While corporations and sole proprietorships have been around for ages, LLCs only started in the 1970s, slowly becoming an option over the years to states. What some business owners may not know is that business entity rules and regulations in one state does not necessarily apply in another. That said, there’s a reason why more than half of Fortune 500 companies register in Delaware. Not only is its corporate business laws extremely lenient but corporation owners can save big when it comes to taxes. But these benefits don’t’ just apply to corporations; LLCs, now in their heyday, enjoy several advantages in The Diamond State. Read on to find out what they are! (Plus, learn more about why you need to conduct a South Dakota secretary of state business search.)
1. LLC Members and Managers Can Stay Anonymous
Why is member and manager anonymity such an advantage? With a little research, creditors can track personal assets and know where the money is. With LLC members’ and managers’ information disclosed and a Delware attorney made registered agent, as The Balance states, creditors will have a harder (if not impossible) time figuring where the money is. This leaves the IRS, Delaware attorney, and LLCs members and managers as the only ones who know of the amount of wealth, as the article goes on to state.
2. Certain Oral Operate Agreement Is Effective
According to Legal Zoom, one Delaware court case had reached the Delaware Supreme Court, and the decision made that the LLC’s oral operate agreement was not effective because it was not in compliance with the statute of frauds was overturned.
This not only shows Delaware’s flexibility (and favoritism?) towards LLCs (and corporations) in general as you’ll learn more later, but it revealed how effective certain oral operate agreements can be in The Diamond State. This stands out since, especially in industries such as real estate, oral contracts are harder to enforce than written contracts. (Although, in many instances, oral contracts are just as valid as written contracts.)
3. Zero Publication Requirements
In some states, upon formation LLC owners must be published in the local newspaper, as is with New York, Arizona, and Alaska. But in Delaware? Not the case. While a local newspaper listing certainly does not hurt getting your business in front of your target audience, especially publishing in New York, new LLC business owners can end up spending a lot: rates for publishing your LLC in a New York newspapers can go anywhere from $600 on the lower end to as much as $1,200 (not including the $50 filing fee). The price boils down to location and level of advertising. Luckily, Delaware LLC owners do not have to worry about the extra cost.
4. Similar Benefits as Corporations and LLPs
Delaware LLCs enjoy many of the same business law benefits (i.e. anonymity, tax haven…) as Delaware corporations and limited liability partnerships (or LLPs). This may be why Delaware has seen the formation of more than 100,000 LLCs in the 90s and new millennium.
5. Delaware Has a Well-Developed Court System That’s Knowledgeable About Business Law
The Court of Chancery is one of six courts making up the Delaware Judiciary (the others include Supreme Court, Superior Court, Family Court, Justice of the Peace Court, and Court of Common pleas). Specifically, the Court of Chancery holds a national reputation in the business world, according to the Delaware Courts. Among other responsibilities, it is in charge of creating case law for corporate issues.
This makes the judges extremely knowledgeable about business proceedings, which may be to an LLC business owner’s advantage. As reported by The Atlantic, court cases are usually only in front of one judge (and no jury) who, for the most part, is very lenient on businesses.
6. LLC Owners Can Save Some of Their Hard-Earned Income
Delaware only offers LLC owners a flat LLC annual tax ($300). This differs from several other states that require LLC owners to pay the annual LLC tax based on its income. Plus, as the article goes on to state, these taxes in Delaware tend to be much lower compared to other states. But just how low? Compared to states like California, we are talking hundreds, $800 to be exact—(which comes out to a $500 difference).
Final Thoughts: Not Every Business Should Register in Delaware, and Here’s Why
Ultimately, while Delaware has a number of benefits ranging from member and manager anonymity to lower taxes than most states, it does come with downsides. For one, sole proprietors will benefit little (unless the owner lives in Delaware). Not only is it more paperwork to file and keep on top of but logistically speaking it would be a nightmare—and sole proprietorships don’t nearly have as many of the perks as their LLC and corporate brothers and sisters do.
Small startups may also not benefit, even if it incorporates simply because it is a lot easier to run a business in the same location you live in, especially when it is just starting. Plus, while companies may enjoy several benefits, corporate shareholders may be at a disadvantage and can end up paying higher taxes.
At the end of the day, we suggest that you discuss your business structure and registration options with a professional and experienced business coach and business attorney, as every business is unique. Is your business in Delaware? Have any other tips about Delaware business entities you would like to share? Have you had experience doing business in Delaware? Let us know; please feel free to comment in the comment’s section below.
Thinking of Conducting a South Dakota Secretary of State Search?
Or what about a District of Columbia or New York business entity search? Or maybe now that you’re more informed with Delaware’s views on LLCs, a Delaware corporation search? Whatever the state, Sec States, an easy-to-use database of secretary of state pages, is here to help. Within a matter of minutes, you can browse through multiple secretary of state pages, running several business searches.