Delaware is one of the most preferred states for forming Limited Liability Companies (LLCs) in the US.
This is because Delaware LLCs are appealing to business owners worldwide due to their favorable business laws, great legal framework, and low tax regulations.
Nonetheless, forming and registering an LLC in Delaware is unsuitable for every business.
To help you make the right choice when it comes to your business, we will go over the Delaware LLC Pros and Cons.
Pros of Forming a Delaware LLC
1. Business-Friendly Laws
All LLCs formed in Delaware are protected by pro-business laws found in the state’s legal framework. Furthermore, Delaware courts are well versed in classic business disputes as they have a specialized and comprehensive limited liability company act that argues strongly in favor of the owners.
2. Court of Chancery
Delaware’s Chancery Court is focused on business law and can resolve business issues more expeditiously because no jury trials are required. This enables a far more rapid resolution of business disputes.
3. Strong Privacy Protections
Delaware LLC laws do not include the requirement of disclosing the names of the members or managers, hence increasing their data privacy amidst businesses.
4. No State Income Tax for Non-Residents
A Delaware LLC should not be state-taxed if it does not conduct business within the state. This is beneficial for business owners who operate their businesses residing outside the state.
5. Low Formation Costs
Delaware is a great state to incorporate for those who have LLCs because their LLC fees, franchise taxes, and overall tax structures are quite low. This is favorable for small businesses and new companies. The annual franchise tax however is paid on a flat rate of $300 a year.
6. Attractiveness to Investors
Most investors and venture capitalists are keen on Delaware entities because of the legal system of Delaware. This may give those who want to seek funding an advantage over others if they intend to incorporate it in Delaware.
7. Flexible Operating Agreements
As per state laws, Delaware does grant LLCs the opportunity to incorporate operating agreements that are tailored resulting in its members being able to determine how the management and financing of the company shall be structured.
Cons of Forming a Delaware LLC
1. Dual Registration and Costs
If your LLC business is based outside Delaware, your Delaware LLC will have to file and register under your home state as a foreign LLC. This will incur further charges for registration and yearly compliance in each state.
2. Franchise Tax
Delaware’s tax is minimal however it requires an annual payment of $300 regardless if there are any business activities. It is seen as an additional expense for such smaller businesses or those that don’t have any operations.
3. No Tax Advantages for In-State Businesses
Whenever you operate your business in Delaware, there is an imposition of state income tax. Delaware does not have any particular advantages to do business in particularly when its operations are local.
4. Complex Legal Requirements
Delaware Business Law is fairly convoluted, which is a plus for big businesses, but the majority of small business owners will have a more difficult time dealing with these laws unless there is someone qualified to help.
5. Not Always Necessary for Small Businesses
For small business owners who are only operating in one state, it makes a lot more sense to probably set up an LLC in that state or home state. It must be acknowledged that some of the advantages given by Delaware are suited for larger businesses or those that are spread across the states.
6. Registered Agent Requirement
Anyone who forms an LLC in Delaware is required to have a registered agent who has a physical address in Delaware. If you don’t reside in Delaware, you will have to outsource registered agent service which increases the expenses of maintaining your LLC overall.
When Should You Form a Delaware LLC?
A Delaware LLC might be ideal for you in case:
You’re seeking funding from investors or venture capitalists. Thanks to Delaware’s business laws, your firm can obtain money rather smoothly because they are very favorable for investors.
Your business operates in multiple states or internationally. Such an expansive reach and more in-depth structure are absolutely a perfect fit for Delaware’s business needs.
You value privacy. For those who want to be secluded from other people’s eyes and avoid taking their finances and their documents public, Delaware has more than supportive privacy policies.
You plan to scale quickly. Thanks to the legal and operational policies of a Delaware LLC, it fits Companies that expect to expand very quickly.
You want a robust legal framework. Delaware with a Court of Chancery and existing business laws gives the best legal help to settle any disputes.
You want flexibility in management. A Delaware company enables you to change your operating agreement to meet your desires.
Your business is in technology, finance, or other high-growth industries. These areas usually prefer a Delaware LLC because of their growth potential and the interest they draw from investors.
Taking these factors into consideration can help you understand if Delaware is the right fit for your business and your plans.
When Should You Avoid a Delaware LLC?
You might decide to start an LLC in your local state instead if,
Your business operates solely in one state. If the scope of your company’s activity is restricted to one state, incorporating it in that particular state may save you the time and cost of having to register in more than one state.
You want to minimize costs. The added costs of overseas registration, agents, and taxation as a result of Delaware statutes can be quite expensive.
You’re a sole proprietor or small business owner. For small business entities with not-so-complex or diversified operations, the lure of Delaware competitiveness is overshadowed by the costs of operating there along with the complexities of doing so.
You don’t plan to seek outside funding. If obtaining sponsorships and investing is not an option in your business plan, then the laws beneficial to Delaware investments are irrelevant.
You prefer a simpler process. Most often LLCs that are registered in the local state do not entail the legal measures that are usually required by Delaware state.
You do not need Delaware’s legal system. If your business would not anticipate getting into legal tussles which would require special jurisdictions, then there is more than likely no need for the benefit afforded by the Delaware Court of Chancery.
While it is true that Delaware provides considerable advantages, not all types of business require those benefits as per the analysis of the specific needs and the objectives of that business such as whether an LLC from Delaware would be suitable for them or not.
How EasyFiling Can Help You Form a Delaware LLC
EasyFiling has a background in facilitating enterprises of all sizes in Delaware LLC formation. Following is how we can be of help in the formation of your LLC in Delaware:
Hassle-Free Registration: EasyFiling handles all the documentation that is required to be submitted making sure the registration of the LLC with the Delaware Division of Corporations is done correctly and as required, you do not have to worry about the registration as we will handle it for you!
Registered Agent Services: Thus, due to our services having a Registered Agent as part of it, you can easily comply with the law of Delaware without the need to be physically present there.
Privacy and Compliance: EasyFiling will look after your privacy and make certain your personal information is not revealed in the public record as well as ensure that your LLC will not violate any of the requirements set by Delaware, such as annual payments for franchise tax.
Customized Support: Likewise, we have got you covered no matter whether you want to register an LLC as a new business as well as wish to amend your already registered business, or simply wish to utilize a registered LLC and require us to prepare the operating agreement or deal with other tax issues.
Affordable Packages: EasyFiling has honest rates as well as satisfactory packages to ensure that starting an LLC in Delaware is within reach of everyone.
With EasyFiling joining more things become simpler for you starting from your growth towards other vital details which are legal, documentation, and many more. We aim to allow every business owner and every new entrepreneur to experience as much ease as possible.
Conclusion
In the US, it is a widely known fact that Delaware is ideal for starting up but that isn’t the case for every single local business as the cost and its intricacies may not be countered easily, this state of Delaware is however useful for LLCs formation for those businesses who want to expand across the country and scout for investments.
This is extremely important to have your priorities intact once you are ready to make such a decision, knowing how big is your business what are your business limits or what are your future goals helps here. Your selection of the state also matters significantly and it may make sense to get help from an expert in legal matters or taxes.
If you are thinking about setting up your LLC in Delaware speaking to EasyFiling might just be your best shot. Book a free consultation today to form your LLC in Delaware.
Nabin Adhikari
