Delaware is often the preferred US state for forming limited liability companies (LLCs) because of its business-friendly legal environment. The state has a specialised court called the Court of Chancery that exclusively handles business disputes. This court operates without juries, providing quick and expert resolutions, and it uses judges knowledgeable in business law – often leading to more predictable legal outcomes that are favourable to business. Delaware’s laws also provide strong protections against personal liability for company directors, which makes it an even more attractive locale for risk-averse owners.

Delaware is also popular for the financial benefits it offers businesses. The state doesn’t impose corporate income tax on companies that operate outside its borders, even if they’re incorporated there, which can yield serious tax savings for companies that conduct business across states. The state also ensures a high degree of privacy for owners and doesn’t require them to disclose their identities in public filings. These factors, combined with the efficiency and relative predictability of Delaware’s legal system, make it a compelling choice for many businesses.

However, there are costs and fees involved with forming a Delaware LLC. Below, we’ll break down the financial obligations commonly associated with forming and maintaining an LLC in Delaware.

What’s in this article?

• How much does an LLC cost in Delaware?
  
• Cost breakdown for a Delaware LLC
  
• How to incorporate an LLC in Delaware
  

How much does an LLC cost in Delaware?

The minimum cost to form a Delaware LLC is $110 for the state filing fee. You should budget for additional expenses such as the franchise tax, registered agent fees, and fees for any applicable business licences or professional services.

Cost breakdown for a Delaware LLC

The cost of forming and maintaining a Delaware LLC includes several types of fees, outlined below.

State filing fees

• One-off fee for a domestic LLC

• One-off fee for a foreign LLC

• One-off fee for a certified copy of your Certificate of Formation

Registered agent fee

• Annual fee set by the registered agent, which accepts legal documents and government correspondence on behalf of the business
  

Franchise tax

• Annual fee, due by 1 June each year
  

Business licences

• One-time fee set by the specific industry and location jurisdiction

• Might be required, depending on the nature of business and local regulations

How to incorporate an LLC in Delaware

To incorporate an LLC in Delaware, follow these steps.

Choose a name

Select a unique name that complies with Delaware naming guidelines. It must include the words “Limited Liability Company” or the abbreviations “LLC” or “L.L.C.”

The name cannot be identical or deceptively similar to an existing business entity in Delaware. You can check name availability on the Delaware Division of Corporations website.

Appoint a registered agent

Designate a registered agent who will receive legal documents and official correspondence on behalf of your LLC. The registered agent must have a physical street address in Delaware and be available during normal business hours. You can hire a registered agent service or act as your own agent if you have a Delaware address.

File a Certificate of Formation

Prepare and file a Certificate of Formation with the Delaware Division of Corporations. The certificate must include the LLC’s name, the registered agent’s information, and the purpose of the business.

You can file online or by post, and the filing fee is $110 (as of 1 August 2024).

Create an operating agreement

Although not legally required in Delaware, creating an operating agreement is strongly recommended. This document outlines the ownership structure, management roles, operating procedures, and other important aspects of your LLC. It helps prevent disputes and provides clarity on how the LLC will be run.

Obtain an EIN

Apply for an Employer Identification Number (EIN) from the IRS. This number is used for tax purposes and is required to open a business bank account and hire employees.

Pay the franchise tax

Delaware LLCs must pay an annual franchise tax, due by 1 June each year. This tax is a flat fee regardless of your LLC’s revenue or activity. There is no requirement to file an annual report.

Comply with ongoing requirements

Maintain compliance with Delaware’s ongoing requirements for LLCs, such as maintaining a registered agent and paying the annual franchise tax.

17. Consider business loans

Using business loans as a part of your financial strategy can be a powerful step to expedite your business growth. Here's how to approach this step:

• Determine your need for a loan: Before jumping into the loan application process, assess whether you have a genuine need for a loan. Maybe you need funds for expanding your operations, buying equipment, increasing inventory, hiring staff or smoothing out cash flow. Getting clear about your business's financial needs can help you make a more informed decision about applying for a loan.

• Research different types of loans: There are different types of loans available for businesses, from traditional bank loans and Small Business Administration (SBA) loans to alternative online loans and lines of credit. Each type comes with its own terms, interest rates and requirements. The right choice for you will depend on your specific needs, financial situation and the stage of your business.

• Consider eligibility requirements: Lenders have varying criteria for approving loans. These can include factors such as your credit score, business revenue, the profitability of your business and how long you've been in operation. Before applying for a loan, carefully check these criteria to see if you qualify.

• Prepare your loan application: Once you've chosen a type of loan and confirmed that you meet the lender's criteria, the next step is to prepare your loan application. This involves compiling financial documents such as your business plan, financial statements, tax returns and details of your collateral. You may also need to present a plan outlining how you intend to use the loan and how you will repay it.

• Compare loan offers: If your loan application is approved, you may receive offers from different lenders. Consider each offer's terms carefully, including the interest rate, loan amount, loan term and any additional fees. Be sure you understand the total cost of the loan and how the repayment terms align with your business's financial projections.

Taking on debt is a serious commitment that demands careful planning and consideration. For additional guidance throughout the process, consult with a financial advisor or mentor.

There's no easy shortcut to starting a business. Cutting corners or skipping steps in the early days can create unnecessary friction, confusion or even legal liability down the road. But while much of the work that goes into starting a new business might seem tedious, it's not overly complicated. If you take a thoughtful and methodical approach to this process, and address each step in the correct order, you'll build a foundation that can support all the goals and dreams you have for your business – exactly what motivated you to begin this journey in the first place.