How to Start an LLC in Delaware

More than 1.5 million business entities are registered in Delaware, including a majority of Fortune 500 companies. While Delaware is especially popular for corporations, it also offers significant advantages for LLCs.

• Court of Chancery: Delaware's dedicated business court uses judges (not juries) who specialize in business law. This creates more predictable outcomes for business disputes and a vast body of legal precedent.
• Strong privacy protections: Delaware does not require LLC members or managers to be listed on the Certificate of Formation, offering greater privacy than most states.
• Flexible LLC Act: The Delaware Limited Liability Company Act gives LLC members broad freedom to customize their operating agreements and business structure.
• Asset protection: Delaware provides strong charging order protections, making it harder for creditors to seize LLC membership interests.
• No state income tax on out-of-state operations: If your LLC does not conduct business within Delaware, you generally will not owe Delaware state income tax.
• Low filing fee: At $90, Delaware's LLC filing fee is very affordable.

Delaware LLCs are required to pay an annual franchise tax of $300 (as of our last review). This tax is due by June 1 each year and is paid to the Delaware Division of Corporations.

This is a flat fee regardless of your LLC's income. Failure to pay the franchise tax can result in penalties, interest, and eventual cancellation of your LLC. Late payments incur a $200 penalty plus 1.5% interest per month.

It is important to distinguish the Delaware LLC franchise tax from the Delaware corporate franchise tax. The LLC tax is a simple flat fee. The corporate franchise tax for Delaware corporations uses a more complex calculation. As an LLC owner, you only need to worry about the flat $300 annual payment.

Verify the current franchise tax amount at corp.delaware.gov.

Here is a detailed breakdown of the fees associated with forming and maintaining a Delaware LLC:

Keep in mind that if you do not live in Delaware, you will likely also need to register as a foreign LLC in your home state. This adds to the overall cost. For this reason, many small business owners find it more cost-effective to simply form in their home state unless they have specific reasons to choose Delaware.

State Income Tax

Delaware does not impose income tax on LLCs that do not operate within the state. If your LLC has no physical presence, employees, or business activity in Delaware, your income will generally only be taxed in the state(s) where you actually conduct business. However, if you do have operations in Delaware, the state imposes a personal income tax ranging from 2.2% to 6.6% on income earned within its borders.

Federal Income Tax

Like all LLCs, your Delaware LLC is a pass-through entity for federal tax purposes by default. Single-member LLCs report income on Schedule C of Form 1040, while multi-member LLCs file a partnership return (Form 1065). You can also elect S-Corp or C-Corp taxation if it benefits your situation.

Sales Tax

Delaware is one of only five states with no sales tax. This can be an advantage for e-commerce businesses that have nexus only in Delaware, though you will still need to collect sales tax for customers in states where you have nexus and those states impose sales tax.

Self-Employment Tax

LLC members who are actively involved in the business owe federal self-employment tax at 15.3% on their share of net earnings, regardless of where the LLC is formed. This is a federal obligation, not a Delaware-specific one.

One of the most important considerations when forming a Delaware LLC is whether you will also need to register as a foreign LLC in your home state. If you live in California, Texas, New York, or any other state and conduct business there, that state will require you to register your Delaware LLC as a foreign entity.

Foreign LLC registration typically involves filing an application with your home state's Secretary of State, paying a registration fee (which varies by state), appointing a registered agent in that state, and complying with that state's annual reporting requirements and taxes.

This means you could end up paying annual fees and maintaining compliance in two states. For example, a Delaware LLC operated by someone in California would pay the $300 Delaware annual franchise tax plus the $800 California annual franchise tax, plus registered agent fees in both states.

This dual registration is why Delaware LLCs are generally most beneficial for businesses with multi-state operations, complex ownership structures, or specific needs for Delaware's legal protections. For a single-state small business, forming in your home state is usually simpler and less costly.

Delaware offers some of the fastest processing times in the country:

• Standard filing: Typically processed within three to five business days.
• 24-hour expedited: Processed within one business day for an additional $50.
• Same-day expedited: Processed the same day for an additional $100 (must be received by a certain time).
• One-hour expedited: Available for an additional $500 to $1,000 depending on volume.

Using a formation service like ZenBusiness or Northwest Registered Agent can streamline the process since they handle the filing, registered agent setup, and any expediting on your behalf.

• Not registering in your home state: If you form in Delaware but operate elsewhere, you must also register as a foreign LLC in that state. Neglecting this can result in fines and inability to enforce contracts.
• Choosing Delaware for the wrong reasons: Delaware's advantages are most relevant for businesses seeking strong legal protections, investor-friendly structures, or privacy. If you are a small local business, the added costs and complexity of dual registration may outweigh the benefits.
• Missing the June 1 franchise tax deadline: Late payment triggers a $200 penalty plus monthly interest. Continued non-payment leads to LLC cancellation.
• Neglecting the operating agreement: Delaware's flexible LLC Act gives enormous power to the operating agreement. Without one, you miss out on customization that is one of Delaware's key advantages. See our operating agreement guide.
• Underestimating total costs: When budgeting for a Delaware LLC, factor in the registered agent fee, annual franchise tax, and any foreign registration fees in your operating state.
• Assuming Delaware means no taxes: While Delaware does not tax out-of-state operations, you still owe federal taxes and any taxes in the state where you actually conduct business.

Advantages

• The Court of Chancery provides specialized, predictable business dispute resolution without jury trials.
• Strong privacy protections since member and manager names are not required on formation documents.
• The most flexible LLC statute in the country, giving members wide latitude to structure their operating agreements.
• Strong charging order protections for asset protection.
• Low initial filing fee of just $90.
• No sales tax in Delaware.
• Widely recognized and respected by investors, banks, and business partners.

Disadvantages

• The $300 annual franchise tax applies regardless of LLC income.
• You will likely need to register as a foreign LLC in your operating state, doubling your compliance burden and costs.
• The advantages of Delaware's Court of Chancery are most relevant if you actually have disputes that go to court in Delaware.
• The privacy advantage is diminished if you must register as a foreign LLC in a state that requires member disclosure.
• More complex compliance compared to simply forming in your home state.

Once your Delaware LLC is officially formed, complete these critical steps:

• Register as a foreign LLC in your home state: If you do not live or primarily operate in Delaware, you will likely need to register your Delaware LLC as a foreign entity in the state where you do business.
• Open a business bank account: Keep personal and business finances separate. Bring your Certificate of Formation, EIN letter, and operating agreement to the bank.
• Pay the annual franchise tax: Remember the June 1 deadline each year. Set a calendar reminder well in advance.
• Finalize your operating agreement: Take full advantage of Delaware's flexible LLC Act by crafting a comprehensive operating agreement that addresses all key business scenarios.
• Obtain necessary licenses and permits: Check requirements in both Delaware and any state where you operate.
• Set up accounting: Implement bookkeeping systems from day one to track income, expenses, and member distributions accurately.
• Consider business insurance: General liability, professional liability, or other coverage as appropriate for your industry.
• Maintain your registered agent: Ensure your Delaware registered agent remains active and in good standing. If you switch agents, file a Change of Agent form with the Division of Corporations.