Delaware is a popular domicile for LLCs due to its tax laws. Furthermore, Delaware provides various stock structures which could be particularly advantageous if an IPO is planned in the future by public LLCs.
Delaware’s legal system is unique and can be a huge advantage for businesses that anticipate engaging in regular litigation in the future. The state’s Chancery Court is designed to handle business-related cases quickly and efficiently.
Getting Started
Delaware is often seen as the go-to jurisdiction for public LLCs, with strong IPO and venture capital inflows. Furthermore, its filing and ongoing costs are much more reasonable than in many other states.
Delaware boasts a generous tax system that exempts profits from intangible assets like trademarks from taxation. This makes the state an appealing jurisdiction for businesses looking to reduce their taxes.
But that doesn’t guarantee it’s the best option for your business. It is essential to assess your needs and capacity before selecting a structure or location.
For example, if your company makes sales in another state (most likely not your home state), you may have to register as a foreign entity there and pay additional filings, fees and yearly tax obligations. Unfortunately, this route may not make financial sense for most small business owners; thus, organizing in your home state is usually preferable.
Operating Agreements
No matter if your business is a one-member LLC or has multiple members, it’s essential that the operating agreement of your LLC be maintained. This document lays out the internal workings of your entity and should be kept with other business records for reference.
An operating agreement helps guarantee that members of an LLC are aware of their rights and responsibilities regarding the company. It can also specify what will occur if one member leaves.
A well-drafted operating agreement can help avoid future miscommunication and conflicts. It also safeguards your preferences, protecting you from state laws that might be unclear, confusing or not in line with how you intended to run your business.
Most states require LLCs to have a written operating agreement. You can create your own, but if you are unfamiliar with the state law in which your business operates, it may be best to hire an attorney for assistance.
Taxes
Delaware boasts one of the most business-friendly legal systems in America. It doesn’t tax out-of-state corporate income and doesn’t tax intangible assets such as trademark royalties, making it a prime option for holding companies that own intellectual property.
However, Texas has an unusual requirement for entities conducting business outside its borders. If your Delaware LLC wants to conduct business in Texas, it must register as a foreign entity (instead of being treated like a domestic entity in your home state).
Filing an application for Foreign Qualification and paying the associated state fee can be a time-consuming task. It requires extensive research and careful preparation in order to guarantee successful outcomes.
Furthermore, registering as a foreign entity requires double the filings and taxes in your home state. While this may be too much hassle and expense for small businesses, larger organizations may find the extra benefit beneficial.
Dissolution
Your LLC is a legal entity separate from you, with tax and filing obligations that must be fulfilled in order to keep its status. Failure to do so could incur harsh penalties or even lead to the dissolution of your business.
To dissolve your Delaware LLC, you must adhere to the state’s dissolution process and the operating agreement or bylaws of the business. This may involve paying off creditors, closing accounts, filing final returns, and distributing any remaining property, cash or assets among members of the LLC.
Your Delaware LLC may elect to voluntarily dissolve through either a member vote or written consent of those owning more than two-thirds of its ownership interest. Doing so can save you from formal dissolution proceedings; however, make sure this procedure is clearly outlined in your operating agreement or bylaws and that all members consent.
