Each state has its own business laws, and Delaware is unique in many aspects. In fact, over 60% of Fortune 500 companies are incorporated in the state due to its tax savings, pro-business laws and other advantages.
Forming your limited liability company in Delaware may or may not be the right choice for your business, depending on your situation. The following are the most important benefits of a Delaware LLC to consider.
Tax advantagesWhen you incorporate in Delaware, you benefit as the state has no income tax, sales tax or tax on tangible property. You will pay a franchise tax when you incorporate, but it is among the lowest in the country. As an added benefit, Delaware has no taxes on capital stock or assets, which can help as your business grows.
As an LLC, regardless of the state of incorporation you choose, you will be taxed as a pass-through entity. This means profits and losses are passed to individual LLC members to report on their personal income tax returns.
Delaware is unique in that is has a business court called the Court of Chancery. This court only hears business disputes, with judges chosen by merit who issue written opinions. This is very important as it means Delaware has a long history of legal precedent which makes business disputes easy to predict.
A Delaware LLC is very affordable to create, with a cost as low as $89. This is the lowest formation cost in the country. The annual franchise tax is also very low compared to other states.
Delaware limited liability companies do not need to keep minutes or hold regular meetings, and members may be anywhere in the world. You can choose to have a single member LLC with minimal investment, with your LLC formed as soon as you file your Articles of Formation.
Whether or not forming a limited liability company in Delaware is right for your business depends on many factors. If your business is still small, and you do not do business in Delaware, you will likely save more money and effort by filing Articles of Formation in your home state, however. This is an important decision that you should discuss with your attorney and a corporate services company to make the right choice for your business.
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Comments
I lived in Delaware for four years, and I also own an LLC based in Delaware.
Delaware has raised their franchise tax and it is now $300 annually, for an LLC. It's important to note (and consider this). Delaware is not the cheapest state in which to own an LLC--there are many states with lower annual fees or taxes. The low cost of formation is deceptive--it costs over three times as much to pay the annual fee, as to form the LLC to begin with. The advantages of Delaware are not cost--they're in the ease of formation, efficiency of the system, and good protections in court. Forming an LLC there might not be the best choice for all people because of this.
Also a caveat, Delaware does have income tax, and it's actually relatively high. There is both a personal income tax, and a corporate income tax. The personal income tax rate is progressive on the low end of income, but most middle to high income payers will pay closer to 6% which is quite high as states go. This is only relevant to people who live in Delaware but I thought I'd mention it because your comments could be misleading if people interpret it as Delaware not having income tax at all. The corporate income tax is only for corporations that conduct business in Delaware, and it's 8.7%. This doesn't really influence where you choose to incorporate though, because you pay this tax whether or not you are incorporated in Delaware, and LLC's as pass-through entities don't pay it, but I just wanted to note that.
Delaware also has very high penalties on late payments of taxes. It would not be a good choice of a place to incorporate for a casual business owner that is not always on top of their tax payments.