Form a Delaware LLC

Form a Delaware LLC

What is an LLC?


The LLC, or limited liability company, is a relatively new type of business structure for businesses in the United States. Unlike the corporate or corporation structure, the LLC structure has only been available since around the 1970’s. In Delaware, one of the most popular states in which corporations are formed, the LLC structure was not available until the 1990’s.

LLCs have a lot of flexibility in how they can be used. They can be used by businesses run by a single individual or by multiple individuals. They can be managed by the members of the LLC, or they can be managed by a designated manager or managers.

The articles of organization and operating agreement set the governance rules for an LLC, just like the articles of incorporation and bylaws set the governance rules for corporations.

The articles of organization and operating agreement set the governance rules for an LLC, just like the articles of incorporation and bylaws set the governance rules for corporations.

Reasons to form an LLC in Delaware


There are many reasons why it makes sense for businesses to form an LLC and use the LLC structure. Some of these reasons are:

Liability protection

As mentioned above, when a business properly takes advantage of the LLC structure, the members of the LLC generally are not liable for the actions of the LLC. In other words, the liability of the owners will not exceed the amount they invested into the business.

Flexible tax management

When it comes to taxes, LLCs are more flexible than other business forms.

LLCs can be treated as a pass-though or disregarded entity, meaning they do not end up paying income taxes twice. Compare this with the corporation structure, where income taxes might have to be paid both by the corporation itself, and also the owners of the corporation when business income is distributed.

Moreover, if correctly worded in the operating agreement for the LLC, profits and losses can be allocated differently among the LLC members, possibly helping the members save on their own personal income taxes.

Privacy

The owner of a sole proprietorship, or the owners of a general partnership, often have to sacrifice privacy in order to operate the business. The best they can do to conceal their identities is to file a fictitious business name (FBN) statement, commonly known as a “d.b.a” or “doing-business-as.” However, that document is a public record and, if retrieved, will show the true names of the business owners.

Depending on the state, or jurisdiction, where the LLC is formed, the owners of an LLC can keep their identities completely private.

Professional

Operating as an LLC conveys to vendors, customers, and employees, that the business is trustworthy and professional. For businesses that want to make a good, impactful first impression, forming and using an LLC can definitely help make that impression.

How to form an LLC in Delaware


Several steps must be taken in order to properly form an LLC:

Choose a location

Before forming an LLC, it is important that the business first determine where the LLC should be based. The LLC does not necessarily need to be formed in the same state where business is being conducted.

Choose a name

After choosing the state where the LLC should be formed, the business then needs to choose a name for the LLC. Different states have different rules that control what names can be used for LLCs. Generally, LLC names must:

  • Not already be taken by another business.
  • Not be confusingly similar to the name of another business.
  • Identify that the business is operating as an LLC, for example, by appending “LLC” or “limited liability company” to the end of the company name.

Choose a registered agent

Every LLC must designate what is known as a “registered agent,” sometimes known as a “statutory agent.” The registered agent is an individual or entity (for example, a corporation) that receives legal documents on behalf of the LLC.

The registered agent for an LLC must be located in the state where the LLC is formed. However, the registered agent does not need to be involved in the day-to-day operations of the business. In fact, if privacy is important to the business owners, someone completely unrelated to the business should be designated as the registered agent, since the identity of the registered agent is a matter of public record.

Put together an operating agreement

The operating agreement for an LLC is one of the most important documents for an LLC. But, it does not need to be overly complex and can be prepared by a company that specializes in forming LLCs.

The purpose of an LLC operating agreement is to, among other things, make the rights and responsibilities of the LLC members clear.

Like its name suggests, the operating agreement is the agreement among the LLC members on how the LLC should be operating.

File the articles of organization

In order to actually create an LLC into existence, a document known as the articles of organization (known in some states as the articles of formation) must be filed with the Secretary of State in which the LLC is formed.

While the name “articles of organization” might suggest the document is complicated, in actuality, it is a quite simple document. Most states provide a 1- or 2- page articles of organization form online that can be printed and filled out. Some states even allow the articles of organization to be filed online.

The articles of organization do not need to be filed by the actual owners of the LLC or anyone else involved in the business. Again, if privacy is important to the business owners, the articles of organization should be completed and filed by a third-party (an organizer), since the articles are public record.

Who should start an LLC in Delaware?


Almost all businesses should at least consider using the LLC structure to take advantage of the many benefits it offers, just some of which have been discussed above.

Although businesses can form an LLC on their own, it is recommended that they work with a company that specializes in organizing LLCs. These companies can use their experience to make sure everything goes smoothly. Often, these companies can act as a registered agent and offer other services, such as mail forwarding, that can make it easier for businesses to operate as an LLC.