What Are the Benefits of a Delaware LLC?

By Joe Stone

Delaware enacted its LLC laws in 1992, called the Limited Liability Company Act, which authorized the formation of a new type of business entity that combines the most favorable aspects of a corporation and a partnership. The LLC owners, referred to as members, have the same limited liability as the shareholders of a corporation and receive the same income tax treatment as a partnership. Although all states have enacted LLC laws, forming an LLC under Delaware law has some unique benefits.

Court of Chancery

The Delaware court system is unique among the states with its Court of Chancery, a specialized court for adjudicating business disputes. The Court of Chancery is well-known for its expertise in corporate law, which has been developed over 200 years, and under Delaware’s LLC law, the Court of Chancery’s jurisdiction includes LLC disputes. In fact, members of a Delaware LLC have the same right as shareholders of a corporation to file a derivative action in the Court of Chancery; that is, a lawsuit to enforce an LLC’s claim against another individual or company that is not being adequately pursued by the LLC’s managing members.

Freedom of Contract

The state of Delaware has always enjoyed a reputation for having a favorable business climate for corporations, especially with regard to freedom of contract and enforcing the rights of the contracting parties. In 2010, the Delaware Legislature enacted an amendment to Delaware's LLC law to extend the same freedom of contract principles to LLCs. The amendment overturned the effect of a Delaware Supreme Court decision that found an LLC's oral operating agreement unenforceable because it did not comply with the statute of frauds; that is, the agreement could not be performed in one year. The amendment makes such operating agreements enforceable.

Ready to start your LLC? Start an LLC Online Now


Delaware LLC law also benefits those business owners who value confidentiality and privacy of information that can be made public through filing documents with the state. For example, upon creating an LLC, all states require filing a document, called articles of organization or certificate of formation, which will be available for public viewing. Unlike other states, the certificate of formation required to create a Delaware LLC does not need to include the names and addresses of the LLC's members or managers.

Series LLC

A specialized form of LLC, called a series LLC, is available in only eight states, one of which is Delaware -- the first state to amend its LLC laws to provide for a series LLC. The benefit of a series LLC is its ability to create separate series or cells in order to segregate its assets to prevent the profitability of one asset from incurring the liabilities of an under-performing asset. Such an LLC is especially suited for owning multiple rental properties so that each property can be segregated into different series within the LLC.

Ready to start your LLC? Start an LLC Online Now
How to Transition an LLC to a Corporation



Related articles

Can an LLC Offer Both Preferred & Common Shares?

A limited liability company, or LLC, is a popular type of business association that offers small business owners flexibility and simplified formalities. An LLC is not required to have multiple owners or a board of directors, and LLC owners can determine how their LLC will be structured and operated by executing an operating agreement. However, LLCs cannot issue stock.

What Types of Businesses Can Be Converted to an LLC?

All states have either enacted the Uniform Limited Liability Company Act or a law with similar provisions authorizing the formation of limited liability companies. According to these state laws, an LLC can be established for any lawful business purpose. Because of the flexibility of this type of business structure, an LLC is suitable for virtually any type of business enterprise. An LLC is established through the filing of articles of organization with state government. An LLC provides two significant benefits to the owner. First, an LLC provides the same type of liability protection normally associated with a corporation. An owner is not personally liable for the activities of the business organized as an LLC. Second, unlike a corporation, in which an owner faces the prospect of double taxation, an LLC offers a pass-through tax mechanism. With an LLC, an owner faces only tax liability one time.

Can an LLC Have Separate Divisions?

Segregating assets within a company is one way of shielding a relatively stable and profitable asset from the liability that may result from a risky asset. Corporations can do this through the use of divisions that comply with complex IRS rules. In a few states, LLCs, or limited liability companies, are permitted to do the same through the use of what is known as a “series LLC.”

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

Delaware LLC Advantages

Delaware is a popular state for business owners to incorporate and form limited liability companies. The state has over ...

Model Business Corporations Act

The Model Business Corporations Act, first created by the American Bar Association, is a body of statutory law that was ...

What Are the Advantages of an LLC in Michigan?

There are a number of advantages to forming a Limited Liability Company (LLC) in Michigan. Michigan changed its laws ...

The Pros & Cons of LLCs

An LLC, or limited liability company, is a relatively new form of business entity that is a hybrid between a ...

Browse by category
Ready to Begin? GET STARTED