Forming a Single-Member LLC in Delaware | A Guide For Business Owners

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Forming a Single-Member LLC in Delaware

If you would like to start an LLC in Delaware, also known as The First State, there are a few things that you should consider. In Delaware, putting up a single-member limited liability company (LLC) will benefit you and your business since it protects your assets, and maintain good standing. It also combines a corporation’s limited liability protection with a sole proprietorship’s simplicity and flexibility.

In this article, Webinarcare Editorial Team will walk you through the step-by-step process of forming a Single-Member LLC in Delaware and provide valuable tips to help you succeed in your entrepreneurial journey.

How to Form a Single-Member LLC in Delaware

Understanding Single-Member LLCs

A single-member LLC in Delaware is a business entity with only one owner, also known as a member. This business structure offers several advantages, including limited liability protection, pass-through taxation, and ease of management. In Delaware, single-member LLCs are subject to state-specific regulations and requirements, which may vary from other states. The formation process typically involves choosing a unique business name, registering with the Secretary of State, and completing other required steps to comply with Delaware laws and regulations.

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It is suggested that you speak with a legal professional before you begin setting up your single-member LLC. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC for your business.

– WEBINARCARE EDITORIAL TEAM

How to Form a Single-Member LLC in Delaware

To form a single-member LLC for your business, you must follow the guidelines, including research and planning, registering your single-member LLC, establishing your business operations, and maintaining compliance with Delaware regulations.

Step 1: Research and Planning

Before you can form your single-member LLC in Delaware, conducting thorough research and creating a solid business plan is crucial. This stage involves the following steps:

Research State-Specific Requirements

Each state has its own regulations for maintaining and forming an LLC. To ensure you comply with Delaware law, familiarize yourself with the state’s LLC requirements, such as filing fees, Annual Report requirements, and ongoing compliance obligations.

Choose a Business Name

Selecting a name for your LLC is an essential part of the formation process. Your business name should be unique, memorable, and reflective of your products or services. There is a complete guide on Business Name Search in Delaware for you to have a proper LLC business name. 

In Delaware, your single-member LLC name must:

  • Include the words “Limited Liability Company,” “LLC,” or “L.L.C.”
  • Not contain any words or phrases that are prohibited by state law
  • Be distinguishable from the names of other businesses registered in the state

If you do not wish to file your LLC right away but want to hold the name that you have decided on, then you can reserve your LLC name for 120 days. You must file a name reservation application in the Delaware Secretary of State to keep the name. 

You can register your business under a different legal name if your preferred name isn’t available.  Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire for your business. A DBA allows a company to operate under the name of the person or entity who owns it. If you have decided to file for a DBA in Delaware, you can file it in two methods, by mail, and in person.

However, before filing a DBA, you should know that you need to renew your DBA, which costs around $25. You can check the availability of your desired business name by searching the Delaware Division of Corporations Entity Search‘s website.

Recommended: Embark on your entrepreneurial journey confidently and affordably with LegalZoom’s DBA service, the beacon that guides businesses to credible branding and comprehensive compliance. Discover how effortless success can truly be!

– LegalZoom – ($99 + Filling Fees)

Determine Licensing and Permit Requirements

Depending on the nature of your business, you may need to obtain certain licenses and permits to operate legally. Research the specific requirements for your industry in Delaware by consulting the state’s business licensing portal, contacting your local Chamber of Commerce, or seeking advice from Delaware Business Attorney.

Create a Business Plan

A well-crafted business plan will guide your single-member LLC’s growth and success. Your business plan for your Delaware single-member LLC should cover key aspects such as:

  • Executive summary
  • Company Description
  • Market Analysis
  • Competitive Analysis
  • Products and Services
  • Marketing and Sales Strategy
  • Organizational Structure
  • Financial Projections

Step 2: Registering Your Single-Member LLC

Once you have completed the initial research and planning, it’s time to register your single-member LLC with the Delaware Secretary of State. Here are the steps involved:

File the Certificate of Formation

To officially form your single-member LLC in Delaware, you must file the Delaware Certificate of Formation with the Delaware Secretary of State. This document includes essential information about your LLC, such as:

  • The name of your LLC
  • The address of your LLC’s principal office
  • The name and address of your registered agent
  • The purpose of your LLC (optional in some states)

You can typically file the Certificate of Formation online, by mail, or in person. A filing fee is associated with this process, which costs around $90.

Appoint a Registered Agent

A Registered Agent is a person or entity responsible for receiving legal documents and official notices on behalf of your LLC. In Delaware, your Registered Agent must:

  • Be a resident of Delaware or a business entity authorized to do business in the state
  • Have a physical address in Delaware (P.O. boxes are not acceptable)

It’s essential to choose a reliable and responsible Delaware Registered Agent, as failure to receive and respond to legal documents can have serious consequences for your business. 

You can serve as your own Registered Agent or appoint a friend, family member, or a professional Delaware Registered Agent Services.

Obtain an Employer Identification Number (EIN)

An EIN, also known as a Federal Tax Identification Number, is used by the Internal Revenue Service (IRS) to identify your business for tax purposes. You’ll need an EIN to open a business bank account, file taxes, and hire employees (if necessary). 

The application of an EIN in Delaware can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

In obtaining Delaware EIN for your single-member LLC, you should be aware to ensure that your LLC is eligible for an EIN. You need an EIN if you have employees, operate as a corporation or partnership, or meet other specific IRS criteria. Before applying, gather the required information, including your LLC’s name, mailing address, and the responsible party’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Also, you can apply for an EIN through various methods, including online, by fax, mail, or telephone (for international applicants).

Recommended: Professional services have the EIN included in their LLC formation package. We recommend using –

LegalZoom – ($0 + State Fee for LLC formation)

Register Your Single-Member LLC

If your single-member LLC will collect sales tax, have employees, or be subject to certain state taxes, you may need to register with the Delaware Division of Corporations. Check the department’s website or consult a tax professional for specific registration requirements.

Step 3: Establishing Your Business Operations

With your single-member LLC officially registered in Delaware, you can now focus on setting up the operational aspects of your business.

Open a Business Bank Account

Opening a separate bank account for your Delaware single-member LLC is essential for maintaining a clear separation between your personal and business finances. This separation helps preserve the limited liability protection offered by the LLC structure. You can check out the Best Banks in Delaware, which offer the best fees, services, and convenience for your business needs.

Set Up an Accounting System

Effective financial management is crucial for the success of your single-member LLC. Establish a reliable accounting system to track income, expenses, and tax obligations. You can manage your finances using spreadsheets and accounting software by becoming a CPA in Delaware.

Create an Operating Agreement

Although not required by Delaware law, it’s highly recommended that you create an operating agreement for your single-member LLC. This document outlines your LLC’s management structure, decision-making process, and ownership rights. A clear Delaware Operating Agreement can prevent disputes and provide a framework for managing your business.

The operating agreement includes information like-

  • About Business
  • Members and management
  • Capital contribution
  • Profit Distribution
  • Change of membership
  • Dissolution

Step 4: Maintaining Compliance with Delaware Regulations

Once your single-member LLC is up and running, staying informed and compliant with state regulations is essential. Here are some key ongoing requirements for LLCs in Delaware:

File Annual Report

LLCs must file Annual Report with the Delaware Secretary of State. This report typically includes updated information about your LLC, such as its business address, Registered Agent, and member information. 

In Delaware, the annual report fee costs around $0 because it is not mandatory which can be paid every 1 year.

Pay Required Taxes and Fees

As a single-member LLC, your business income will be subject to pass-through taxation, meaning profits and losses will be reported on your personal tax return. However, you may still be responsible for other state taxes, such as sales tax, payroll tax, or franchise tax which you can pay in Delaware Division of Revenue.

In terms of franchise tax for your single-member LLC in Delaware, there is $175 minimum. Consult a tax professional to ensure you meet all your tax obligations.

Maintain Accurate and Up-to-Date Records

Keeping detailed records of your single-member LLC’s transactions, meetings, and decisions is crucial for maintaining compliance with state regulations and protecting your limited liability status. Regularly review and update your records to accurately reflect your business activities.

Cost of Forming a Single-Member LLC in Delaware

Even if you have a business name and structure in mind, consider whether you can afford the costs of forming an LLC in Delaware. Certificate of Formation costs around $90. The initial filing fee is $90, and the annual fee is $0 because it is not mandatory. 

If you forget to pay the annual fee for your Delaware LLC, you will have a penalty of $0 (not required). However, you can check the Delaware LLC Cost for additional information. 

Advantages of Starting a Single-Member LLC

Even though some people decide on what to do with their businesses, some choose to put it in their own individual name, while others still choose to set it up via single-member LLC in Delaware. These advantages will help establish a single-member LLC in Delaware. 

  • Limited Liability Protection: One of the primary advantages of a single-member LLC is the limited liability protection it provides to its owner. This means that the owner’s personal assets, such as their home and personal savings, are protected from the debts and liabilities of the business. In the event of a lawsuit or financial loss, only the assets owned by the LLC are at risk.
  • Pass-Through Taxation: Single-member LLCs enjoy pass-through taxation, meaning that the business profits and losses are reported on the owner’s tax return. This avoids the double taxation that traditional corporations face, where the company and the owner are taxed separately on the same income.
  • Simplified Management: Single-member LLCs have a simplified management structure compared to other business structures. The owner has full control over the business’s decision-making process and day-to-day operations without needing a board of directors or complex corporate formalities.
  • Flexibility in Business Operations: Single-member LLCs offer flexibility in terms of operational and management structures. The owner can operate the business as a sole proprietor while benefiting from an LLC’s limited liability protection.
  • Credibility: Forming a single-member LLC can enhance the credibility of your business in the eyes of potential customers, suppliers, and financial institutions. An LLC designation can make your business more professional and established than a sole proprietorship.

FAQs

What is a single-member LLC?
A single-member LLC is a type of limited liability company that has only one owner.
Why form an LLC in Delaware?
Delaware is a popular state for forming LLCs because its laws are business-friendly and its court system is well-established.
Can a non-resident form a single-member Delaware LLC?
Yes, non-residents can form a single-member LLC in Delaware.
What are the formation requirements for a Delaware single-member LLC?
In order to form a single-member LLC in Delaware, you must file a Certificate of Formation with the Delaware Secretary of State.
How much does it cost to form a single-member LLC in Delaware?
The state filing fee for forming a single-member LLC in Delaware is $90, as of 2021.
Do I need an operating agreement for my Delaware single-member LLC?
It is not required by law, but it is highly recommended that you have an operating agreement for your Delaware single-member LLC.
Can I act as my own Registered Agent for my Delaware single-member LLC?
Yes, as the sole owner of your Delaware LLC, you are legally allowed to act as your own Registered Agent.
What is a Registered Agent?
A Registered Agent is a responsible third party who is designated to receive official correspondence and service of process on behalf of a business entity.
What should I name my Delaware single-member LLC?
Your Delaware LLC name must be unique and should include the words “Limited Liability Company” or an accepted abbreviation of those words.
Do I need to obtain any business licenses for my Delaware single-member LLC?
The licenses and permits required for your Delaware single-member LLC will depend on your specific business activities and location. You may need to obtain state and local licenses or permits.
Am I personally liable for my Delaware single-member LLC’s debts and obligations?
As the sole owner of a Delaware single-member LLC, you are generally not personally liable for the company’s debts and obligations.
Can I elect for my single-member LLC to be taxed as an S-Corporation in Delaware?
Yes, it is possible to elect for your Delaware single-member LLC to be taxed as an S-Corporation.
How many members can a Delaware single-member LLC have?
A Delaware single-member LLC, as the name implies, is limited to only one member.
How do I obtain an Employer Identification Number (EIN) for my Delaware single-member LLC?
You can apply for an EIN for your Delaware single-member LLC through the IRS website, or by mail or fax.
Can I change the name of my Delaware single-member LLC after it is formed?
Yes, you can change your Delaware single-member LLC’s name by filing a Certificate of Amendment with the Delaware Secretary of State.
Do I need to file an annual report for my Delaware single-member LLC?
Yes, a Delaware single-member LLC must file an annual report and pay a $50 fee.
How soon can I begin doing business with my Delaware single-member LLC?
Once your Certificate of Formation is approved by the Delaware Secretary of State, you can begin conducting business with your LLC.
Can I convert my Delaware single-member LLC into another type of business entity later?
Yes, it is possible to convert a Delaware single-member LLC into another type of business entity, such as a corporation or partnership.
Do I need a business bank account for my Delaware single-member LLC?
Yes, it is highly recommended that you have a separate business bank account for your Delaware single-member LLC.
Can I add a second member to my Delaware single-member LLC later?
Yes, you can add a second member to your Delaware single-member LLC later by amending your LLC operating agreement and filing appropriate documentation with the Delaware Secretary of State.
Can I have the same name for my Delaware single-member LLC as another business?
No, your Delaware single-member LLC’s name must be unique and not similar to any other existing businesses.
What if someone sues my Delaware single-member LLC?
As the sole owner of your Delaware single-member LLC, you are not personally liable for lawsuits against your business. Your LLC’s assets are protected, and its liability is generally limited to its own assets.
What if I want to sell my Delaware single-member LLC in the future?
You can sell your Delaware single-member LLC in the future, but it will require documentation and filings with the Delaware Secretary of State.
Can I operate my Delaware single-member LLC out of state?
Yes, you can operate your Delaware single-member LLC from anywhere in the United States.
Are there any residency requirements to form a Delaware single-member LLC?
No, there are no residency requirements to form a single-member LLC in Delaware.
Can I use a PO Box for my Delaware LLC’s address?
No, you must provide a physical street address for your Delaware LLC’s address.
What types of businesses are particularly well-suited to single-member Delaware LLCs?
Single-member Delaware LLCs can be a good choice for startups, freelancers, consultants, and any small business with a limited number of employees.
If I previously established my Delaware business as another entity type, what do I need to do to change to a single-member LLC?
To change from one type of entity to another in Delaware, you need to submit specific paperwork and properly amend existing documents, or form a new single-member LLC and dissolve the previous entity.
How long does it take to form a single-member LLC in Delaware?
Processing times can vary, but typically it takes within a few business days to a couple weeks to form a single-member LLC in Delaware.
Why do people often choose Delaware to form a single-member LLC?
Delaware is known for having strong corporate and LLC laws, which can provide more protection and flexibility for business owners compared to other states.
Can a single-member LLC be taxed differently?
Yes, a single-member LLC has the option to be taxed as a sole proprietorship or as an S corporation.
How do I form a single-member LLC in Delaware?
You need to file a certificate of formation with the Delaware Division of Corporations and pay the associated fees.
Does forming a single-member LLC in Delaware require a registered agent?
Yes, every LLC in Delaware must have a registered agent with a physical address in the state.
What are the benefits of having a registered agent in Delaware?
It provides a reliable and stable point of contact for legal purposes and may help maintain the privacy of business owners.
Do I need to be a resident of Delaware to form a single-member LLC in Delaware?
No, you do not need to be a resident of Delaware to form a single-member LLC in the state.
What is the certificate of formation for a single-member LLC in Delaware?
It is the legal document that officially creates the LLC and includes important information like the LLC’s name, registered agent, and owner.
What is the annual Franchise Tax for a single-member LLC in Delaware?
The Franchise Tax is a flat fee of $300 for single-member LLCs in Delaware.
I have formed a single-member LLC in Delaware, what is the operating agreement?
An operating agreement is a document that outlines the rules and regulations for your LLC, including your operating procedures, responsibilities, and the rights of owners.
Is an operating agreement specifically required for a single-member LLC in Delaware?
Not necessarily, but having one can help resolve disputes and define ownership structure in case of future legal issues.
Can I modify my operating agreement for my single-member LLC in Delaware?
Yes, you can modify your operating agreement at any time by creating and signing an updated version.
What kind of business structure is most commonly chosen by single-member LLCs in Delaware?
Many single-member LLCs in Delaware choose to operate as a pass-through entity for tax purposes.
Do single-member LLCs have to be registered with the state in which they are doing business?
Yes, even if your LLC is formed in Delaware, you need to register and obtain a business license in the states where you conduct business.
Can you convert a single-member LLC to a multi-member LLC in Delaware?
Yes, you can convert a single-member LLC to a multi-member LLC by adding members to your operating agreement.
Can I change my registered agent for a single-member LLC in Delaware?
Yes, you can choose to change your registered agent with proper documentation and updating related legal forms.
What are the reporting requirements for single-member LLCs in Delaware?
Delaware LLCs need to file an annual Franchise Tax report, which includes the LLC’s income generated from Delaware sources.
What is the benefit of choosing ‘S Corporation’ tax treatment for a single-member LLC?
‘S Corporation’ tax treatment for a single-member LLC may provide some benefits, especially in regard to tax advantages, while securing LLC benefits.
I want to start an online business, can I form a single-member LLC in Delaware for this?
Yes, you can form a single-member LLC in Delaware even for a web business.
Are there any residency requirements for running a single-member LLC in Delaware?
No, there are no residency requirements for setting up or running a single-member LLC in Delaware.
Can the owner take a salary from a single-member LLC in Delaware?
Yes, LLC owners can take a salary called shareholder distribution based on company profitability.
Can the personal assets of the owner be used to satisfy the LLC’s debts?
In an LLC, only the company’s assets and not the personal assets of the owner are used to settle business debts.
Can a sole proprietor convert to a single-member LLC in Delaware?
Yes, a sole proprietor can always convert into a single-member LLC in Delaware.
Is there an external approval needed to form a single-member LLC in Delaware?
Two-thirds approval of LLC members or shareholders cannot be required for an LLC to be formed in Delaware.
Can I have a name for my LLC in Delaware that somebody else already had?
No. The Delaware Division of Corporations will put a hold on the application until the conflicting name issues are resolved.
What actions are required to operate a single-member LLC in good standing in Delaware?
LLCs in Delaware are required to submit their annual Franchise Tax and complete the related forms to the state to maintain the LLC in good standing.
Can I be sued because of my single-member LLC’s debts?
Delaware state laws limit personal liability, protecting the sole owner’s assets from business debtor/liability.

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Conclusion

Starting a single-member LLC in Delaware can be a rewarding experience that offers numerous benefits for entrepreneurs. By following this guide and staying informed about state regulations, you can successfully navigate the formation process and set your new business up for success. Feel free to seek professional assistance from a lawyer or accountant if you have questions or need help. Your journey as a business owner has just begun – embrace the challenges and enjoy the rewards of your hard work and determination.

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