The Delaware Limited Liability Company Act, codified at Title 6, Chapter 18 of the Delaware Code, is the statute that governs how LLCs formed in Delaware are created, run, and dissolved. Its organizing idea is unusual among state business statutes: wherever possible, the operating agreement controls, and the Act’s own rules apply only as defaults when the members have not written their own. Section 18-1101(b) states the policy directly, giving “maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”1Justia. Delaware Code 6-18-1101 – Construction and Application of Chapter and Limited Liability Company Agreement
That design shapes everything else. If you want to know what rules will actually govern your LLC, the answer is: whatever your operating agreement says, backed up by Delaware’s statutory defaults for anything it doesn’t address.
Freedom of Contract Is the Default Setting
Section 18-101(9) defines a “limited liability company agreement” broadly to include any agreement among the members about the company’s affairs, whether written, oral, or implied.2Justia. Delaware Code 6-18-101 – Definitions Delaware recognizes all three forms, but proving the terms of an oral or implied agreement in court is difficult. For any LLC with more than one member or any meaningful assets, a written agreement is the practical standard.
Within that agreement, members can override most of what the Act otherwise provides: voting rules, profit allocation, management structure, transfer restrictions, dispute resolution, and even fiduciary duties. Delaware courts routinely enforce these customized terms. In Elf Atochem North America, Inc. v. Jaffari, the Delaware Supreme Court upheld an operating agreement’s clause sending all disputes to arbitration in California, and treated the agreement as binding on both the members and the LLC itself.3Justia. Elf Atochem N. America, Inc. v. Jaffari
What the Act Requires to Form an LLC
The Act keeps formation deliberately thin. Section 18-201 requires a Certificate of Formation filed with the Delaware Secretary of State containing only the LLC’s name, the name and address of its registered agent, and any additional provisions the members choose to include.4Justia. Delaware Code 18-201 – Certificate of Formation The filing fee is $110.5Delaware Division of Corporations. Delaware Division of Corporations Fee Schedule The thinking is that the Certificate is a public notice document; the real governance happens inside the operating agreement.
The name must include “Limited Liability Company,” “L.L.C.,” or “LLC” and be distinguishable from other entities on file. You can use a name that matches an existing entity only with that entity’s written consent, filed with the Secretary of State.6Justia. Delaware Code Title 6 Section 18-102 – Name Set Forth in Certificate
Section 18-104 requires every Delaware LLC to maintain a registered office and registered agent in the state for service of process.7Justia. Delaware Code 6-18-104 – Registered Office; Registered Agent The agent can be the LLC itself, a Delaware resident, or another authorized business entity. If you have no Delaware presence, you’ll hire a commercial agent, typically $50 to $300 per year.
Default Management Rules and How to Change Them
Section 18-402 sets the default: management rests with the members in proportion to their current profit interests, with decisions made by members holding more than 50 percent of those interests.8Justia. Delaware Code 6-18-402 – Management of Limited Liability Company Note that this is a profit-weighted vote, not one vote per member.
Everything about that structure can be rewritten. The operating agreement can shift management to one or more designated managers (who need not be members), create committees, set different voting thresholds for different categories of decisions, require supermajority or unanimous consent for major transactions, and reserve specific powers to the members in an otherwise manager-managed company. A member-managed structure fits small LLCs where every owner is active; a manager-managed structure fits companies with passive investors or complex operations.
Fiduciary Duties: Where the Act Goes Furthest
This is the provision that most distinguishes Delaware LLCs from Delaware corporations. Section 18-1101(c) allows the operating agreement to expand, restrict, or even eliminate the fiduciary duties members and managers owe to the company and to each other.1Justia. Delaware Code 6-18-1101 – Construction and Application of Chapter and Limited Liability Company Agreement The one floor: no agreement can eliminate the implied contractual covenant of good faith and fair dealing.
For investment funds and other structures with passive capital, a manager can negotiate for narrowly defined duties rather than the broad loyalty and care obligations that bind corporate directors. If the operating agreement is silent on fiduciary duties, the situation is less clear. The Delaware Supreme Court in Gatz Properties, LLC v. Auriga Capital Corp. decided the case on the operating agreement’s own language and deliberately declined to resolve whether the Act imposes default fiduciary duties when an agreement says nothing. That open question is a strong reason to address duties expressly in writing rather than leaving them to a court.
The Liability Shield and Its Limits
Section 18-303 provides the core protection: the debts, obligations, and liabilities of a Delaware LLC belong to the LLC alone, and no member or manager is personally liable for them solely by reason of being a member or manager.9Justia. Delaware Code 18-303 – Liability to Third Parties A member can voluntarily agree to personal liability in the operating agreement or a separate contract, so read guarantees and side letters closely.
Section 18-1002 limits derivative standing to members and assignees of LLC interests. Applying that language in CML V, LLC v. Bax, the Delaware Supreme Court held that creditors of an insolvent LLC cannot bring derivative claims on the company’s behalf.10Justia. CML V, LLC, et al. v. Bax, et al. This is a sharper line than corporate law draws, where creditors of an insolvent corporation can sometimes sue directors derivatively.
The shield is strong but not absolute. Delaware courts can pierce the veil and reach members personally, though they treat it as a high bar. Courts weigh factors like inadequate capitalization, insolvency, siphoning of funds by a dominant member, and whether the LLC operated as a facade for its owner. No single factor is decisive, and Delaware public policy disfavors disregarding an entity’s separate existence. For single-member LLCs, courts have recognized that the Act requires few formal rituals, so the absence of formal meetings matters less than it would for a corporation.
Series LLCs
Delaware was the first state to authorize the series LLC, now in Section 18-215. A single LLC can create internal series, each with its own assets, members, and liabilities, and properly structured series produce liability separation: the debts of one series cannot be enforced against the assets of another or against the LLC’s general assets.11Justia. Delaware Code 18-215 – Series of Members, Managers, Limited Liability Company Interests or Assets
Three conditions must be satisfied for that separation to hold: the operating agreement must authorize series, the Certificate of Formation must give notice of the liability limitation, and each series’ assets must be accounted for separately from every other series and from the LLC itself.
Delaware now recognizes two forms. A protected series exists only through the operating agreement and internal records, with no separate state filing. A registered series is created by filing a certificate of registered series with the Secretary of State, giving it a public formation record similar to a standalone LLC. Registration costs $110, and each registered series owes its own $75 annual tax on June 1. Both forms can achieve liability separation if the three conditions are met; registration mainly makes it easier to prove the series exists to banks and counterparties.
Federal tax treatment is a separate matter. The IRS has proposed treating each series as a separate entity for federal tax purposes and has applied that approach in practice, though final regulations have not been issued. Plan on treating each series as a separate taxpayer.
Annual Tax and Staying in Good Standing
Every Delaware LLC owes a flat $300 annual franchise tax, due June 1, regardless of size or revenue. A late payment triggers a $200 penalty plus 1.5 percent monthly interest on the unpaid balance.12Delaware Division of Revenue. Franchise Taxes Delaware does not require an annual report from LLCs, which keeps compliance lighter than in many other states.13Delaware Division of Corporations. LLC/LP/GP Franchise Tax Instructions Three consecutive years of unpaid franchise tax can lead the state to void the Certificate of Formation, with the loss of good standing and potentially of liability protection that follows.
Forming in Delaware Doesn’t Authorize You Elsewhere
The Act governs formation and internal affairs in Delaware. It does not give your LLC the right to operate in other states. If you have a physical office, employees, or significant recurring business activity in another state, that state will generally require you to register as a foreign LLC and obtain a certificate of authority. Foreign qualification fees typically run $100 to $300, and most states impose their own annual reports and taxes on top. Each state defines “doing business” differently; most statutes exempt isolated transactions and simply holding a bank account, while remote employees, inventory, and regular customer solicitation fall into grayer territory. Multi-state operations can erase the simplicity that drew people to Delaware in the first place, so budget for every state where you’ll actually operate.
Dissolving a Delaware LLC
Section 18-801 lists how a Delaware LLC dissolves. If the operating agreement sets a termination date or triggering event, those control. Without such provisions, dissolution requires the vote or consent of members holding more than two-thirds of the profit interests. The LLC also dissolves if it has no remaining members, though the operating agreement or the last member’s personal representative can preserve the company by admitting a new member within 90 days.14Justia. Delaware Code 6-18-801 – Dissolution A court can also order judicial dissolution under Section 18-802.
Dissolution kicks off a winding-up period under Section 18-803. The people responsible for the wind-up can continue to sue and be sued on the LLC’s behalf, settle its business, liquidate property, pay creditors, and distribute what remains to members.15Justia. Delaware Code 6-18-803 – Winding Up Creditors must be paid or adequately provided for before any member distribution. Skipping that order can expose the people running the wind-up to personal liability.
To end the LLC’s legal existence, file a Certificate of Cancellation with the Secretary of State. The fee is $220, plus any outstanding annual taxes.5Delaware Division of Corporations. Delaware Division of Corporations Fee Schedule Until that certificate is filed, the LLC continues to exist for winding-up purposes, and continues to accrue annual franchise tax.