If you are considering forming an LLC, selecting the appropriate state can be crucial to its success. Each state offers different laws and taxes; therefore it’s essential that you do your research prior to making your choice.
Delaware is an attractive location for many companies due to its lower filing and ongoing costs and favorable market environment, drawing them in.
Taxes
Delaware remains an attractive choice for businesses due to lower filing and ongoing costs than many other states; however, forming and operating an LLC here presents some unique tax issues.
Main reason being, in many instances, a business owner must pay taxes where their money is made – this means paying twice as many state filing fees and hiring registered agents in both locations of your business.
Consideration must also be given to whether to designate your LLC as an S Corporation for taxation purposes, which entails different rules than regular LLCs but can provide greater liability protection.
As owners of limited liability companies, selecting the optimal tax treatment is an integral decision. Before making your choice, it is crucial that you thoroughly research its advantages and disadvantages before selecting one which fits best with your business needs.
Management
Delaware treats LLCs similarly to other business entities; most states – including Delaware – enact business codes and case law that regulate their rights and duties of managers, directors, and owners.
However, these default statutory rules can be altered by those involved in forming an LLC, making an operating agreement essential to providing clarity about how your business will function.
Forming an LLC in Delaware offers many advantages, particularly if you wish to form multiple series within one company (which is often necessary in oil and gas deals or holdings of private company stock). Furthermore, investors who don’t wish to perform extensive legal work when making their purchase find LLCs attractive.
Delaware is also popular among publicly traded corporations, which can take advantage of Delaware’s court system and established corporate statutes concerning liability issues. Unfortunately, however, for most businesses the downsides outweigh their advantages when considering incorporation in Delaware.
Meetings
Delaware is widely respected as an advantageous business location, due to its low filing and maintenance costs and strong protections for new businesses. Many entrepreneurs find Delaware an appealing location.
Delaware’s ease of use makes it an attractive option for forming your LLC, but it is crucial that you know exactly how your LLC will be treated within its borders, including whether or not specific state laws must be observed on an ongoing basis.
Delaware and Texas do not mandate LLCs to hold annual meetings or keep minutes. Instead, the Delaware LLC Act defers to their LLC Agreement when determining if meetings are required.
Delaware does not charge its domestic or foreign LLCs with an income-based state franchise tax; however, an annual report filing fee of $300 must still be filed at an annual meeting to comply with state requirements and is considerably cheaper compared to similar states.
Operating Agreement
Operating Agreement is a legal document that governs the internal affairs of your LLC and establishes member roles, voting requirements and procedures, allocations (of income or loss) and distributions (cash or property) among members and establishes operational and tax procedures.
Delaware does not mandate an Operating Agreement, but having one is in your best interests to prevent misunderstandings, conflicts and potentially legal actions between members.
Likewise, if your intention is to use an LLC as a holding vehicle for assets or multiple real estate holdings, Delaware could prove especially advantageous in terms of creating series LLCs which allow multiple separate series under one entity.
Delaware provides many advantages over Texas when forming your company, such as not requiring you to include personal information in formation documents and an efficient, fast court system. Furthermore, Delaware boasts low filing fees and has more streamlined court systems which facilitate fast case processing times.
