If you’re searching for a company structure that provides liability protection and tax flexibility, Delaware LLCs are an ideal option. This hybrid business structure incorporates the advantages of both corporations, limited partnerships or sole proprietorships in one package.
Once your Delaware LLC’s certificate of formation and operating agreement are in order, the next step should be to open a business bank account and credit card for it. Doing this will enable access to funds and allow revenue generation.
Number of Shares
Delaware LLCs issue shares according to their business needs and requirements, which can range from a few to many depending on their growth plans and capitalization levels.
Shares of stock are equity ownership that corporations issue to outsiders in exchange for funding. When formed, a corporation receives an initial list of authorized shares and can then increase this number as needed.
Founding a Delaware corporation can often lead to the costly mistake of setting the value of their authorized shares too high, leading to an extensive franchise tax bill from the Secretary of State.
One of the best ways to prevent this mistake is creating an operating agreement for your LLC. This essential document outlines exactly how your business will run and includes financial contributions from each member as well as duties of each owner. It’s essential in creating a successful LLC.
Number of Members
The number of members a Delaware LLC issues depends on its profitability and chosen tax structure. C corporations offer the most potential deductions and advantages to larger, more successful LLCs; however, they also come with a higher tax rate and the potential for double taxation.
S corporations feature a pass-through taxation structure similar to LLCs and are usually preferred over C corporations for smaller, less profitable businesses as they allow members to reduce their self-employment taxes paid.
When forming an LLC in Delaware, there are three main methods: DIY (self-filing), company formation services and legal representation. Which route you take will depend on your timeframe, budget and desired degree of complexity.
The initial step in starting an LLC is filing a certificate of formation with the state. You’ll need to provide your LLC’s name, address and registered agent as well as apply for an Employer Identification Number (EIN), business licenses and bank accounts.
Number of Authorized Shares
When considering incorporating in Delaware, one of the first things you must take into account is how many authorized shares your LLC will issue. This number is essential as it determines how much franchise tax you must pay annually.
Delaware corporations are limited in their share issuing powers by their Articles of Incorporation. However, you can amend your certificate of formation to increase authorized shares after receiving approval from a majority of directors and shareholders.
Corporations calculate their annual franchise taxes using two methods: the authorized shares method and the assumed par value capital method. The latter assumes that all company assets are equal to the assumed par value of its issued stock.
When selecting how many shares a Delaware LLC can issue, make sure the minimum value of each share allows for low annual Franchise Tax bills. In most cases, corporations with less than 5,000 authorized shares typically pay the lowest franchise tax rates.
Taxes
Delaware LLCs issue shares to their members, but these are not “stock.” There can be various classes of membership units; voting or non-voting.
Structure your business as a Delaware LLC to provide its owners with liability protection. This way, if the company is sued, its assets will be safeguarded from judgment creditors.
If your company is an LLC, be prepared to pay a franchise tax to the state of Delaware. This tax is calculated based on authorized shares, issued shares and total gross assets.
The Franchise Tax Calculator can assist you in estimating your estimated franchise tax amount. There are two methods of calculation: Authorized Share Method and Assumed Par Value Method.
In addition to paying franchise taxes, you will need to invest in the start-up expenses of your company. These include renting a space for the business, hiring professionals to manage it efficiently and purchasing equipment and software.
