The Beginner's Guide to Delaware LLCs

State Flag of Delaware
•••

 Fotosearch/Getty Images

When forming a limited liability company for the purpose of starting a small business or pooling investment assets, the three most popular choices are to incorporate the LLC in your home state, form a Nevada LLC, or form a Delaware LLC. This brief overview will explain the reasons the third option, a Delaware LLC, might be a great choice to hold a family operating company, real estate portfolio, or securities such as stocks and bonds.

The Benefits of a Delaware LLC

There are several benefits to forming a Delaware LLC for a family business, investment pool, or other assets. You don’t have to do business in Delaware to form a Delaware LLC because the state permits so-called foreign investors—meaning someone from out-of-state. A single person or investor can form a Delaware LLC without anyone else. The one person can serve as President, Vice President, Secretary, and Treasurer.

Delaware is the leading incorporation state in part because it has a separate Court of Chancery, which handles corporate law cases quickly and with more expertise than the general courts in most states. It means that disputes are easier to handle because there is more than a century of established case law that is relatively friendly to businesses.

Also, Delaware has no income tax, sales tax, or intangible personal property tax.

Remain Anonymous in Your LLC

A Delaware LLC allows the members and managers to remain anonymous, making it easier to hide assets from people attempting to uncover the extent of your wealth. By naming a local Delaware attorney as the registered agent, you can remove all references to you and the other investors. The only people who have to know about the income and assets of your Delaware LLC is the IRS. That makes it incredibly difficult for a potential creditor to identify where you have money invested or parked.

Costs and Minimum Capital Requirements

There are very low costs involved in forming most standard Delaware LLCs. The actual filings fees with the Secretary of State are roughly $250 plus an on-going annual fees are less than $150 per year for a small company.

There are no minimum capital requirements for forming a Delaware LLC. You could establish one with only a few hundred dollars if you wanted. It makes it an attractive choice for many start-ups that don’t have a lot of money to invest.

Strong Contract Protections

You may already know that the LLC operating agreement is the contract that governs the company’s operations. The great thing is that the Delaware Limited Liability Company Act governs a Delaware LLC, providing a firm legal foundation.

For example, if your LLC operating agreement calls for members to contribute cash or property at certain dates or in the case of certain events, that becomes a legally enforceable requirement thanks to §18-502, Liability for Contribution, which states:

Except as provided in a limited liability company agreement, a member is obligated to a limited liability company to perform any promise to contribute cash or property or to perform services, even if the member is unable to perform because of death, disability or any other reason.
If a member does not make the required contribution of property or services, the member is obligated at the option of the limited liability company to contribute cash equal to that portion of the agreed value (as stated in the records of the limited liability company) of the contribution that has not been made.
The foregoing option shall be in addition to, and not in lieu of, any other rights, including the right to specific performance, that the limited liability company may have against such member under the limited liability company agreement or applicable law.