How to Incorporate in Delaware vs. How to Start a Delaware LLC
A Guide to Choosing the Best Business Entity in Delaware
Are you interested in starting a business in Delaware, but not sure if you should form an LLC or start a corporation? Active Filings has the guide for you! We’ll walk you through the advantages and disadvantages of incorporating or forming an LLC in Delaware. Throughout this Delaware-specific corporation and LLC formation guide, you’ll discover exactly how to form either an LLC or corporation in Delaware, and learn the disadvantages and advantages of each business type.
Then, after choosing which business formation best meets your needs, you can hire Active Filings to incorporate your business in Delaware for you. We’ll streamline the process and make it painless. Our starter package begins at only $25 (plus Delaware fees), and we’re sure that you’ll find out in no time why Active Filings is America’s most reliable business incorporation service.
Delaware LLCs vs. Delaware Corporations (Which is Better)
The average person doesn’t know the difference between an LLC and a corporation? Active Filings is about to drop some knowledge. Below you’ll find the three factors we think will help you make an informed decision on whether you want to incorporate or start a Delaware LLC.
- Ease of maintenance
LLCs are pretty easy to maintain. An LLC can opt to be managed by its members, which allows all owners to share in the business’s day-to-day decision-making, or by managers, who can be either members or outside managers. This is helpful if members aren’t experienced in running a business and want to hire people who are. Corporations have to hold meetings, keep minutes, record votes, and generally file more paperwork compared to an LLC. However, corporations are perpetual, which means they can exist as their own entity forever, whereas an LLC will generally dissolve and cease to exist upon the resignation, death, or bankruptcy of the member or members.
- Desired tax structure
LLC is generally organized as a pass-through entity, meaning its profits go directly to its members without being taxed by the government on the company level. Instead, they’re taxed on members’ federal income tax returns. This makes filing taxes easier than if your business were taxed on the corporate level. Corporate profits are subjected to what can be referred to as “double taxation,” which means that a corporations profits are taxed, and then you get hit with taxes at the personal income level. The Wyoming LLC is where it’s at on tax structure.
If you plan to raise capital for your business, then incorporation probably makes the most sense. Investors prefer the favorable taxation rules of a corporations, and unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed. This means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. LLCs If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.
Advantages and Disadvantages of Delaware LLCs and Corporations
While we’ve already broken down the differences between an LLC and a corporation, we’re going to dig a bit deeper into the pros and cons of forming an Delaware LLC or corporation. Take a look below to see what makes Delaware LLCs and corporations unique:
- Low to No Taxes
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 Annual Report for LLCs
Delaware LLCs do not file an annual report. Instead LLCs in Delaware must pay an what is called an Alternative Entity Tax. This tax is a flat, annual fee of $300.
A Delaware LLC filed through a professional Registered Agent (hey, we know some folks who are professional registered agents) offers and LLC and it’s member(s) the highest level of confidentiality. When filed properly, only the company name and the name and address of the registered agent typically appear on Delaware’s Certificate of Formation, along with the date of filing and the company file number. This means that forming an LLC in Delaware gives you an extra layer of protection from possible lawsuits or anyone else who wants to pierce the corporate veil.
- Delaware Court of Chancery
More than 50% of publicly traded companies in the US and more than 65% of Fortune 500 companies are incorporated in Delaware. One of the reasons for Delaware’s popularity as a harbor for business entities is it’s Court of Chancery. Established in 1792, the Court of Chancery allows companies to resolve disputes quickly with a judge rather than a jury. Judges for the Court of Chancery specialize in corporate law, draw on hundreds of years of legal precedent, and hear only business-related cases. Why is this good for small businesses? Because any legal dispute your company may have has likely already been argued in court, so businesses usually know ahead of time whether to fight a lawsuit or settle.
How to Incorporate in Delaware
To form your Delaware corporation, you’ll need to file a Certificate of Incorporation with Delaware’s Division of Corporations. You can file the document online or by mail. The Certificate of Incorporation costs a minimum of $89 to file. Filing out your corporation’s Certificate of Incorporation isn’t super difficult, but by hiring a registered agent service like Active Filings, you can rest assured that the entire process will be easy and efficient, and all of your personal information (names, addresses, email, etc…) will be replaced with ours, which means you’ll get an added layer of protection from junk mail, sales calls, and even worse, lawsuits.
You must include “Corporation,” “Incorporated,” “Limited” or an abbreviation like”Corp,” or “Inc.” Example: ExxonMobil, Inc.
This Delaware street address will become part of the permanent public record of your corporation. Hire Active Filings and our address goes here.
Your registered agent must have a business address in Delaware. You can act as your own registered agent or you can hire Active Filings as your registered agent and we’ll intercept all the junk mail and telemarketer calls, so you can focus on what matters most, your business.
Here you’ll list the number of shares you’d like to create. You have to create at least one. Some or all of these shares can be distributed later on at your company’s organizational meeting. You’ll also need to list the par value (initial price) of each share.
Here you’ll include the name and address of your business’s incorporator. An incorporator is the individual who completes and files your Delaware Certificate of Incorporation. They don’t have to have a stake in, or be part of your company. When you hire Active Filings, we will list ourselves as your incorporator.
How to Start an LLC in Delaware
You’ll form your LLC by filing your Certificate of Organization with the the Delaware Division of Corporations. You can file the document online or by mail, $90. If you hire Active Filings, we can do all of this for you.
Your Certificate of Incorporation must include the following details:
The name must contain the words “limited liability company,” “limited company,” or an abbreviation of one of these phrases. Example: Yummy Yummy Hot Dogs, LLC.
Hire Active Filings and our information goes here. Otherwise this is where you’ll give the name and address of your registered agent and the registered office (you can’t use your business address here). Keep things simple with one company, us!
If you want your LLC to dissolve on a certain date, you can enter it in the third section of the Certificate of Formation.
This section is just here in case you want to add any addition information for your LLC. If you want your LLC to cease existence in five years, this is where you’d set the timer. Or just leave it blank.
Sign and date here and you’ve formed your LLC (once you’ve mailed or faxed it in).
Delaware LLC and Corporation Maintenance
In order to keep your LLC or corporation in Arkansas in good standing, you’ll need to complete a couple tasks with the state to keep your business entity up and running.
Below, you’ll find instructions and resources to help you accomplish all your maintenance and tax related upkeep.
What is the Delaware Annual Report?
How do I file my Annual report?
Mail your Annual Report to:
How much does it cost to file an annual report in Delaware?
When are Delaware Annual reports due?
Understanding Delaware Taxes
Tell me about Delaware Business Taxes
In Delaware, do I also have to file an income tax return for my LLC?
Okay, so what tax forms do I need to file for an LLC in Delaware?
What tax form(s) does my corporation need to file?
What’s the Delaware corporate tax income rate?
What’s the personal income tax rate in Arkansas?
When are my business tax returns due?
What if I need an extension?