How to Start your LLC in Delaware

1. Name Your Delaware LLC

A business name is not always easy to come up with. You should have a unique name that is memorable and that which makes sense of what your business is about. You may want to use a number of techniques to come up with a name:

• Choose a Business Idea: Before you give your LLC a name, you must have a notion of what your business will be doing.
• Ask Your Contacts to Recommend Suggestions: Get in touch with people whose suggestions you respect and trust. Describe your business idea and request their ideas on a name.
• Perform a Web Search: When you have some ideas about the name, visit it online. Is the domain name available? Do any other companies exist with operating names that are similar?
• Resort to an Online Business Name Generator: They can act as inspiration and make you look at your business in a new perspective. Remember, however, that these generators cannot substitute human creativity and they may not know the finer things about your business as well as you do.

Your brand name, is your business name and this is what people will have as the first impression of your company, therefore take this step seriously and get it right.

Delaware Check Name Availability

After getting a couple of ideas of business names, you will need to make sure that they are available. The first step is to search the name of a business on the Delaware State Division of Corporation site. You should also use similar business names as you do not want a name that can be easily mixed up with other business in Delaware.

You can also check the LLC naming regulations of Delaware to be sure that you do not violate them.

Check Federal Trademarks

Secondly, verify with the US Patent and Trademark Office (USPTO) to make sure that the name is not federally trademarked and is national.

Reserve your Name in Delaware LLC

After ensuring these, the next good thing would be to reserve the name with the state by filling its Name Reservation form. In order to reserve an LLC name in Delaware, one should go to the Division of Corporations site, and then proceed to the Name Reservation Application.

You will type in the name of your desired business name and press the Search button. In case your name of choice is free, the question will be whether you want to be proceeding with the reservation. Then you will pay by filling in some information. In case you do not already have an online account with the Division of Corporations, you need to develop one.

Doing Business As (DBA)

You might wish to conduct business in a different name other than the legal name of your LLC. In order to do this, you will have to register a doing business as or DBA name.

Suppose you would like to introduce new product lines, such as in the case of your business, which is the Waffles of JJ, and you would like to introduce the Muffins of JJ. In a single LLC, you are allowed to work with a variety of DBAs. You can also open a business bank account in the name of DBA when you use the same.

A DBA is referred to as a fictitious name in the state of Delaware. In the state of Delaware, one has to visit the Delaware Courts webpage and complete the registration form to register a fictitious name. After filling it in, submit the form to the office of prothonotary in every county that you want to register. Within the registration certificates, the date of the time the business was formed and it must be notarized.

DBA filing fee: $25

2. Select a Registered Agent

In Delaware, LLC must designate a registered agent, an individual or a corporation with the mandate to receive and reply to the official business communication like legal, tax, or financial documents.

The registered agent will make sure that no crucial notices and documents are missed. The registered agent may be a member of an LLC, a person, or a business organization in Delaware that satisfies the requirements of the state.

Requirements of Registered Agents

In the state of Delaware, a registered agent should:

• Be 18 years or older
• Location-Physical address in Delaware
• Be on duty at normal working hours
• Have been registered to do business in the state of Delaware, where the business is a business entity

A large number of owners of businesses use a registered agent service to keep their LLC in compliance and to save on the hassle.

By becoming your own registered agent, you have to be physically present at the registered address when doing business. A registered agent service is one where you can be where you need to be to operate and expand your business.

3. Define Your Managerial Structure

Managers or members of the company can manage Member-Managed or Manager-Managed LLCs. In LLCs that are managed by members, all management responsibilities are managed by members. The operations and management responsibilities are managed by non-member employees in a manager-managed LLC.

It is important to note that in a manager run LLC, a member may be a manager, but it must be with another manager who is not a member.

Member-Managed LLC

Member-managed LLCs are effective with LLCs that have not many members and the members are able to participate actively in the day to day running of the LLC.

Manager-Managed LLC

Manager-managed LLCs are superior to LLCs that have several members, at least some of which desire to be silent or passive investors.

The majority of the LLCs are member-managed since they are small businesses that cannot afford a management team.

In the State of Delaware, your LLC is deemed as member managed unless otherwise stated in the Certificate of Formation.

4. Register a Certificate of Formation at Delaware Division of Corporations

The following information will be required to please form your LLC: You will need to file a Certificate of Formation with the Delaware Division of Corporations and provide the following:

Information Required

• LLC name
• Information about registered agents
• Registered office address

Formation confirmation shall be evidenced by the paper work processing after the paperwork.

Contact Information of Delaware Division of Corporations

Delaware Division of Corporations
John G. Townsend Building
401 Federal Street, Suite 4
Dover, DE 19901

Phone: (302) 739‑3073 option 2

5. Creating an Operating Agreement

An Operating Agreement is a legal form and defines the ownership, management duties and responsibilities of your LLC.

Delaware needs an Operating Agreement sometime prior to, during, and or after filing LLC formation documents. The contract can either be implied, written or oral.

Common Operating Agreement Parts

• Name of LLC and primary address (where it is mostly registered)
• Duration of the LLC
• Name and address of registered agent
• Membership information
• Management and voting rules
• Financial issues (profit and loss distribution)
• Change or amendment procedures
• Legal policies and dispute resolution
• Procedures of recordkeeping and communication

Templates of agreement are available on the Internet, whereas it is better to have yours prepared or examined by a lawyer. An operating agreement might include language that is very important in settling conflicts between members and defining obligations.

6. Register Your Employer Identification Number (EIN)

Your company is assigned an Employer Identification Number (EIN) by the IRS to use in filing federal taxes.

An EIN is required if:

• You have more than a single member in your LLC
• You hire employees

To receive EIN, one has to apply on the IRS site.

7. Acquire Business Licenses and Permits

Both Federal, state, and local licenses and permits may be required depending on the type of business you are starting.

Federal Licenses

The federal government normally uses industry-specific licenses and permits at the federal level and it might also be in form of health licenses or permits issued under the Occupational Safety and Health Administration (OSHA). The SBA offers assistance in the federal licensing requirements.

State Licenses

In the state of Delaware, every business is required to acquire a state business license every year in the Division of Revenue. Registration and application is done through the One Stop Business Licensing and registration service.

Other conditions can be enforced according to your industry.

In Delaware, there is neither a state nor a local sales tax, however, there is a gross receipts tax on sales of goods and services. Gross receipts tax is imposed on the total gross revenues of the businesses offering goods or services within the state.

You will also be required to remit payroll taxes to the state in event you have employees.

Local Licenses

In the case of local licenses and permits (e.g. zoning, fire, health) consult the city or county in which your business is located.

Common Requirements

• Licenses that are industry specific
• Zoning and building permits
• DBA allows (trade names registration)
• Health licenses and permits
• Fire and sign permits

Failure to work under necessary licenses and permits may result in huge fines and penalties.

Contact a business lawyer or a company, such as MyCorporation, to investigate and fulfill required licensing.

8. Determine Your Tax Status

The default LLC is a pass-through entity, which implies that the business is not subject to income tax. Rather, the profits or losses are distributed to the individual tax returns of the members.

Default Tax Treatment

Single‑Member LLCs:

The default taxation on an LLC with a single member is that of a sole proprietorship. The LLC income is included in the personal tax filing (Schedule C) of the member and the member is subject to the self-employment tax (Social Security and Medicare) on the income.

Multi‑Member LLCs:

The default taxation of your LLC is a partnership in the event of more than one member. LLC also prepares an informational return (Form 1065), and every member must report his or her proportion of income and deductions on his or her personal tax filing. Members of the multi-member LLCs are taxed as self-employed on their portion of the profits, as in the single-member LLCs.

Optional IRS Elections

LLP may choose to be taxed like a corporation:

C-Corporation Taxation: The LLC will be considered an independent corporation in this case. The corporate rate (21%), which is paid to corporate profits, and the remittance of dividends to the members are taxed again on their personal returns, which is referred to as a double taxation. Nonetheless, dividends are not liable to self-employment tax.

S-Corporation Taxation: The LLC is a pass through entity under the federal tax laws but those members of the company working in the business should receive reasonable remuneration that is liable to the payroll taxes. The remaining profits are distributable without self-employment tax that may save taxes.

Delaware State Tax Implications

Annual Franchise Tax:

Delawares LLCs are required to remit a fixed sum of franchise tax of 300 dollars annually to the Delaware Division of Corporations. This is a tax that has to be paid by June 1st every year and is mandatory whether one does business or not.

Gross Receipts Tax:

Delaware does not charge a general sales tax, however, it charges a gross receipts tax to businesses that sell products or offer services within the state. The Gross receipts tax is based on the total business revenue and the rates are different based on the business activity.

Payroll Taxes:

In case your LLC employs any workers, you are required to pay the state income tax (where applicable) and file unemployment insurance taxes using the Delaware Division of Revenue.

Pass‑Through Income Tax:

The members of LLCs report their income on the personal tax returns of the business. The taxable income distributed through the LLC is subject to the personal income tax of Delaware.

LLC Overview in Delaware - Additional Requirements

Opening Your Business Bank Account

Get your business and personal money apart. In the majority of banks, you will have to provide your EIN and copy of your Articles of Organization. Another bank requirement can be applicable.

Apply to a Business Credit Card

Business credit card can be used to build business credit and settle start up costs.

Get Business Insurance

Insurance is the way to secure your investment. The common forms of insurance are:

• General liability
• Professional liability (Errors and Omission)
• Workers' compensation
• Property insurance
• Business property coverage
• Machinery breakdown insurance
• Commercial auto insurance
• Business Owner's Policy (BOP)

LLC Records

Decentralize all formation documentation, operating agreement, contracts, and financial records to a safe place.

Annual Reporting

Delaware LLCs are not required to submit an annual report once the company is registered but they are required to pay the annual franchise tax amount of 300 dollars annually by June 1st of every year in order to stay in good standing.

Delaware LLC FAQs