Delaware LLC Benefits: A Complete Guide for Sole Proprietors

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Are you a sole proprietor evaluating which state is best to form your single-member LLC? Read to learn the benefits of a Delaware LLC.

Delaware LLC benefits, the complete guide.
Read this article to learn the benefits of a Delaware LLC. rest assured we don’t leave anything out.

Are you an independent contractor or self-employed sole proprietor with a growing business and interested in researching how to create a single-member LLC?

With that said, through your research have you come across a lot of mentions of Delaware being the best state to form an LLC?

If you answered, yes, you’ve come to the right place.

At Falcon Expenses (the company that publishes this blog) we’re familiar with the challenges of evaluating the most appropriate state to form a single-member LLC. Especially, evaluating which single-member LLC supports the needs of a one-owner business. This is because recently we went through the same process you’re going through right now.

In this article, we go over the benefits of forming a single member LLC in Delaware. In addition, in this article, we provide you with all the resources you need to form a single-member LLC in Delaware. 

So keep reading.

What is an LLC?

An LLC is a Limited Liability Company. A Limited Liability Company is the simplest of all legal business entities offered in the United States. The business structure, and legal entity, of an LLC is the most ideal structure for most small businesses. This includes small businesses such as growing sole proprietorships that need a more robust business structure to support their growing business. An LLC provides a one-person owned business with the liability protection and separate legal entity distinction needed for a growing business.


What is a single-member LLC?

A single-member LLC is a Limited Liability Company that only has one owner. Owners of LLCs are known as members.


Why is Delaware the Best State to Form an LLC?

Delaware was the first state to offer the Limited Liability Company (LLC) legal business entity. Therefore, this might explain why Delaware has probably the most experience and favorable LLC and small business laws. 

But seriously, some of the main reasons for why to choose Delaware to form an LLC include the following:

Privacy protection

Delaware LLC Benefits

Delaware provides the best legal protection for shareholders and directors. Therefore, depending on the nature of your business, this might be necessary. 

Asset protection laws and limited liability

An LLC is considered a separate legal entity from its owners. Of course, if it’s formed properly. Delaware offers members and owners of LLCs formed in its state a high level of liability protection.

What does this mean?

This means that your Delaware LLC is responsible for its own debts and liabilities. Not the owners. Therefore, if your Delaware LLC takes out a small business loan and misses a few payments, the bank can’t go after your personal assets to collect the money.

In addition, a properly formed LLC has its own tax ID number.

Low startup costs

The costs to form an LLC, including a single-member LLC, in the state of Delaware is one of the cheapest compared to other states. The initial formation filing fee to start a Delaware LLC is $90. Also, if you’re in a hurry to form your single-member Delaware LLC, for an additional $100 you can get same-day service. This expedited service is not available in other states that have appealing benefits for LLCs, such as Wyoming.

Perpetual life

An LLC is a separate legal entity. Therefore, your single-member Delaware LLC will continue to exist if and until it’s dissolved. A sole proprietorship typically ends when it’s owner passes away. Therefore, with a Delaware LLC you can build a brand that will last well into the future and can be passed down to future generations.

Build credit & raise capital

A Delaware LLC is an independent legal entity. Therefore, a Delaware LLC has its own tax ID number, which means your Delaware LLC can build its own credit. A single-member Delaware LLC builds credit by opening its own bank account, taking out small business loans, or selling equity to raise money. There are many benefits of a small business bank account. Even sole proprietors should have a small business bank account.

Owner privacy

In the State of Delaware LLC ownership is not public record. Delaware is one of the four states in the United States that allows LLC owners to remain anonymous, this includes single-member LLCs. Therefore, small business owners that want to maintain a low profile should consider this benefit of a Delaware LLC. Delaware LLCs offer some of the highest level of confidentiality. For example, not even the members or managers, or information about Delaware LLC members or managers is required to be listed on the Certificate of Formation of a Delaware LLC.

Ownership transferability

The ownership of an LLC is transferrable to another person. This is because an LLC is a separate entity from its owner. However, the ownership of a sole proprietorship cannot be transferred because the owner and the sole proprietorship are one and the same.

Unlimited number of owners

This article is aimed at helping sole proprietors, which by definition are one person owned small businesses, form a single-member LLC in Delaware. However, it’s important to note that one of the benefits of a Delaware LLC is that it can have an unlimited number of business owners. Therefore, a Delaware LLC provides an appropriate business structure to support your businesses growth if you plan on expanding your business, take on equity investors, or add partners or owners.

No citizenship requirements

You don’t need US citizenship or US residency to form a Delaware LLC. Therefore, you should have no problem forming a Delaware LLC, if you’re an American abroad, such as a globe trotting freelancer. In addition, if you don’t have American citizenship at all and you stumbled upon this article and were wondering if you can form an American Delaware LLC without US citizenship, the answer is, yes.

Delaware LLC Cost

To form an LLC in Delaware, including a single-member LLC, the cost of formation is only $90. This is one of the lowest in the United States. However, searching for a state with the lowest LLCformation costs shouldn’t be your primary concern, especially if the difference between one state and another is only $10 to $50. 

The cost of an LLC adds up when it comes to annual fees. Some of the minimum annual taxes fees you might be required to pay, depending on the state, when you have an LLC are:

  • Minimum tax
  • Franchise tax 
  • Annual report filing fees
  • Business license fees

The formation costs of a Delaware LLC are one of the lowest in the entire United States. This is appealing to small businesses where keeping costs and expenses low are of great importance. However, the formation costs are just a one-time fee. 

The minimum cost of maintaining a Delaware LLC $300 per year. Delaware charges a minimum annual tax of $300 to maintain your single-member LLC. There is no requirement to file an annual report in Delaware for a Delaware LLC.

How are single-member LLCs taxed in Delaware?

This is a very important note to read if you are investigating the formation of a single-member Delaware LLC. 

According to the Delaware Division of Revenue,

“Delaware treats a single-member “disregarded entity” as a sole proprietorship for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the State of Delaware.”

Essentially, what this means is that your Delaware single-member LLC wont pay income tax itself. Meaning your single-member Delaware LLC won’t pay business income tax. However, the income that your single-member LLC earns will pass-through directly to you, and be considered personal income, which could be subject to income tax. Please consult with an accountant to determine if given these facts you will be liable for income tax in the state of Delaware.

Delaware Single-Member LLC

How to Start a Delaware LLC

Starting a Delaware LLC is easy. Follow these simple steps to start your single-member Delaware LLC.

It takes six simple steps to create a Delaware LLC. Keep reading to learn about each step.

Step 1: Pick a name for your LLC

Step 2: Choose a Delaware registered agent

Step 3: Get a Delaware Business License

Step 4: File a Certificate of Formation

Step 5: Get an EIN

Step 6: Create an Operating Agreement

How to start a Delaware LLC, Each Step Explained

Step 1: Pick a name for your LLC

This is the fun part. As a sole proprietor you’ve been limited to the brand name of your surname (unless your state offers a DBA). With a single-member LLC you get to choose your brand name, and it can be anything, not just your name. For example, if you’re a graphic designer you could call yourself something like Elephant Designs. 

However, first make sure your business brand name is available in the state of Delaware. Otherwise, you might have to register a DBA for your LLC if your top choice name is already taken. 

Step 2: Choose a Delaware registered agent

When you form an LLC in any state that is different from your home state, even if you’re living abroad, you need a place to receive mail in the state where your LLC was formed. Therefore, if form a single-member LLC in Delaware you need a registered agent in Delaware.


What is a registered agent?

A registered agent accepts tax and legal documents for your business. A Registered agent is either a business entity or an individual. A registered agent is also known as a statutory agent or a resident agent. 


A registered agent in Delaware costs a nominal fee of as low as $50 a month.

Step 3: Get a Delaware Business License

According to the the Delaware Division of Revenue,

“Any person or entity conducting a trade or business in the State of Delaware, including corporations, must obtain a State of Delaware Business License from the Delaware Division of Revenue.”

To obtain a Delaware business license:

  1. Visit Delaware’s One Stop Business Licensing and Renewal service; or
  2. Complete and remit the Delaware CRA
  3. or call (302) 577-8778 to obtain one via mail

An LLC is an entity, a legal business entity, so a Delaware business license is required. A Delaware business license costs $75 per year. But this price can vary depending on the circumstances so please check.

Step 4: File a Certificate of Formation

A certificate of formation is also known as an Articles of Organization. Many states call this document an Articles of Organization. 

Step 5: Get an EIN

Some sole proprietors already have an EIN. You need a new EIN for your single-member Delaware LLC. An EIN is a federal tax ID number like a Social Security Number.


What is an EIN?

An EIN is a 9-digit number issued by the IRS and used by the IRS for tax reporting. It looks like and is very similar to a Social Security Number. However, instead of being used for an individual to be identified by the government and to file their taxes, it is used for a business.


Step 6: Create an Operating Agreement

LLC’s are formed under state laws. Therefore, the requirements to have an operating agreement vary from state to state. Some states require a written operating agreement. The state of Delaware requires an operating agreement.


What is an Operating Agreement?

An Operating Agreement describes the operations of an LLC and describes the agreements between an LLC’s owner. The purpose of an Operating Agreement is to govern your LLC’s internal operations specific to the needs of the owner(s).


Articles of Organization vs Operating Agreement

Are you evaluating an LLC and confused about some new LLC terms and concepts such as, Articles of Organization vs Operating Agreements?

If you answered, yes, then keep reading.

An Articles of Organization and Operating Agreement are two legal documents associated with Limited Liability Companies (LLCs). Sometimes people get them confused or don’t even know what they are to begin with. 

Articles of Organization is a legal document at the state level that informs the state of your plan to establish and run an LLC. An Articles of Organization is required in each state. 

However, an Operating Agreement is not required in all states. An Operating Agreement details how your LLC operates, it is the LLC’s version of corporate by-laws that are used for more complex legal business entities such as C Corps.

Do I need a new EIN to convert to an LLC from a sole proprietorship?

Yes! You need to get a new EIN number if you already have one for your sole proprietorship. In most cases you cannot use the EIN you have been using for your sole proprietorship.

Do I need to open a new business bank account if I convert to an LLC from a sole proprietorship?

No. If you already have a business bank account most likely they will let you update your business account to reflect your entity change. Our advice is to contact your bank and check

Conclusion

Hands down, Delaware is our top choice for sole proprietors that are switching entities to a single-member LLC, or even a multi-member LLC.

The benefits and conveniences of a Delaware LLC are unmatched for sole proprietors and other small business owners looking to convert their entities to an LLC. We highly recommend Delaware as your state of choice for starting your LLC. 

Falcon Expenses Blog is are a community of freelancers, self employed sole proprietors, and small business owners. Our community would love to hear your story. 

Why did you convert to an LLC?

Was the process challenging or straight forward?

What state did you choose to form your LLC and why?

Please share your answers in the comments below. Our community could really benefit from your story. 

You can also share it with us here, suppprt@falconexpenses.com,

Thanks for being a part of our community.

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