- Advantages of Delaware LLC
- Disadvantages of Delaware LLC
Being the most popular business entity type in Delaware, Limited Liability Company carries the characteristics of a dream structure that most investors are longing for.
Why incorporate in Delaware? Is it worth your time and investment? Along with tons of Delaware LLC benefits, the entity also has some drawbacks that are worth considering. Let’s take a closer look at the advantages and disadvantages associated with this type of business structure!
Advantages of Delaware LLC
Straightforward formation and minimal requirements
It is no myth that you only need to file very little information to incorporate an LLC in Delaware. Moreover, a small filing is required to form an LLC. Meeting or voting requirements? Let your hair down as there are no requirements at all.
Another advantage of Delaware LLCs is you can form an LLC in Delaware even if none of the members have ever visited the state.
When it comes to the flexibility of Delaware LLCs, there are two things that need to be mentioned:
- Fewer restrictions on personnel responsibilities
Your managers, members, or you don’t have to be residents of Delaware in order to form an LLC. Plus, the manager and member of your LLC can be one person as per the law.
- Freedom of contract
The LLC Operating Agreement, which is created by the members of the LLC, decides the structure as well as the rules of that LLC. This customized business structure and rules are tailored to fit the distinct needs and operations of an LLC in Delaware. This can be considered the biggest perk of a Delaware LLC.
High level of privacy
In many places, there is a requirement of public record that allows anyone to know about your company. It’s good to know that Delaware is one of the few states that allow the names of the managers and members to be excluded when filing the documents.
You are not obligated to disclose any information about the members of the LLC in order to incorporate and maintain your company. This also forms a level to protect the anonymity and privacy that you cannot experience in most the other states. The names and addresses of registered agents would be listed in the certificate of formation.
As a pass-through entity, Delaware LLC asset protection has remained one of the most crucial reasons why most people opt for it.
With a proper LLC structure set up, business owners can safeguard their personal property and protect the company even if you or a member of your LLC is involved in a lawsuit. Delaware LLCs offer a high level of asset protection as they will separate your personal property and your company’s liability. The creditor cannot strive for the LLC or acquire any portion of the LLC’s assets. In simple terms, this perk brings protection to everyone in the company.
Wish to safeguard your personal assets against any liability? Incorporate your own Delaware company today.
Tax advantages (multiple taxation options)
One key Delaware LLC benefit is that you are free from paying Delaware income tax if you don’t engage in any business activity within the state (in other words, your LLC operates business in a state other than Delaware).
When you form an LLC in Delaware, you can choose the way your LLC is taxed. You are offered a wide range of options: taxed as a pass-through entity, as an S corporation, or as the default option.
Well-respected legal system
There are good reasons behind the popularity of Delaware as a place of incorporation. One of them is the most advanced and flexible statute in the US.
Another big perk is The Court of Chancery in Delaware. This court is made for corporate-related issues. What sets this legal system apart from others is that the Delaware court uses judges instead of the jury to decide cases regarding business matters.
A special business structure that is distinct to Delaware is the series LLC. Basically, it is just a normal LLC, but in Delaware, you can register for different series.
Each series is treated as an individual LLC that operates within the original LLC without the burden of paying extra franchise taxes or additional registered agents. What’s more? Each series in the LLC has a separate legal from the other.
Best choice for real estate investors
Real estate investment is considered a profitable business and it seems there is no fixed investment limit, particularly in areas that are high in demand. Real estate business owners will need to separate their investments from their personal property to reduce portfolio risks. Therefore, finding a suitable business structure for investing real estate business like Delaware LLC is a wise choice.
By not having your names appear on public records, Delaware LLC will adapt your need for separating your personal assets from your business liabilities. Compared to Corporations that suit those wanting to sell equity, ease of formation and enhanced protection features tend to make LLCs more attractive.
All-in-one guideline to business formation in Delaware
- Explore Delaware business entities
- Discover incorporation process
- Understand Delaware tax system
- Learn about banking issues and other considerations
Disadvantages of Delaware LLC
Moving on to the disadvantages you might have to face when incorporating an LLC in Delaware.
Believe us when we say Delaware LLC might not be the most ideal for small businesses. Let’s take a quick example!
Henry incorporated an LLC in Delaware for taxation purposes. However, he wants to do business in Ohio – a different state. In order to do this, Henry has to register his company as a “foreign corporation” in Ohio.
Not only does this result in dual registration, but it also forces Henry to create 2 reports each year. In simple terms, Henry has to file 2 state tax returns and pay for 2 sets of filing fees as well as renewal fees.
But the story doesn’t end here. Henry must also maintain 2 registered agents or even 2 attorneys in each state.
No legally tested business structure
As mentioned above, series LLC is an extraordinary perk of incorporation in Delaware. However, everything is a double-edged sword. And series LLC has its own downside.
This unique structure of a series LLC is not widely accepted outside of Delaware. In fact, this business structure has not faced a legal test yet. This leads to most courts outside of Delaware will likely take no notice of the separate assets, liabilities, and records of each distinct series. In this case, the umbrella LLC will be treated as the main corporation that is liable for everything.
Difficulty in obtaining separate identification numbers
Another drawback that is associated with the series LLC structure is that it is quite difficult to obtain a separate identification number. The separate series within the LLC might be unable to get a unique identification number for federal tax purposes.
It is no exaggeration to say that incorporating an LLC in Delaware can be more costly in the following cases:
- Series LLC has higher administrative costs as there are several series within the umbrella company. Accounting costs can be increased because of the unfamiliarity of the accountants with the structure.
- The Delaware franchise tax is $300 per year.
- Foreign qualification cost is a crucial issue to consider if your plan is to conduct business outside Delaware. It takes around 10 working days to obtain a foreign qualification, not to mention the cost to register for one.
In some cases, other business entity types in Delaware might suit your needs. Take your time to think carefully about Delaware LLC’s pros and cons and compare it with others to find out which type will work best for your business venture.
Delaware LLC benefits might be ideal for investors worldwide. However, there are lots of things that need to be considered: the untested structure, dual registration, and other responsibilities.
Prior to the actual incorporation process, you should consult trusted agencies about all of your concerns. BBCIncorp is always here to help. Contact us NOW!
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
- Advantages of Delaware LLC
- Disadvantages of Delaware LLC
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