A Delaware LLC is a limited liability company formed under Delaware’s Limited Liability Company Act. It gives its owners a shield against personal responsibility for the business’s debts, lets them write almost any internal rules they want into an operating agreement, and keeps their names off the public formation record. In exchange, the company owes Delaware a flat $300 franchise tax every year, must keep a registered agent with a Delaware street address, and — if it actually operates somewhere else — will usually have to register in that other state too.
About two-thirds of Fortune 500 companies are incorporated in Delaware, and the same features that attract them pull in small businesses and startups.
What Makes Delaware Different
The Court of Chancery
Delaware has a dedicated equity court, the Court of Chancery, that hears business disputes without juries. The judges spend their careers on corporate and business law, so cases are decided by people who already understand the issues. Decades of their rulings have built a body of case law that makes outcomes more predictable than in states where business cases go in front of general-jurisdiction judges.
Freedom of Contract
Delaware’s LLC Act is written around the idea that the operating agreement controls almost everything. The statute’s stated policy is “to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.” In practice, members can customize profit splits, voting rights, management structure, and even fiduciary duties in ways that would not hold up in many other states. Members can expand, restrict, or eliminate fiduciary duties entirely. The one thing they cannot waive is the implied covenant of good faith and fair dealing.1Justia. Delaware Code Title 6 Section 18-1101 – Construction and Application of Chapter and Limited Liability Company Agreement
Privacy
The Certificate of Formation — the document filed with the state to create the LLC — requires only the company’s name and the registered agent’s name and address.2Justia. Delaware Code Title 6 Section 18-201 – Certificate of Formation Members and managers are not listed. Their names stay in the operating agreement, which is never filed with the state. For owners who want to keep their involvement out of public records, that is a real difference from states that put member or manager names into their formation filings.
The Liability Shield, and How People Lose It
Because the LLC is a separate legal entity, its debts and legal obligations belong to the company, not to the individual members. If the LLC is sued or can’t pay its bills, creditors can go after company assets but generally cannot reach a member’s personal savings, home, or other property.3American Bar Association. Limited Liability Limited
This protection is not absolute. Courts can set it aside, something commonly called “piercing the veil,” when members treat the company as an extension of themselves. Mixing personal and business funds, ignoring basic formalities, or using the LLC to commit fraud are the fastest ways to lose the shield. Keeping clean financial records, maintaining a separate bank account, and actually following the operating agreement go a long way toward preserving it.
The Operating Agreement
The operating agreement is the internal rulebook. It sets each member’s ownership percentage, how profits and losses are divided, who has authority to decide what, and what happens when a member leaves or a new one joins. Delaware does not require this document to be filed anywhere, but it is the single most important document the LLC will have. Without one, default statutory rules fill the gaps, and those defaults rarely match what the members actually intended.
Delaware allows the agreement to be written, oral, or even implied, but relying on anything other than a detailed written document is asking for trouble.4Delaware Code Online. Delaware Code Title 6 Chapter 18 – Limited Liability Company Act
Series LLCs
Delaware offers a structure most states do not: the series LLC. A single parent LLC can create multiple internal series, each with its own assets, members, managers, and business purpose. The point is liability segregation. When the structure is set up correctly, debts of one series can be enforced only against that series’ assets, not against the parent or any other series.5Justia. Delaware Code Title 6 Section 18-215 – Series of Members, Managers, Limited Liability Company Interests or Assets
Three conditions have to be met for that protection: the operating agreement must provide for the series, the LLC must keep separate accounting records for each series’ assets, and the Certificate of Formation must include notice of the limitation on liabilities.5Justia. Delaware Code Title 6 Section 18-215 – Series of Members, Managers, Limited Liability Company Interests or Assets Real estate investors often use series LLCs to hold multiple properties under one umbrella with each property’s liability walled off. One caveat: not every state recognizes series LLCs, so this structure works best when most of the activity stays within Delaware or in states that honor the concept.
How to Form One
Delaware is known for processing filings quickly, sometimes within hours when expedited.
- Pick a name that is distinguishable from other business entities already on file with the Delaware Division of Corporations. The name must include “Limited Liability Company” or an abbreviation like “LLC.” You can search existing names through the Division’s website.
- Appoint a registered agent. Every Delaware LLC must have one, with a physical street address in Delaware. The agent can be an individual Delaware resident, another business entity, or even the LLC itself. Most out-of-state owners hire a professional registered agent service, which typically costs between $35 and $350 per year.6Justia. Delaware Code Title 6 Section 18-104 – Registered Office; Registered Agent
- File the Certificate of Formation with the Delaware Division of Corporations. It requires only the company’s name and the registered agent’s name and address, though you can include additional provisions if you want. The standard filing fee is $90; expedited processing costs more. Check the Division’s current fee schedule.2Justia. Delaware Code Title 6 Section 18-201 – Certificate of Formation7Delaware Division of Corporations. Delaware Division of Corporations – Corporate Fee Schedule
- Draft the operating agreement. It is not filed with the state, but it should be prepared immediately after formation.
- Get a federal Employer Identification Number. You need an EIN to open a business bank account, hire employees, and file federal tax returns. The IRS issues them for free through its online application and gives you the number immediately. Third-party websites that charge for this are not required; the IRS never charges a fee.8Internal Revenue Service. Get an Employer Identification Number
The LLC legally exists once the Division of Corporations accepts and files the Certificate of Formation. It can exist as of the filing date or a later date specified in the certificate.2Justia. Delaware Code Title 6 Section 18-201 – Certificate of Formation
How a Delaware LLC Is Taxed
Delaware does not impose a state income tax on LLCs that do not operate within the state. Federal tax is a different story.
Default Pass-Through Treatment
The IRS has no specific tax classification for LLCs. A single-member LLC is treated as a “disregarded entity,” meaning the IRS ignores it and the owner reports all income and expenses on their personal return. A multi-member LLC is classified as a partnership, with profits and losses flowing through to each member’s individual return.9Internal Revenue Service. Limited Liability Company (LLC) Either way, the LLC itself pays no federal income tax. Members pay tax on their share of profits whether or not the money was actually distributed to them.
Self-Employment Tax
Members who actively participate in the business owe self-employment tax on their share of net earnings. The combined rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. The Social Security portion applies only to the first $184,500 of net earnings in 2026.10Social Security Administration. Contribution and Benefit Base The Medicare portion has no cap, and higher earners pay an additional 0.9% Medicare surtax.11Internal Revenue Service. Topic No. 560, Additional Medicare Tax This tax catches a lot of new LLC owners off guard because it applies on top of regular income tax.
S-Corporation Election
An LLC can elect to be taxed as an S-corporation by filing IRS Form 2553. Members who work in the business then pay themselves a reasonable salary, which carries normal payroll taxes, and any remaining profits pass through as distributions that are not subject to self-employment tax. For profitable LLCs where the owners work in the business, this can mean meaningful savings.
The deadline to elect S-corp status is no more than two months and 15 days after the start of the tax year the election should take effect, or any time during the preceding tax year.12Internal Revenue Service. Instructions for Form 2553 Miss it and the election won’t apply until the following year, unless you qualify for late-election relief. The IRS looks at whether the salary is actually “reasonable,” so setting it artificially low to shrink payroll taxes invites audit risk.
What You Owe Every Year
Every Delaware LLC, whether domestic or registered as a foreign LLC in the state, owes a $300 annual franchise tax. Payment is due by June 1 of the year following the tax year.13Justia. Delaware Code Title 6 Section 18-1107 – Taxation of Limited Liability Companies and Registered Series It is a flat fee with no connection to revenue or profit. Delaware does not make LLCs file an annual report the way many other states do; paying the tax is the main annual obligation.
Miss the June 1 deadline and the state adds a $200 penalty plus 1.5% monthly interest on the unpaid balance.13Justia. Delaware Code Title 6 Section 18-1107 – Taxation of Limited Liability Companies and Registered Series The bigger risk is longer-term neglect. If the tax goes unpaid for three consecutive years, Delaware automatically cancels the LLC’s Certificate of Formation.14Justia. Delaware Code Title 6 Section 18-1108 – Cancellation of Certificate of Formation or Certificate of Registered Series for Failure to Pay Taxes A canceled LLC loses its legal existence. The state publishes a list of canceled entities each year. Reinstatement is possible, but it means paying all back taxes, penalties, and interest, and the LLC has no legal standing during the period it was canceled.
The registered agent requirement is also ongoing. Your LLC must continuously maintain a registered agent with a Delaware street address for as long as it exists.6Justia. Delaware Code Title 6 Section 18-104 – Registered Office; Registered Agent Letting the agent lapse can cause you to miss legal notices, including lawsuit filings, and that can produce default judgments against the company.
If You Actually Operate Somewhere Else
Forming in Delaware does not authorize the LLC to do business in other states. If your LLC has a physical office, employees, or regularly meets clients in another state, that state will likely require you to register as a “foreign LLC” and pay its own filing fees and annual taxes. Foreign qualification filing fees vary, typically between $70 and $250.
Skipping foreign qualification has real consequences. Most states will deny an unregistered foreign LLC access to their court system, meaning you could be unable to enforce contracts or sue to collect debts there. You may also face back taxes and penalties for the period you operated without registering. For a Delaware LLC that primarily operates in one other state, this means paying both the $300 Delaware tax and the home state’s fees and taxes, which is worth weighing before you decide Delaware formation is the right move for your business.
Remote work and out-of-state customers alone do not always trigger registration requirements. Leasing office space, storing inventory, or hiring employees in a state almost certainly will. When you are not sure where a particular state draws the line, check with that state’s Secretary of State office before you start operating there.