There are numerous advantages associated with forming a Delaware LLC. State laws make it possible for every series LLC to conduct operations, have members, and own assets, as well as have unique business objectives.
In addition to the benefits of choosing to become a Delaware LLC, you must be aware of the negatives. With a range of positives and negatives in mind, it may be smarter to choose a different state for your LLC or a different type of corporation.
Some Structures Have Not Passed Legal Tests
The availability of series LLCs in Delaware is unique. While the availability is useful, most courts outside Delaware would likely ignore legal separations between the various series and treat your umbrella LLC in the form of the corporation encompassing everything. Litigation is still untested even within the state of Delaware.
Getting Separate ID Numbers Can Be Challenging
The unique series LLC structure in Delaware means that it can prove challenging to obtain separate identification numbers that correspond to each.
You want those separate identification numbers on your federal taxes since every series acts as a separate LLC. An inability to obtain separate identifications can make taxes more complicated.
Increased Business Costs Outside the State
Because most states will not recognize your Delaware series LLC, they will instead treat it as a regular LLC. This is a separate structure with higher costs of administration. Additionally, the lack of familiarity with the series LLC structure can lead to higher costs for out-of-state accountants.
No Flat Tax for Franchises
Some states charge flat fees for franchise taxes while others charge based on sales or revenue. In Delaware, the franchise taxes depend on the shares’ value.
There is a $50 fee for filing plus a minimum tax of $75. The maximum is as high as $180,000. This can prove challenging for businesses that have strong share values but low cash flow.
Increased Filing Costs Sometimes
In some cases, it may cost more to incorporate in Delaware than other states, although it will still be cheaper than in some other states. The filing fee associated with an LLC is $90 and fees can increase with additional needs.
You do not need to reserve your name prior to filing. This is, however, a good option that lets you prevent someone else using the name before you can register. You can reserve your chosen name for $75, with the reservation lasting 120 days. Any changes to your LLC’s name require a $200 fee. Both of those name-related fees will not apply in all situations.
The fees that are required are those related to your Certificate of Formation. Submission of this form costs $90. If you choose to expedite processing to within a day, there is a $50 fee. You can also opt for processing that same day for a fee of $100. Any amendments to the certificate, including corrections of mistakes, cost $200. There is an additional minimum fee of $200 associated with converting non-Delaware or domestic entities to LLCs. There is a similar fee for reviving domestic LLCs. In the case of services without filing the certificate, you can pay $100 to get service in 24 hours or $200 for processing that day. Service in just an hour is also available, at the high fee of $1,000 for each document. Or service in two hours costs $500 for each document.
If you want certified copies of the documents you filed, this costs $50. Overall, the only fee all Delaware LLCs must pay in every situation is the $90 fee for the Certificate of Formation. In many situations, however, the fees can quickly rise.
After evaluating the above points, you will be ready to determine if you should opt for a Delaware LLC.