but the terms are interchangeable.
Delaware won’t force your LLC to have an operating agreement, but it’s a good idea anyway. At its heart, an LLC operating agreement is a contract stating your company’s rules. It can tell how to settle disputes, let in new members, let existing members exit, and manage a variety of other unexpected events.
A good contract details all key facts about your LLC. If your company has more than one LLC owner/member, each one likely has a unique job. The agreement should outline each job and set standards to make sure everyone is doing the best they can.
Delaware’s limited liability company laws are very detailed about several subjects, including admission of new members, voting rights, and LLC management. While you are free to use those laws to manage your company, an operating agreement gives you the power to take more control by customizing how your company works.
If you don’t have an LLC operating agreement, then you are leaving the future of your company up to the whims of the state legislature, which might not always give you the result you want.
Here are just a few of the things operating agreements can do for your LLC:
- They determine the rights and duties of LLC members. If one LLC member is responsible for running the business or managing the books, the operating agreement should say so.
- They say what the manager has the right to do. Managers also have special duties to the company and the members. The operating agreement should state these.
- They outline what the LLC is legally able to do. The operating agreement should also set down how the company is allowed to conduct its business from day to day.
- They say how new members can join the company. They also have rules about how exiting members can leave.
- They set down how and when profits are paid to members. They can also create different types of membership and payment schemes.
- They say whether members or managers are in charge. They also say how to hire and fire managers.
- They say how and under what circumstances the LLC should end. You might not want to dissolve your business now, but you might in the future. It’s best to think about it and plan before it becomes an issue.
- They say how to change the rules. You may need to amend your operating agreement in the future. The operating agreement should set down the rules for making changes.
Keep in mind that you don’t file your operating agreement with the state. It’s a private contract that you keep at your company’s office. You can amend and tailor it to fit your LLC’s needs without further oversight.
Step 5: Get an EIN (Employer Identification Number) for Your Delaware LLC
Taxpayers use their social security numbers to identify themselves with the Internal Revenue Service on their tax returns and other documents. LLCs aren’t people, but they do often need unique numbers for their tax documents as well. For those companies, the government uses EINs as a way to track some companies’ tax information.
Here are the most common times when you need an EIN:
- Does your LLC have more than one member?
- Does your LLC have any employees?
- Is your LLC taxed as a C corporation or S corporation?
If the answer to any of the above questions is yes, you will need an EIN. When you apply for a bank account for your LLC (see below), you’ll probably need an EIN for that as well.
The good news is that it’s not hard at all to get an EIN. The IRS has a detailed website on the topic and allows you to apply online. The whole application process takes about five minutes. Alternatively, you can also file IRS form SS-4 via mail or fax.
Because it’s so simple, you should never pay anyone to get an EIN for you unless they are throwing it in as an added benefit to a bigger service package.
First Tasks After Registering your Delaware LLC
Now that your LLC is up and running, you’re almost ready to go. But there are a couple more things you need to take care of first, and they’re just as important as getting your certificate on file.
Open a Business Bank Account
You need to get your LLC its own bank account for several reasons:
- Accounting: You’re in business to make money. You can’t tell if you’re making money unless you know exactly how much your company spends and deposits every month.
- Credit: Even successful companies need to borrow money. You don’t want to use your personal credit, though, for a business expense. Keeping your company’s money separate helps build up company credit that it can use for business purposes.
- Personal Asset Protection: Keeping your company’s money separate from your own is the whole point of even forming an LLC. Without a business bank account, you risk losing that protection.
If you want to make money, good accounting is a must. You must keep detailed financial records about your business, its expenses, and its income. You can’t do that if you are mixing in your own information and money with that of the business. Your LLC’s books are easier to keep with its own account.
Though you may not be worried about it now, getting credit for your business is also important. Sooner or later, you will likely need to make improvements or invest in new technology. When that time comes, the LLC should do the borrowing, not you. Get started building that business credit now.
Legal protection is the most important reason to do your LLC’s banking separately. The main idea of forming an LLC is that if someone sues it or it goes bankrupt, your own assets are not at risk. This company/individual separation is called the corporate veil. (Even though an LLC is not a corporation, it's still called a “corporate” veil.)
If you treat your company’s assets like your own, the veil can be pierced, and you can lose all personal liability protection. So, for example, if you are taking the company’s money and using it to pay your household bills, you could lose all the legal protection that you got by forming your LLC!
Mixing assets is always a bad idea. Go to the bank now and get your LLC its own bank account so you don’t have to worry about it.
Get Business Insurance For Your Delaware LLC
Having your own business can give you a great sense of freedom. It also carries a great deal of risk, though. You need to make sure that you minimize that risk by getting insurance to protect your business against common problems that business owners deal with every day.
Here are some types of insurance you should think about for your LLC:
- General liability insurance: You’ll need this if there's an injury on your property. It pays for damages and a lawyer if you need one.
- Commercial automobile insurance: This works like your own car insurance. It covers drivers and vehicles for your business.
- Workers compensation insurance: Delaware employers must carry workers’ comp insurance for on-the-job injuries to their employees. LLC members do not have to be included in workers’ comp coverage if they don’t want it.
- Commercial property insurance: This protects your property in the event of damage. Keep in mind that flood insurance is often a separate policy.
- Professional liability insurance: Lawyers, doctors, architects, and other professionals need this insurance. It provides coverage and legal defense in the event of a malpractice case.
- Business income insurance: If you have to close for some time, business income insurance can pay back the loss of income. Policies vary, though. Make sure that you know exactly what kinds of losses will be covered.
Keep Your Delaware Company Compliant
Now you’re ready to go. Keep in mind, though, that you still have to make sure that you meet the ongoing requirements of Delaware law. Here are some important items to keep in mind.
Delaware Business Permits and Licenses
You will need to get and maintain a license with the Delaware Department of Revenue (DOR). Make sure you register on the DOR’s website for more details. You should also check with your county, city, and town governments to make sure you comply with their license requirements as well.
Also, certain kinds of businesses will need professional licenses and permits. Check with the Delaware Division of Professional Regulation for more details.
Delaware Tax Requirements
In most cases, Delaware treats LLCs as pass-through entities. This means that they do not pay income taxes themselves, but the members are taxed on the income that passes through to them.
Multi-member LLCs can be treated as corporations for state income tax purposes if your LLC is also set up to be taxed that way at the federal level. If you wish to have this different tax treatment for your business, you’ll need to talk to an accountant or lawyer licensed in Delaware.
LLCs also have to pay an annual franchise tax of $300. That tax is due starting June 1 of the year following the one in which you formed your LLC. See the DOR website for more information.
There are two more important tax issues that you need to handle sooner rather than later. If your business has employees, you’ll need to withhold employment taxes. You’ll also need to figure out and pay a gross receipts tax for your LLC.
Federal LLC Tax Filing Requirements
By default, most LLCs are also considered pass-through business entities for federal tax purposes. Profits or losses from your LLC should be on Schedule C of your personal tax return.
Annual Report and Other Filing Requirements
LLCs do not file annual reports in Delaware. Keep in mind, though, that the failure to timely pay the state franchise tax can empower the state to get a court order stopping your LLC from doing business after as little as three months! So, it is very important to stay in regular contact with the state about tax and filing requirements.
Delaware Business Formation Quick Links
- Delaware County, City & Town Licensing and Permits
- Delaware Code, Title 6, Chapter 18 — Limited Liability Company Act
- Delaware Code, Title 6, Chapter 31 — Trade Names/DBAs
- Delaware Courts — Form Trade Name/DBA Certificate
- Delaware Division of Corporations — Business Name Search
- Delaware Division of Corporations — Expedited Services
- Delaware Division of Corporations — Fee Schedule
- Delaware Division of Corporations — Form Certificate of Formation
- Delaware Division of Professional Regulation
- Delaware Division of Revenue — Business Registration
- Delaware Division of Revenue — Employer Tax Information
- Delaware Division of Revenue — Franchise Taxes
- Delaware Division of Revenue — Gross Receipts Taxes
- Delaware Workers Compensation Insurance Requirement
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
Delaware LLC FAQs
How much does it cost to start a Delaware LLC?
It costs $90 to file your certificate of formation. This will get you a file-stamped copy of the certificate, though an officially certified copy will cost extra.
What is the processing time to form my Delaware LLC?
Processing time varies, but you can expect three to four business days. Expedited service is available for an additional fee.
What are the benefits of a Delaware LLC?
A Delaware LLC protects your personal assets while giving you favorable tax treatment. You can also use an operating agreement to customize your business structure so it best serves the needs of you and the other LLC members.
Where do I check if my Delaware LLC name is available?
Use the free Business Name Search on the Division of Corporations website.