How to Start an LLC in Delaware

The state of Delaware is a beacon for entrepreneurs with its lack of sales tax, business-friendly laws and court system, diversified economy, and access to a highly skilled workforce. You might even be surprised to know that many of the most recognized brands, like Apple and Amazon, were actually incorporated in the state. 

Whether you aspire to run a Fortune 500 company or a single-member limited liability company in the U.S.'s second smallest state, these steps will set you up for success.

How to form a Delaware LLC in 6 steps

Forming an LLC in the Small Wonder state requires a strategic approach. Use our steps to establish a strong footing. 

Step 1: Name your Delaware LLC

You'll need to choose a name to include in your articles before you can register your LLC. All legal business entities in Delaware (including limited liability companies) need to adhere to the state's business naming guidelines.

As per Delaware's Limited Liability Company Act (6 Delaware Code § 18-102), the following are the most important requirements to keep in mind:

• Your Delaware LLC name must include the words "Limited Liability Company," "LLC," or "L.L.C."
• Your name must be different from an existing business in the state. You can perform a Delaware LLC search on the Secretary of State's Entity Name Availability database to determine if a particular business name is in use. 
• The LLC name cannot contain words used to name a government agency (i.e., State Department, CIA, FBI, Treasury, etc.)
• Certain restricted words (bank, lawyer, attorney, credit union, etc.) may require additional documentation and licensure paperwork.
• Your LLC can't contain the words "incorporated" or "Inc." as it's not a corporation.

Optional: Reserve a business name

If you aren't ready to register your LLC but are concerned your desired business name might be taken by someone else, you can reserve the name for 120 days with the Delaware Division of Corporations for $75.

Step 2: Choose your registered agent

A registered agent is the person or entity authorized to accept service of process and other official legal documents and notices on behalf of your LLC. Delaware requires you to appoint a registered agent for your LLC formation—there's no way to bypass this requirement.

A registered agent can be a person (including yourself or an employee of your LLC), another entity (like another LLC, a corporation, trust, or foreign entity authorized to transact business in Delaware), or a business that offers a registered agent service.

A Delaware registered agent must meet the following criteria:

• The agent must have a physical address in Delaware.
• The agent must be on-site and available to accept documents during regular business hours (9 a.m.–5 p.m.).
• The agent, if an individual, must be above the age 18.

While Delaware allows you to be your own registered agent, the additional administrative paperwork and time commitment easily overshadow the cost savings. LegalZoom, which complies with the state's agency regulations, can serve as your Delaware registered agent for just $249/yr.

Step 3: Prepare and file the certificate of formation

The certificate of formation (commonly called articles of organization in other states) is a document that officially establishes your LLC by laying out basic information about it.

To prepare your certificate of formation and file it with the Delaware Division of Corporations, you will need the following information:

• The legal name of your Delaware LLC
• The name and address of the LLC's registered agent
• The date of formation of the LLC 
• The name and signature of the organizer

Submit the completed certificate of formation online using the state's Document Filing and Certificate Request service. The filing fee for domestic Delaware LLCs is $110, and $200 for foreign LLCs (those incorporated in another state and seeking to do business in Delaware). If you wish your paperwork to be processed the same day, you will need to pay an additional $100.

Once you file your certificate of formation, the Delaware Division of Corporations will review the filing. If the certificate is approved, the LLC becomes a legal business entity. The state will issue you a certificate that confirms the LLC formally exists. This certificate will allow the LLC to obtain an employer identification number (EIN), business licenses, and a business bank account.

Step 4: Create an operating agreement

The Delaware Secretary of State does not require an operating agreement, but it can be an important component of your business. Having a readily accessible, written operating agreement is helpful for various reasons, including settling disputes and laying the framework for how your business will operate. Without an agreement in place, the courts make determinations based on state law, not necessarily what is in the best interest of the LLC and its members.

The operating agreement can include, but is not limited to, the following:

• Purpose of the business
• Members and their contribution
• The way profits and losses will be divided
• Procedures for admitting new members, as well as offboarding outgoing members
• Management of the LLC
• Indemnification and liability clauses

Many small businesses gravitate towards using an operating agreement template as a way to save costs, but these ready-made agreements aren't always enough. LegalZoom's operating agreement drafting service can help you draft a tailored plan, or our network of licensed business lawyers in Delaware can help you draft an agreement that goes into even more detail.

Step 5: Get an employer identification number (EIN) and open a business bank account

The purpose of the nine-digit federal identification number assigned by the Internal Revenue Service allows you to do the following:

• File and manage taxes at the state and federal level
• Open a business bank account
• Hire employees

A Delaware LLC owner can opt to use their Social Security number for tax purposes, if they wish. Securing a separate EIN strengthens the line between your business and your personal finances.

Optional: Open a business bank account 

Opening a business bank account for your LLC automatically increases your personal liability protection. A dedicated business account makes tracking sales and expenses, claiming deductions, and making financial projections a whole lot simpler. Investors and other funders also look more favorably upon businesses that don’t mix their personal and business finances.

Step 6: Register for state taxes and licenses

Next, you must register with the state for licenses and taxes. This will allow you to officially operate in the state and withhold the proper taxes. This can be done through the state's One Stop Business Registration and Licensing Portal. You can secure a Delaware business license from the Division of Revenue for $75.

If your business involves employees, you can use One Stop to sign up with the Delaware Division of Unemployment Insurance and the Division of Workers’ Compensation—requirements for all LLCs with employees.

Next steps after forming your Delaware LLC

Registering your LLC gives you a legal foundation to conduct business, but there are a few more housekeeping items that will help your Delaware LLC thrive.

Get necessary licenses and permits

In addition to a state business license, your business may require additional state and local licenses and permits. This can include health department permits, zoning permits, home occupation permits, professional licenses, and more. You can check the need for local and county-based licenses by contacting your local county office or working with a license lookup provider like LegalZoom.

Certain professionals, like accountants and engineers, must register with the state's Division of Professional Regulations.

Register a domain name

Build credibility and online visibility by creating a small business website. Just remember to register a domain name that matches your LLC's name. It will make it easier for customers to find you. You can register an available domain name through Wix.

Maintain compliance

Most states require businesses to regularly confirm and update important information, often through a mandatory annual report or biennial report. Fortunately, Delaware LLCs are exempt from filing annual reports. Delaware LLCs are also not required to pay a franchise tax. However, they do have to pay an annual tax of $300. The deadline to pay this tax is June 1, and an online payment option is available.

Obtain a certificate of good standing

A certificate of good standing or certificate of status shows the world that you're a responsible business owner legally authorized to conduct business in the state. Investors, vendors, and clients may request your certificate before they choose to do business with you. A certificate of good standing is also necessary for expanding your business beyond Delaware's state borders.

You can request a certificate of status online or via mail. A short-form certificate (which only includes entity name and status) is $50. A more detailed, long-form certificate costs $175.

Understand federal and state taxes

Every business owner needs to understand and fulfill their tax obligations. In Delaware, you have to consider the following:

• Gross receipts tax. Delaware LLCs aren't subject to state or local sales tax, but they do need to pay gross receipts tax if you sell goods and have employees. The rate ranges from 0.0945% to 1.9914%.
• Self-employment taxes. All LLC owners must pay the federal self-employment tax of 15.3%.
• Income tax. LLC owners who are Delaware residents must pay income tax on their business earnings (which can be reported on their personal tax forms). Income tax ranges between 2.2%-6.6%.

Consider a foreign LLC

Your LLC requires permission—called foreign authorization—in every state outside of Delaware where it wishes to conduct business. Foreign authorization gives you legal authority to operate in the new state. The process and cost of filing as a foreign LLC varies by state, but you can get help from a business formation service to navigate the filing requirements and fees.

The cost of forming an LLC in Delaware

It can cost anywhere from $100–$2000 to form a Delaware LLC. Let's take a closer look at all of the LLC formation costs.

• Name reservation. Any business entity needs to pay $75 to Delaware Division of Corporations to reserve a business name for 120 days.
• Doing business as (DBA) certificate. You need to pay $25 for each county in which you wish to use an alternate business name.
• Certificate of formation fees. Delaware LLCs have to pay a minimum filing fee of $110. Expedited service adds an additional $50–$100. 
• Registered agent costs. A professional Delaware registered agent can cost between $50–$300 per year.
• Annual tax. All Delaware LLCs have to pay an annual tax of $300 regardless of their business size or industry.
• Insurance. There’s no one size fits all when it comes to insurance costs in Delaware. For instance, general liability insurance can be as low as $19 for a low-risk small business. You can get a quick quote through NEXT Insurance. 
• Certified forms. There is a $50 charge to receive a certified copy of any official government form.

How to start your LLC in Delaware with LegalZoom

Starting an LLC may seem straightforward, but a few missteps (like forgetting to list a registered agent) can hinder your entrepreneurial dreams or set you up for trouble. Let LegalZoom handle the details of your business formation. Our streamlined services have supported more than 4 million small business owners in their journey, and we can do the same for you.

FAQs

What are the benefits of a Delaware limited liability company?

Delaware is known to have the most progressive business court system in the United States. Combine that with its diverse economy, highly skilled workforce, and proximity to major ports, and you will see why most companies decide to form their business in the state. Another plus is that one doesn't need to be a Delaware resident or U.S. citizen to form and operate an LLC in Delaware.

Do I need a business license for my Delaware LLC?

Yes, Delaware requires you to get a state-level business license to officially conduct business in the state. Depending on your location and business type, you may also need a local business license.

How long does it take to form an LLC in Delaware?

The state of Delaware is pretty efficient in processing LLC formation documents. You can receive your confirmed LLC paperwork the same day if it is filled out accurately.

How do I correct filing errors in DE?

To amend any filing errors like a misspelled name or address, you need to submit a certificate of correction and a cover letter to the Secretary of State office. The filing fee for this form is $220.

How do I dissolve a Delaware LLC?

Think it's time to pull the curtains on your LLC? You need to inform the state about your dissolution by filing a certificate of cancellation and paying the $220 processing fee. If you don't inform the state of your decision to close, you'll still be liable for paying applicable state taxes and the annual tax of $300. LegalZoom can handle your company's exit smoothly and correctly.

Rudri Bhatt Patel contributed to this article.