Delaware is a popular state for business owners to incorporate and form limited liability companies. The state has over 850,000 business entities registered. LLCs are special business entities that have many advantages of corporations, partnerships and sole proprietorships. LLCs are relatively new business entities. In addition to several other advantages, Delaware's well-developed body of business law and highly regarded Chancery Court provide a suitable legal forum in the event the LLC gets into a commercial dispute.
The Delaware Chancery Court is over 215 years old, and many other state courts look to it as a leader in developing corporate case law. The Chancery Court has a prominent reputation in the legal community for handling complex commercial disputes. Forming an LLC in Delaware may increase the chances that Delaware would be the appropriate forum for a dispute between the Delaware LLC and opposing party. As a leader in developing business case law, the Delaware Chancery Court tends to have the most developed case law involving LLCs.
LLCs as a business entity offer advantages to owners -- called members -- because LLCs limit the members’ personal liability. Individual LLC members are not liable for the debts of the LLC. In most cases, if an LLC gets sued and loses, the plaintiff can only get assets from the LLC and not the members’ personal assets. This advantage applies to most LLCs and is not unique to Delaware.
The Delaware Limited Liability Company Act and Delaware Department of State make it relatively simple to organize an LLC in the state. State law requires only one member. It requires no minimum capital contribution, and a Delaware LLC is considered formed at the time the member files the certificate of formation. Delaware state law does not require the LLC to be based in Delaware or have an office in Delaware. However, the LLC must have a registered agent in the state. As of 2010, the fee for a certificate of organization is $90, which is relatively low compared to other states.
Delaware LLCs’ profits and losses flow through to the individual members. That means the individual members include the LLC information on their individual tax returns. This type of taxation avoids how C-corporations are subject to double taxation, in which the corporation files a separate return and pays taxes on profits, and then individual shareholders file returns and pay taxes on any corporate income.
Each business is unique. The decision of whether to form an LLC and where to form it requires careful consideration of all relevant state and federal laws and regulations, as well as relevant tax, management and liability concerns. It should only be made after consulting a qualified attorney licensed to practice in your jurisdiction. This article should not be construed as legal advice. It is for educational purposes only.