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.

Angel investors vs. other types of investors

Before pursuing funding from angel investors, familiarise yourself with other types of startup investors. Here's an overview of investment options:

• Venture capitalists: Venture capitalists (VCs) are firms or individuals that invest in startups showing strong potential for growth, usually in exchange for equity. Unlike angel investors, they typically invest during the later stages of a startup's development, after the business has shown some market traction. VCs invest larger sums of money than angel investors and are usually more involved in the direction of the company. They seek substantial returns and typically have a more aggressive view toward scaling the business and achieving an exit within a specific timeframe.

• Seed funds: Seed funds are specialised VC funds that focus on early-stage investments, often before angel investment and larger VC rounds. They invest in startups that have moved past the conceptual stage and have a minimum viable product (MVP) or some initial traction.

• Incubators and accelerators: These programs support early-stage companies through education, mentorship and financing. Incubators focus most often on the initial development phase, helping entrepreneurs turn ideas into a viable business. Accelerators, on the other hand, look to scale up the growth of existing companies over a short period of time.

• Corporate investors: Some corporations invest in startups to access innovative technologies, enter new markets, or nurture strategic partnerships. These investors can offer ample resources, but they might seek more than just financial returns, such as an ownership stake in the technology or control over the company's direction.

• Crowdfunding: This involves raising small amounts of money from a large number of people, typically through online platforms. Crowdfunding can be a good option for startups that want to validate their product with a broad audience, interact with potential customers and raise funds without giving up equity or incurring debt.

• Government grants and subsidies: In some sectors – particularly those involving scientific research, clean technology, or social impact – government grants and subsidies can provide funding without diluting equity.

• Peer-to-peer lending and debt financing: Debt financing includes loans from financial institutions or peer-to-peer lending platforms. This type of financing is typically more challenging for early-stage startups to secure and it obligates a startup to repay the loan, with interest, but it doesn't dilute ownership.

• Family offices: High net-worth families often have private wealth management advisory firms, known as family offices, that directly invest in startups. These investors can provide substantial funding and might be interested in longer-term investments compared to traditional VCs.

• Angel groups and syndicates: Unlike individual angel investors, angel groups or syndicates pool resources to invest in startups. These groups can provide larger sums of capital and combine the expertise and networks of multiple investors.

Each type of investor offers different advantages, expectations and levels of involvement. Startups should carefully consider their stage of development, industry, funding needs and the kind of strategic relationships they want to grow before deciding which type of investor to work with.