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How To Set Up An Llc In Delaware
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This post is for information only. You are responsible for reviewing and using this information appropriately. This content does not contain and is not intended to provide legal, tax or commercial advice. Requirements are updated frequently and you should ensure you do your research and access legal, tax and business advisors as necessary. Businesses outside of Delaware have different steps and requirements. In order to sell Products using the Platform, you must comply with your business laws, your customers’ powers, Terms of Service, Acceptable Use Policy, and any other applicable policies.
Delaware may be a small state, but its offerings when starting a business are solid. The state is located near a number of East Coast metropolitan areas, including Philadelphia, Washington, D.C., and New York. And its tax system is very entrepreneur friendly, with no sales tax and low state taxes – more than a million organizations call the state their legal home because of its low taxes. This guide will walk you through how to start an LLC in Delaware.
Limited liability companies (LLCs) are a common type of business entity in the United States. LLCs can be formed by one or more owners, called “members.” Multi-member LLCs are called multi-member; With one owner, a one-member LLC. The main structural advantage of operating an LLC is that its members are protected from many of the obligations and debts incurred by the company. Members are not personally liable for claims against the Company.
The federal government’s tax treatment of LLCs is also a major advantage of this type of structure. LLCs are considered “pass-through” entities (like sole proprietorships or partnerships), so the income they generate is taxed once at each member’s individual income level. This differs from how the federal government treats corporations, which pay taxes on business income and dividends distributed to individual shareholders.
Delaware Company Incorporation Steps
Whether you want to set up a Delaware LLC or another form of business entity, the decision will ultimately depend on your needs as a small business owner. An LLC may be the right structure for you if you are looking to reduce your business liability risks and tax liabilities. However, if you are looking to fund a company by issuing shares, you need to keep at least two additional considerations:
Before anything else, create a viable business idea for your LLC. Do you offer a product, service, or a combination of both? Will you sell direct-to-consumer or business-to-business (B2B) sales? Other ideas you may want to do to improve your business idea:
One of the most important decisions a Delaware LLC owner will make is choosing the name for your LLC. There are several guidelines to be aware of when naming your LLC in Delaware:
A well-prepared small business depends on complete business plans. Delaware LLCs are no exception to this rule. A viable business plan includes the name of the LLC and a description of how it will operate. Other components include a detailed market analysis, a detailed organizational structure chart, a description of any products or services to be marketed, target customer profiles, and marketing, logistics and financing plans.
Guide To Incorporating A Business In Delaware
For tax purposes, each Delaware LLC must be assigned a federal Employer Identification Number (EIN). You can apply for an Employer Identification Number (EIN), which identifies your company to tax authorities at the state and federal levels, for free through the IRS website.
After choosing a unique name for your LLC, it’s time to register it with the Secretary of State’s office, which oversees the authorization of all businesses in Delaware. To register in the state, you need to file a Certificate of Formation with the Delaware Division of Corporations. You can do this online or by regular mail. The information required in the filing includes:
Once you submit and pay the $90 filing fee, the Corporate Division will review the filing, and if approved, your LLC will be a fully formed legal entity in the eyes of the state.
As in every other state, a Delaware LLC must appoint a registered agent to receive legal documents and service the process on behalf of the business. Delaware registered agents can be an individual, such as an owner or employee of an LLC, or a corporation that provides registered agent services. If a corporation is to be appointed, it must meet the following two criteria:
How To Change Your Delaware Registered Agent For Free
Many LLCs formed in Delaware benefit from favorable tax law but do not do business in the state. If your LLC is one of these companies, you do not need to obtain a business license or register with the Department of Revenue. If your LLC will conduct business in the state, you can obtain your business license through Delaware’s One Stop Business Licensing and Registration Service or complete and file a Delaware Consolidated Registration Application (CRA) form. If necessary, a $50 application fee is required to obtain your Delaware business license.
When it comes to federal taxation, Delaware LLCs that choose to be taxed as pass-through business entities are taxed only on the members’ personal income levels. LLCs that choose to be recognized as S corporations, which allows them to distribute a limited number of shares, will also pay taxes on corporate income. For tax purposes, Delaware treats LLCs like the federal government.
What makes Delaware unique is its lack of state and local sales taxes. However, if you do business in Delaware, the state imposes a gross receipts tax on businesses that sell goods or services in the state — essentially a tax on gross revenue from the company’s sales. These gross revenue tax rates can range from around 0.09% to 1.99% depending on the nature of the business. Also, for LLCs with employees, Delaware requires them to withhold and pay state income tax on wages. For wages up to $3,600, the withholding tax must be paid quarterly; Between $3,600.01 and $20,000, they must be paid monthly; And for wages over $20,000, it must be paid twice a week.
Although LLCs do not have to file an annual report in Delaware and pay annual franchise tax, they must pay a flat annual tax of $300. There are special taxes that Delaware LLCs may also have to pay, depending on their areas of business:
Moving Business To Delaware
An operating agreement is a legal document that outlines your LLC’s ownership, organizational structure, and operating procedures. Delaware LLCs are not required to file or prepare operating agreements internally. But for organization and goal setting, it can still be useful to have on hand. The following are the types of details included in an operating agreement:
Purchasing insurance for a Delaware LLC is critical to managing business risk, freeing you from stress in order to better focus on growing the company. Generally preferred insurance plans for businesses in Delaware include:
In addition to purchasing insurance for your Delaware LLC, you may need to make additional financial investments to start the business. This may include renting a brick-and-mortar retail space, paying for a professionally designed website and social media services, and purchasing equipment and software. In addition to employee salaries, you can hire contractors and other professionals to support business operations, such as attorneys and accountants. Resources are available to help entrepreneurs raise startup funding to help with these costs.
Finally, after all the administrative considerations have been finalized, it is time to market your LLC. A solid marketing plan lays the foundation for your Delaware small business, with the goal of building brand awareness and future growth. The main parts of a practical marketing plan include:
How To Start An Llc In Delaware For $0
At a minimum, setting up an LLC in Delaware will cost $90, which is the formation filing fee. If you want to do business in Delaware, and not just incorporate there, there is an additional $50 to obtain a business license. Finally, expect to pay an annual $300 state LLC tax.
The LLC must designate a Delaware registered agent—either an individual or agency with a primary business address in the state, or an individual or agency with one or more places of business in the state.
In addition to your flat annual tax of $300, you will pay tax on the total receipts for all sales of goods and services by your Delaware LLC.
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Starting An Llc In Delaware—benefits And Costs
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