Commonly Terms Mentioned When Forming Delaware LLCs

When clients proceed with forming a new Delaware company, the Limited Liability Company is still the most popular entity type that clients decide to form in Delaware for many reasons.  In fact, the LLC continues to make up about 75% of our new Delaware formations here at Harvard Business Services, Inc. (HBS).

Whether it’s the flexibility of the entity type or the ability to form the LLC for asset protection, forming a Delaware LLC is a fairly simple and straightforward process.  In our discussions with clients, specific key terms are oftentimes mentioned during the formation process, and below are the most popular LLC terms we hear when assisting clients with a Delaware LLC formation.

-Certificate of Formation – The approved Delaware Certificate of Formation is akin to the birth certificate of the LLC in Delaware and is the document that is filed with the Delaware Secretary of State for approval during the formation process.  The document generally will include the name of your LLC and the name and address of your Delaware based Registered Agent as well as additional details clients may want to provide.  This information is sometimes referred to as the Articles of Organization for the LLC.  The document will be stamped and approved by the Delaware Secretary of State with a Delaware File Number.

-Registered Agent –All Delaware companies are required to have a Delaware based Registered Agent.  The Registered Agent will be responsible for receiving and forwarding any legal documents and correspondence from the Delaware Division of Corporations to the company in a timely manner.  The HBS Delaware Registered Agent fee is $50 per year per company, guaranteed never to increase.  The HBS Delaware Registered Agent fee has not increased in our 40 plus years of operation.

-Members – When referring to Members of an LLC, the Members are the owners of the company.  Members can be other individuals or other companies, and Delaware will not require the Member details to be listed on the Certificate of Formation.  Members also do not have to be US residents or US based companies.

-Managers – Sometimes, clients decide to appoint Managers to operate the company as they can be appointed by the Members.

-Single Member LLC – This is an LLC that is generally owned by one individual or company.  Members can be added in the future, internally, if required. Generally, for tax purposes, the IRS considers a single-member LLC a disregarded entity.

-Multi-Member LLC – This is an LLC that is typically owned by multiple individuals or companies.  Members can be added or removed internally if needed in the future. Typically, for tax purposes, the IRS considers a multi-member LLC a partnership.

-Operating Agreement – One of the reasons why the LLC entity type is popular is because the management structure can be customized internally within an LLC Operating Agreement, which is not required to be filed with the Delaware Division of Corporations. Membership information and ownership percentages can be listed within this agreement.  In fact, if Membership within the LLC changes in the future, clients typically can update their Operating Agreement internally to reflect these specific changes.  The Operating Agreement is generally the main governing document of the LLC.

-Series LLC – Sometimes, clients want to form a main or parent LLC and establish multiple LLCs under the main parent LLC.  Each series can essentially be treated as a separate entity.  During setup, clients can decide to have a Protected Series LLC (most popular) or a Registered Series LLC.  Click here for a helpful link that describes the differences between the types.  In theory, the Series LLC is great however, sometimes, clients that have formed series LLCs have faced some issues as listed in the following link, here.

-Public Benefit LLC- Clients sometimes may want to form a Delaware Public Benefit LLC to gain profits while offering a benefit to society.  If deciding to form this entity type in Delaware, the Certificate of Formation will need to include a benefit statement that lists specifically how the company will benefit a community or society.

-Delaware LLC Franchise Tax – All Delaware LLCs are required to pay the Delaware Franchise Tax for the right or privilege to own a Delaware company regardless of company income or activity.  It’s $300 for Delaware LLCs, due on or before June 1st of each year.

While these are some of the more common LLC terms that are brought up in our discussions with clients, there may be other questions or variables to consider when forming the new Delaware LLC.  We’re always happy to assist with any questions clients may have to make the Delaware formation process as stress free as possible.

If you plan on forming a new Delaware LLC and obtaining an EIN, or if you have any questions regarding the formation process, we can be reached at 1-302-645-7400 or 1-800-345-2677 ext. 6900 or via email at info@delawareinc.com. We can also be reached via skype at delawareinc.