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14 Benefits of Forming an LLC in Delaware

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Over recent years, Delaware has become a business mecca, with Amazon, Disney, and other Fortune 500 companies deciding to move their headquarters to the Blue Hen State.

March 24, 2023
Author: NCH

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To some people, the decision of major companies to move to Delaware seems odd. After all, it is the second smallest state and one of the country’s least populated areas. But what the Blue Hen state lacked in size makes up for its excellent benefits.

Find out why so many companies are moving to Delaware through this blog. We’ll discuss the benefits of moving to the blue hen state for business owners like you.

Why Start an LLC in Delaware?

There are many reasons why 68% of Fortune 500 companies in the US are in Delaware. These include:

Reason #1: Pro-Business Laws

Unlike other states, Delaware has some of the most pro-business laws in the country, like the Delaware General Corporation Law (DGCL) and the Limited Liability Company Act (LLCA).

The blue hen state created the two laws with some of the best corporate laws in the country. The provisions for these laws are regularly updated to ensure they’re at the forefront of the competition.

With such a proactive government, Delaware has created the perfect environment for growing startups.  

Reason #2: Statutory Limitation on Personal Liability

By span>forming an LLC in Delaware, the law protects individual members by limiting their personal liability; if the business faces financial problems or legal issues, the member’s personal assets, such as their homes or savings, are safe from being used to cover debts of the business. 

Delaware’s laws provide a strong legal foundation that gives members confidence in protecting their personal assets. This protection is important for separating business and personal finances to reduce risk among individual members.

Reason #3: Easy and Low-Cost Formation Processes

Another benefit of forming an LLC in Delawarespan> is its easy and low-cost formation processes. The state only has a few requirements for anyone who wants to start an LLC.

You only need to file a cover memo and a Certificate of Formation to the Division of Corporations. Delaware doesn’t require you to have an operating agreement, but we still recommend you create one.

You can file your documents in person or online for $90. If you want to reserve a certain name for your business, you only need to pay $75 to the agency. 

Reason #4: Robust Business Court

Any lawsuits that involve companies go straight to the Court of Chancery of Delaware. The Court of Chancery is the state’s business court, which handles around 1,000 civil lawsuits annually.

Delaware’s business court is different because corporate judges lead it. They are well-known for their expertise and ability to handle legal disputes efficiently. Because Delaware case laws on the subject are well-developed, it only takes them a while to resolve lawsuits. 

Reason #5: Perpetual Existence

Unlike other business structures, such as partnerships, an LLC in Delaware is not bound by the lifespan of its members. The company can continue to exist even if the original members decide to sell their interests or leave the company. 

Moreover, the state’s laws allow the seamless transfer of ownership interests, and the business can continue its operations without interruption. It also simplifies the process of estate planning for members, as the LLC can persist beyond the lifespan of the owners. 

Reason #6: Flexible Tax Policies

Delaware LLCs can change how they want to be taxed by the IRS. For instance, they can get the same tax treatment as partnerships do.

Multi-member LLCs that are taxed like partnerships don’t pay corporate income taxes. Instead, the owners must pay their income taxes depending on their company share.

In other cases, they can also shift their tax treatment to that of an S-corporation, allowing them to have similar tax rules with partnerships. But what makes them different is that they offer more flexibility. 

Reason #6: Customizable Business Structure

Delaware doesn’t require LLCs to be structured in a certain way. You can tailor your LLC’s structure according to the needs and preferences of your business. We suggest you indicate your chosen structure on your operating agreement.

While the state doesn’t require you to have one, it still helps define how you want your LLC to be managed and sets expectations between you and your business partners. 

Reason #7: Strong Asset & Liability Protections

Risk always comes in starting a business. But to encourage entrepreneurs, Delaware has created strong liability and asset protections for them.

LLC owners cannot be held liable if their company falls into debt. Their assets are also protected if the creditors decide to take them away as payment for the company’s dues.

Additionally, if someone decides to sue the LLC, the plaintiff can only file a case against the company, not the owners. These regulations will help protect your interests in the future.

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Reason #8: Guaranteed Privacy

Another worthwhile benefit of span>forming an LLC in Delawarespan> is guaranteed privacy. The state doesn’t require you and your co-owners to share your identities with the rest of the public.

You can run your LLC in full anonymity in Delaware. The only name you must share with the state is your registered agent’s.

Registered agents are designated to handle all your company’s official paperwork. Delaware typically requires them to be residents. However, you can always appoint an employee as your registered agent if stationed within the state.

Reason #9: No Restriction on Foreign Owners

Delaware does not impose restrictions on the nationality or residency of LLC members, allowing for a diverse and global ownership structure. This openness to foreign ownership promotes international investment and collaboration, as businesses can be formed with partners from different countries without encountering legal barriers.

The absence of restrictions facilitates the formation of diverse business partnerships, allowing companies to benefit from a wide range of expertise, perspectives, and resources. It also fosters economic growth by attracting international capital and talent. 

Reason #10: Affordable Annual Fees

Aside from its low-cost registration fees, Delaware’s annual fees are affordable too. You only have to pay a Franchise Tax worth $300 annually. The state also requires you to pay a small fee for your registered agent.

Reason #11: Seamless Conversion to a Corporation

In Delaware, it’s easy to switch from being an LLC to a corporation if your business grows and needs change. This flexibility benefits startups and growing businesses that might require a change in their legal structure as they develop. 

For instance, if an LLC wants to go public, Delaware’s laws allow for a smooth conversion to a corporation without complicated legal processes, helping businesses adapt to new opportunities without unnecessary complications.

Reason #12: Plenty of Tax Breaks

One of the major, if not the most important, benefits of forming an LLC in Delaware is its tax advantages. Companies incorporated in the blue hen state don’t have to pay corporate income taxes.

Apart from these, Delaware does not have the following tax types:

  • Sales tax
  • Investment income tax
  • Inheritance tax
  • Property tax

Even though they have franchise taxes, their rates are relatively lower than in other states. It’s also worth noting that Delaware doesn’t tax intangible income, like trademark royalties. 

Delaware may be the perfect home for you if your company plans on owning a few intellectual properties.

Reason #13: Series LLC Recognition

A series LLC is one big company with smaller companies underneath it. It comes with plenty of advantages, including comprehensive liability protection.

Every series can have different members, and different sets of people can lead them.

Many real estate investors use series LLCs to protect their properties. However, only a handful of states recognize them, including Delaware.

Reason #14: Widely Regarded by All

Thanks to its well-established legal system, business-friendly environment, and extensive corporate law body, Delaware can attract many investors, lenders, and business partners. Many are familiar with the state’s legal framework, which can streamline transactions and foster confidence in business dealings.

The acceptance of Delaware entities is particularly evident in the financial and legal sectors. Banks, investors, and other financial institutions are familiar with Delaware’s legal framework, making transactions involving Delaware LLCs smoother and more efficient. 

Create Your Delaware LLC With Business Specialists

With such a great business climate, Delaware is the place to be if you’re a growing startup. Join today’s leading businesses in Delaware and let NCH help you create your LLC.

NCH’s business specialists are here to help you with our business formation services. From business entity formation to tax planning, we’ll provide all the support you need to kickstart your company in Delaware.

For more information on our services, call us at 800-508-1729 or visit our website here

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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