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Formation Information


Form a Delaware LLC or Delaware corporation, and you can receive your business formation kit within 24 hours! There are a number of reasons why small business owners decide to form a Delaware limited liability company (LLC) or corporation:

  • To safeguard personal assets against creditors and lawsuits. Without an LLC or corporation, owners' personal assets (houses, cars, bank accounts, etc.) are at risk of being seized any time the company is sued.
  • Ownership in a Delaware LLC or corporation is private and easily transferable. The State of Delaware does not record owners' names and there is no requirement to file or record the transfer of ownership.
  • The Delaware Taxation Advantage:
  • Delaware imposes no income tax on either LLCs or S corporations
  • Delaware imposes income tax on C corporations only to the extent that income is earned in the State of Delaware
  • Delaware imposes a low franchise tax for small companies
  • Delaware imposes no tax on capital stock or assets
  • There is no sales tax in Delaware
  • There are no Delaware capital shares or stock transfer taxes
  • There is no state inheritance tax on stock held by nonresidents of Delaware
  • Health insurance and other fringe benefits. Delaware LLCs and corporations typically gain the ability to deduct the cost of health insurance and/or other fringe benefits.
  • No limits on corporate losses. There are no limits on the amount of losses a corporation may carry forward to subsequent tax years.
  • Ease in raising capital. Capital from investors can be raised easily through the sale of membership interests or corporate stock.
  • Continuous existence. A Delaware LLC or corporation is capable of continuing indefinitely. Existence is not affected by the death of
    member(s), manager(s), shareholder(s), director(s), or officer(s).
  • Establish credit history. Regardless of your personal credit score, you can build a separate credit history for your Delaware LLC or corporation simply by applying for and using company credit.

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Compare LLCs and Corporations

LLC
Corporation
Corporation + S election
 
Operational Requirements
Some formal requirements, but less formal than corporations.
Board of directors, annual meetings, and annual reporting are required.
Board of directors, annual meetings, and annual reporting are required.
Management
Members have an operating agreement that outlines management.
Managed by the directors, who are elected by the shareholders.
Managed by the directors, who are elected by the shareholders.
Taxation
Typically, there is no tax at the entity level. Income/Loss is passed through to the members.
Taxed at the entity level. If dividends are distributed to shareholders, dividends are also taxed at the individual level.
No tax at the entity level. Income/Loss is passed through to the shareholders.
Pass Through Income/Loss
Yes
No
Yes
Double
Taxation
No
Yes, if income is distributed to shareholders in the form of dividends.
No
Cost of Creation
$299 $299
$299, plus S corporation election add-on $89
Raising Capital
Possible to sell interests, though subject to operating restrictions.
Shares of stock are sold to raise capital.
Shares of stock are sold to raise capital.
Transferability
of Interest
Possibly, depending on restrictions outlined in the operation agreement.
Shares of stock are easily transferred.
Yes, but must observe IRS regulations on who can own stock.

 

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What are limited liability companies (LLCs)? LLCs are essentially considered a combination of a corporation and a partnership, and have become increasingly popular in recent years. Similar to a corporation, an LLC has a legal existence separate from its owner(s); and the owners or member(s)/manager(s) are not personally liable for the company's debts and obligations. Like a partnership or an S corporation (S corp), an LLC is automatically treated as a pass through entity for tax purposes. Your LLC does not pay taxes; the LLC's income passes through to you personally and you are taxed on an individual basis. Key elements of a Delaware LLC include:

  • Personal liability is limited for owner(s) to the amount of their investment in the company (similar to a corporation).
  • A single-member Delaware LLC is automatically disregarded as an entity separate from its owners and includes all of its income and expenses on the owners' 1040 tax return.
  • A Delaware LLC with two or more members is treated as a partnership.

The management of a Delaware LLC is based on an agreement between its owners, referred to as members. Delaware LLCs allow a customized management structure. The Delaware LLC statute allows parties to define their business relationship in the written agreement however they wish. This is called "freedom of contract." Delaware law provides rules only for those matters on which the parties have failed to agree. The contractual flexibility offered by Delaware is unmatched by any other LLC statute. For example, unlike a corporation an LLC can distribute profits in any manner described in the LLC agreement — regardless of ownership share.

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What are corporations? A regular corporation, often referred to as a C corporation (C corp), pays taxes directly to the IRS. Key elements of a corporation include:

  • The personal liability of each owner is limited to the amount of their investment in the company.
  • No limit to the number or type of shareholders.
  • Three tiers of power: shareholders, directors and officers — all of which can be the same person.
  • Shareholders own the company and elect the directors.
  • Directors elect the officers.
  • Officers manage the day-to-day operations.
  • Minority shareholders are not responsible for the company.
  • May operate based on a fiscal year, rather than a calendar year, as designated by the board of directors.
  • Delaware requires no disclosure of corporate owners.
  • Profits are taxed at corporate rates on an 1120 return, separate from the individual return.
  • Profits are not automatically distributed to shareholders, and can be kept as retained earnings.
  • May deduct cost of fringe benefits to owner-employees.
  • S corporation status can be elected if all qualifications are met.

One of the possible drawbacks of a regular corporation is that distribution of earnings as profits to shareholders are taxed twice: once at the corporate level and again at the individual shareholder level if a dividend is declared. One way shareholders may be able to avoid double taxation is by filing for S corporation (S corp) status. An S corporation is simply a corporation that has filed an election with the IRS allowing profits of the corporation to pass through to the individual shareholders. Therefore, these profits are taxed only once.

More on S corporations. You have up to 75 days after your corporation is formed to decide whether to make your corporation an S corporation for that year. The key elements of an S corporation are:

  • The personal liability of owner(s) is limited to the amount of their investment in the company.
  • Avoids double taxation, similar to an LLC.
  • Profits and losses pass through to the individual 1040 tax return.
  • Restricted to 100 shareholders or less.
  • Shareholders must be US residents.
  • Shareholders and directors must be individuals, not business entities.
  • Operates on a calendar year, meaning the corporation's books close on December 31st.

Delaware corporations have three tiers of power, the shareholder(s), director(s), and officer(s). Each of these groups has different rights.

NOTE: If you are a one-person corporation, you will be the sole shareholder, director and officer, fulfilling all three of the following roles:

  • Shareholders own the company, but don't necessarily manage the company.
  • The directors take responsibility for the overall management of the company.
  • The officers work for the board of directors and handle the day-to-day operations of the company.

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What is a registered agent? LLCs and corporations are required to appoint a Delaware-based registered agent located at a Delaware street address (post office boxes are not acceptable) during normal business hours. The Delaware registered agent is responsible for receiving important legal and tax documents on behalf of the company including Service of Process (notice of litigation), franchise tax forms, and annual report forms. The Delaware registered agent's name and address are included on the formation documents, and as a result, this information is a matter of public record.

There are a number of practical reasons for using a professional Registered Agent Service provider:

  • No physical location in Delaware. You are legally required to have a registered agent with a physical address (no post office boxes) in the State of Delaware. Using a professional registered agent provider enables you to satisfy this requirement.
  • Company transacts business in several states. When you qualify your company to transact business in states other than your state of formation, you need a registered agent in each of those states. By using a registered agent service provider, one company is handling this important function in each state, allowing you to concentrate on your business. 
  • Address changes frequently. It is important to keep the registered agent address updated with the state. Changing the address requires a formal state filing and also requires that a fee be paid to the state. Using a registered agent service provider ensures you will never have to worry about making the change with the state; you will only need to update your registered agent with your new address.
  • Business is home-based. As previously mentioned, the registered agent address is a matter of public record. That means anyone, including marketers, can access the address. It is not uncommon for the registered agent to receive junk mail on behalf of the business. Using a registered agent provider can reduce the amount of unsolicited mail your business receives. 
  • Ensure business privacy. Service of Process is often delivered by local law enforcement. Most business owners do not want customers, employees or neighbors (as in the case of home-based businesses) to witness law enforcement serving them a lawsuit. Using a professional registered agent ensures you receive Service of Process discreetly.
  • Lack of normal business hours or permanent worksite. The registered agent for a business must be available during normal business hours to accept important documents as they are delivered. If you set your own hours or your business requires you to move around frequently (for example, an electrician who is making service calls all day), you may wish to consider using a professional provider. The registered agent service provider ensures that you never miss these important communications and that these documents reach you and your business.
  • Informs you of key compliance issues related to your company. A professional registered agent service provider is an excellent way to ensure your Delaware LLC or corporation is aware of any upcoming compliance events that may affect your company's standing with the state.

The first 6 months of Delaware Registered Agent Service is included in The Delaware Company's complete package. You will be billed $167 annually for the service after the first 6 months.

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Can non-US business owners form in the US?

If a company intends on selling services throughout the US, it may be necessary to form in the US.

There are no legal mandates imposed on non-US businesses regarding their ability to transact business in the US or as to the entity type they are required to form. Many non-US businesses choose to form LLCs due to the fact that there are no limitations on the number of investors or the investors' citizenship (unlike S corporations). While LLCs tend to be a very popular choice for non-US businesses, many also form as regular corporations. Regular corporations (C corporations) make it easier to attract investors, and also allow companies to go public in the future.

Many non-US business owners select The Delaware Company to assist with their formation needs due to the fact that we specialize in filing the necessary paperwork to form LLCs and corporations in the State of Delaware. If you wish to open a non-US bank account, please note that you may wish to add an Apostillized Certified Copy of the Certificate of Formation when you place your order. Also, please note that due to the implications of international shipping, these packages may incur additional shipping charges and may take longer to receive.

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Ready to incorporate in Delaware? Our team of experienced professionals are ready to assist you with incorporation services you can depend on.


Free Delaware Name Check:

Check the availability of your LLC or corporate name with the state of Delaware. If the name is available, place your order online to receive your kit within 24 hours.

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