Private equity investors favor DLLCs because of the benefits that they provide such as limited liability; indemnification; and other advantages that make them appealing, particularly when undertaking high-stakes deals.
Additionally, the Delaware LLC Act doesn’t include many mandatory provisions that could impede high-stakes private equity deals; most important in such deals tend to be default provisions.
Limited Liability
Limited Liability Under the Delaware LLC Act provides owners with an attractive level of liability protection that many small business owners find appealing. It combines some of the best features from both corporations and partnerships into an easy-to-run entity structure.
LLCs, unlike corporations, are governed by the Delaware LLC act and do not require an operating agreement – providing their members greater flexibility when structuring and allocating profits to their company.
The Limited Liability Company Act allows the formation of protected divisions known as series within a limited liability company, enabling its individual owners or managers to enter into contracts, hold titles to assets, grant liens against certain assets, open bank accounts and have different voting interests within one company.
The Delaware LLC act also limits personal liability of members of limited liability companies, thus restricting creditors’ abilities to force distribution or sale of the limited liability company in order to satisfy an outstanding judgment against one of its members.
Flexibility
The Delaware LLC act offers significant contractual flexibility. Members can define their ownership shares and responsibilities in an operating agreement for the company.
Flexibility can be seen through the wide array of provisions that can be included in an LLC operating agreement, most of which can be considered “default” provisions – meaning they can be changed at will without needing court authorization or any legal clearance from authorities.
One example of Delaware LLC act flexibility is its lack of requirement that members elect a manager or outsider as manager for their company, unlike most states where this choice may be legally mandated.
Finally, the Delaware LLC act permits any company to divide into multiple limited liability companies and file with the Secretary of State a certificate of division. When doing this, any necessary or desirable information can be included for its division process.
Taxes
The Delaware LLC act provides many advantages that make it appealing to entrepreneurs, such as protecting members from personal liability for debts incurred by the company and offering tax advantages similar to a corporation.
As well, Vermont offers one of the lowest corporate income taxes among states, reducing your overall tax bill. Furthermore, no income tax is levied on intangible assets like trademark royalties.
Delaware requires those forming a Delaware LLC to pay an annual franchise tax and registered agent fee of $300; both payments must be submitted before June 1.
Assigning yourself or another resident of your state as registered agent can free up time to focus on expanding the business. Incfile includes one year of registered agent service with each new LLC established on our platform.
Membership
As with corporations, Delaware LLCs do not limit the number of members who can own shares in them – this allows for multiple business possibilities and profit sharing among employees.
As well, management flexibility exists: managers may take full part without incurring liability issues; owners and managers can transfer or assign their interests if desired.
Under the Delaware LLC act, there are multiple forms of membership: single-member and multi-member. We typically recommend single-member LLCs as the most suitable structure for small-scale businesses as they provide maximum protection and flexibility.
The Delaware LLC act allows for the formation of separate protected divisions within an LLC called series. These can enter contracts, hold titles to assets, grant liens and open bank accounts independently from one another – making a Delaware LLC operate like multiple legal entities simultaneously and being particularly helpful when creating asset-backed securities.
