Delaware LLC Advantages
- Simple and Secure
Of all the LLCs in the known universe, the Delaware LLC is by far the simplest to form. The Delaware Division of Corporations requires only a minimal amount of information in an LLC’s formation documents (called the Certificate of Formation). This small amount of required information not only makes it easy to start an LLC in Delaware, but it also helps to keep your identity and personal information secure. Since much of your personal information isn’t required to form an LLC in Delaware, your information won’t be published on public documents. And, LLCs in Delaware don’t file annual reports, so even after your Delaware LLC is formed, your information will remain secure.
- Tax Exemptions
As the most business-friendly state in the US, Delaware is oftentimes referred to as a tax haven. While this is a misnomer, Delaware actively tries to maintain a healthy business atmosphere and offers benefits that other states don’t, all of which an LLC can take advantage. Our state doesn’t tax “intangible income” (like patent and trademark leases), which has made Delaware an attractive state in which to form holding companies (LLCs and corporations formed to “hold” assets, intangible or otherwise). Our state has also created incentives for LLCs formed in Delaware that don’t operate in Delaware. For example, according to § 1902, you’ll pay no state income tax as long as your LLC in Delaware doesn’t do business in Delaware.
- No Double Taxation
Operating as a Delaware LLC gives you flexible taxation options. An LLC in Delaware can choose to be taxed as a pass-through entity, an S corp, or a C corp. Corporations in Delaware and elsewhere are by default taxed as C corporations. For many small businesses this tax structure doesn’t make sense, as C corp profits can be taxed twice (once as corporate income, a second time as personal income). Delaware LLCs, by default, aren’t taxed that way. LLCs in Delaware pass profits directly to their members, and the LLC’s profits are taxed only once, as the members’ personal income. However, LLCs can also opt to be taxed as an S corp or a C corp if the members choose, adding to the LLC’s flexibility as a business entity.
- Strong Business Laws
One of the most attractive features of starting an LLC in Delaware is that our state offers the best-known, most-carefully-studied business laws in the US. Because of Delaware’s long history as the nation’s leader in business formation and business law, its codes and legal statutes are studied in law schools around the country. Delaware even has its own court specifically for businesses; it’s called the Court of Chancery. Cases in the Court of Chancery are argued in front of judges, not juries, and any legal dispute you have has likely already been argued in court, so businesses usually know ahead of time whether to fight a lawsuit or settle. This knowledge can be especially beneficial for companies who are sued often, as it saves time and money spent on legal fees.
- No Business License Required
According to Section 2301(b) and (d) of our state’s code, Delaware LLCs not doing business in Delaware are not required to obtain a business license, register with the Department of Revenue, or pay Delaware’s gross receipts tax.
- Few Formalities
Possibly the greatest advantage of starting an LLC in Delaware is that a Delaware LLC requires so little maintenance, which is often perfect for small businesses. LLCs in Delaware do not file annual reports (LLCs pay a flat $300 annual tax) and it’s due on June 1 every year and can be paid online. LLCs require less paperwork and administrative formalities than corporations. Delaware LLCs don’t need to hold annual shareholders or board of directors meetings. Overall, LLCs tend to be the simpler entity.
Can I form an LLC in Delaware if I live in a different state or country?
Yes, absolutely. The only physical requirement for Delaware LLCs is that the limited liability company must have a registered agent in Delaware. A person doesn’t need to live in Delaware to start an LLC in Delaware. Some of the advantages of Delaware LLCs are only available to nonresidents. The benefits of starting an LLC in Delaware as a nonresident are listed below:
- No sales tax
Delaware does not have a sales tax on goods and services.
- No state income tax
Delaware LLCs taxed as S corps, and LLCs in Delaware that do no business in Delaware, don’t pay state income taxes. Residents of other states and other countries may be obligated to pay their home state’s income taxes, but they will not have to pay Delaware’s income tax.
- No ad valorem tax
Delaware doesn’t have an intangible personal property tax. If the state or country in which you live doesn’t have one either, you shouldn’t have to pay any tax on intangible personal property like patents or trademarks.
Should I form a Delaware LLC or a corporation?
Business entities are not one-size-fits-all, but the advantages of Delaware LLCs and corporations are highlighted below:
Delaware LLC Advantages
Delaware Corporation Advantages
|Flexible tax structures||Prestige of a corporation|
|Low maintenance||Ability to raise capital through investors|
|Flat-annual tax||Ownership is easy to transfer through stock|
|Minimal information requirements||Possibility of no inheritance tax on DE corporation stock|
|Easier to form|
As you can see from the advantages above, corporations tend to be more advantageous if you’ll be trying to attract investors and raise capital through the selling of ownership; Delaware LLCs often shine as smaller businesses with few owners who wish to keep their personal information secure.