An LLC is a limited liability company. LLCs are a business structure that is formed in the United States to avoid liability for the owners of the corporation. After forming an LLC, the owner or owners are not responsible for the company's debts or liabilities. Limited liability companies are considered hybrid entities. They combine both the characteristics of a corporation, with the characteristics of a partnership or sole proprietorship.
Reasons to Form an LLC
Entrepreneurs start an LLC so they can get all of the benefits that come along with it such as:
The number one reason people start an LLC is for its liability protection. When you form an LLC you limit your personal liability for business debts. Only the assets that are owned in the name of the LLC can be claimed by business creditors. The same goes for lawsuits against the business. The personal assets of the owners of an LLC cannot be claimed to satisfy any business debts.
Flexible Tax Management
LLCs have the option to be taxed as a corporation or an S corp to get the best tax advantages. You can avoid double taxation and corporate franchise tax by electing to be taxed as an LLC. As a small business owner, I have to pay taxes on profits but have plenty of tax deductions that can be written off. All of the profits or losses will be passed onto the members (owner), similar to what would be done in a partnership or sole proprietorship.
If formed anonymously, starting an LLC can help you to stay completely private. This can be done by forming an Anonymous LLC. Although it will not prevent you from paying taxes or hiding ownership information from the IRS, it can help to keep your holdings out of your personal name and keep them in the name of your business. This hides the name from public records protecting your assets from a lawsuit.
An LLC can bring your partnership or sole proprietorship a much more professional look. It gives your business a title and makes it much easier to raise capital. Not only will it reassure customers that you are a legit business but also help you get the funding you need to grow your company.
How to Form an LLC in Delaware
Choose a Location
Typically when you choose a location in which to form your LLC you will want to choose your home state. For most readers, the location of your LLC will be Delaware. Other popular states to choose from are Wyoming, New Mexico, Nevada, and Delaware, due to forming laws and fees.
Choose a Registered Agent
The registered agent is often called the statutory or resident agent. LLCs are required to have a registered agent who agrees to accept legal papers on behalf of the LLC. This is important if you are sued.
The registered agent must have a physical street address that is registered in the state where the LLC exists. There are private companies that you can pay to be your registered service agent as well for a fee. Any member of an LLC can act as a registered agent as well.
Form the Articles of Organization
When creating a Delaware LLC you must file the Articles of Organization with the Delaware Department of Licensing and Regulatory Affairs.
Delaware Articles of Organization Requirements
- Name of the LLC
- Purpose of the LLC
- Duration of LLC, whether that is perpetual or for a specified period of time
- Name and address of the LLC’s registered agent
- The effective date of filing the Articles if later than the date of filing
- Signature and phone number of the LLC's organizer.
The filing fee in Delaware is $50.
Choose a Name
Although requirements vary from state to state, Delaware’s LLCs name requirements are pretty standard compared to other states.
Delaware LLC Name Requirements
- That your LLC’s name ends with an LLC designator. This might include Limited Liability Company or Limited Company, or an abbreviation of one of these phrases.
- That the name can not be the same as any other LLC or business in your state.
- You may reserve a name for six months by filing an Application for Reservation of Name with the Delaware Department of Licensing and Regulatory Affairs. This will cost $25.
In most states, both the person forming the LLC and the registered agent must sign the Articles of Organization. The Articles should then be submitted to your state's business filing agency. Depending on the state, some Articles can be filed online while others may need to be submitted in person.
Create an Operating Agreement
An LLC operating agreement is not required by the state of Delaware. Despite this, it is highly advisable to do so. This document is for the LLC and establishes the order of how your LLC should be run.
This document sets out all of the rights as well as the responsibilities of each member and manager. These are essentially rules of how the LLC will be managed and can be a way to preserve limited liability if necessary. If you do not have an operating agreement, the LLC law of Delaware will govern how your LLC operates.
Who Should Start an LLC?
LLCs are a great option for anyone who owns a business and wants to keep personal property safe in case of a business liability issue. They are a great way to get your startup off the ground and give it a more professional look and feel.
Forming a Delaware LLC can be confusing at times, that is why it is best to work with an agent to make sure everything is done right. If you are looking to start an LLC in Delaware, contact us today!