Delaware is considered one of the best states for incorporating an LLC. It offers low LLC startup costs, flexible tax laws, and a business-friendly court system.
Its reputable non-trial court, the Court of Chancery, is staffed by judges who have years of experience in corporate law and small business matters. These judges can help you resolve legal disputes quickly and efficiently, without having to go to a trial.
Flexibility in Taxation
Delaware is one of three states (along with Nevada and Wyoming) that offer the flexibility to choose how a company is taxed. Depending on how many owners the LLC has and its structure, it can be taxed as a partnership, a C corporation, an S corporation or as a sole proprietorship.
This is important because it allows the LLC to be taxed as a business entity rather than as a person, which saves both money and time in the long run. Additionally, it makes for an easy way to avoid double taxation on a small business that has a substantial amount of income from foreign sources.
Another advantage of a Delaware LLC is that it provides members with significant asset protection. This means that no member can be held responsible for a liability or debt sum that exceeds their original investment. This is especially useful if a creditor sues a member or attempts to acquire a portion of the assets.
Liability Protection
The Delaware LLC is an excellent choice for real estate investors because it offers liability protection and flexibility in how you structure your business. This is a very important benefit to any investment because real estate investments often involve property or other assets that cannot be easily separated from other liabilities.
In addition to asset protection, the Delaware LLC also provides flexibility in management by offering a range of managerial rights, powers and duties for its members. This can be especially beneficial if there are multiple managers or multiple classes of LLC interests with different business purposes that entail differing rights, powers and duties.
One of the greatest advantages of the Delaware LLC is that a creditor cannot seize its assets or the ownership interest in the LLC without obtaining a charging order. This is the strongest liability protection available.
Business-Friendly Court System
The state of Delaware has one of the most business-friendly court systems in the country. Its Court of Chancery is specifically dedicated to resolving disputes involving corporations and other businesses, and its judges are selected for their qualifications.
Judges in Delaware make reasoned, non-political decisions and don’t have a history of favoritism. This is important for companies because it provides predictability when a dispute arises.
It also ensures that cases are resolved quickly and efficiently. Civil trials can take up to two years in most states, but it can be less than a month in Delaware.
Another advantage to Delaware corporate law is that its Court of Chancery has a large body of case law. This helps business owners understand whether it makes more sense to settle a lawsuit or go to trial.
No Annual Report Required
The state of Delaware doesn’t require an LLC to file annual reports. Instead, it requires LLCs to pay a flat-rate annual tax of $300 (called the “Franchise Tax”).
Domestic and foreign LLCs formed or registered in Delaware must pay this Franchise Tax by June 1 each year. This fee is paid by every business entity that forms in the state, whether it has any income or activity.
Corporations in the state must also file an annual report and pay a franchise tax. This is required of all corporations that have been organized under the laws of Delaware and have acquired the right to transact or conduct business in this state.
The Delaware Division of Corporations website allows businesses to pay their tax online. Filers simply click the “Pay Taxes/File Annual Report” button on the website, enter their business entity file number, and make a payment with a credit card or electronic check (ACH Debit). Late payments are subject to a penalty of $200 plus 1.5% interest every month.