Thinking about forming your LLC in Delaware? You’re not alone. In 2020, nearly 250,000 business entities were formed in the state of Delaware, and that number continues to grow. This isn’t surprising considering that Delaware offers many benefits to companies that incorporate there including pro-business laws, no sales tax, and asset protection.
Before you start the formation process, you should know the costs associated. Here are 4 costs that you’ll have to pay in order to form and maintain your Delaware LLC.
Delaware Cost #1: Certificate of Formation
As an LLC in Delaware, you are required to have a Certificate of Formation. It is a document that is like the birth certificate for your LLC.
Your Certificate of Formation will include information about you as an owner and the LLC. It’ll require you to include the name of your LLC, business address, and your business’s purpose, just to list some items you should have prepared.
There is a $90 one-time filing fee that you will need to pay in order to file your Certificate of Formation with the state.
Recommended TIP - You should file it online, and you can skip the cover letter with this. Need help filing your Certificate of Formation online? Check out this video course to walk through the process.
You can also choose to mail or fax it in. If you choose to mail and fax it, you must complete a cover letter along with your Certificate of Formation application. You can find out more about cover letters here and instructions on how to fill out the cover letter.
If you choose to expedite the process, you can pay $50 to have the state approve your LLC in one day. This will result in a total of $140 for the formation of your Delaware LLC. After approving your filing, the state will send you a stamped copy of your Certificate of Formation. You should also receive a business identification number that you will use on other state paperwork to identify your LLC.
Note: If you are registering to operate as a foreign LLC in Delaware, the filing fee is $200 rather than $90.
Delaware Cost #2: Certificate of Good Standing
A Certificate of Good Standing, also known as a Certificate of Status, is a document that states that the LLC has paid all required fees to the Secretary of State and has “good standing” status with Delaware. Banks may require this certificate before allowing you to open an account.
It costs $50 to get the Certificate of Good Standing, and also have the option to file by mail by filling out this form and mailing it in.
Pro Tip: If you know you’ll need this, you should request it along with your Certificate of Formation when you file for it online.
For a breakdown of short form and long form Certificate of Good Standing fees, refer to this sheet provided by the Delaware Department of State.
Delaware Cost #3: Registered Agent
Total business entities in Delaware topped 1.6 million at year-end with over 8.72% growth in LLCs in 2020. With every LLC formed it’s required to designate a registered agent who will be responsible for receiving service of process and related correspondence from the Secretary of State on behalf of the business. Registered agents must have a physical address, and they must be available during normal business hours to receive deliveries.
There are a number of different options that you can choose from when it comes to designating a registered agent. So, which one is best for you?
Option #1: Be Your Own Registered Agent
The first option is to act as your own registered agent. This option does not cost any money, but don’t get too excited. The tradeoff for choosing this “free” option is that you’ll be sacrificing your time, flexibility, and privacy.
Because you’ll be bound to the business hour requirements of a registered agent, you will no longer have the flexibility to take long breaks or make a last-minute meeting that pops up with a client across town.
The biggest red flag, however, is the fact that all registered agent information (including your address) is made available to the public. As your own registered agent, you’ll most likely use your home address. This means that anyone can gain access to your home address with a quick search. Did that thought give you goosebumps?
Option #2: Use a Business Formation Services
Your next option is to choose from an array of business formation services that offer registered agent services. Some of the most popular services include Rocket Lawyer, Incfile, and Northwest Registered Agent. While the registered agent costs vary depending on the package or membership you choose, you can expect to pay anywhere between $119 to $150 per year for the registered agent. You’ll also want to be cautious with the advertising of “free first year” of registered agent costs because you’ll get this at the beginning, but end up paying out lots of money for a registered agent later.
Option #3: Combine Your Virtual Mailbox and Registered Agent
VirtualPostMail (VPM) offers a FREE registered agent service in conjunction with select virtual mailbox plans. You can get the best of both worlds with a business address from the virtual mailbox and a service to handle your registered agent responsibilities on your behalf. Most traditional registered agent services deliver service of process via snail mail, you will have to wait for the mail to be physically delivered to you, which takes too long and you risk missing service of process deadlines.
Not with VPM, though! Because VPM is a virtual mailbox, you’ll be able to receive same-day notifications through your online account when service of process or other legal correspondence is sent to you. This ensures that you’ll never miss a time-sensitive deadline.
Delaware Cost #4: Annual Franchise Tax
What does your LLC cost after it’s formed? Although Delaware does not have a sales tax, you’ll still have to fulfill various tax requirements as an LLC operating in the state. One of these tax requirements is a recurring cost that you will have to pay year after year once your LLC is formed - the annual franchise tax. This is a fee that certain states, including Delaware, levy against businesses for doing business in the state. Doing business out-of-state means doing business outside the state in which your business was originally incorporated. So, if you originally incorporate your business in California, you are doing business out-of-state if it’s anywhere outside of California.
Here are the activities which are treated as doing business in a given state:
- Conducting in-person meetings with clients in that state
- Deriving significant portions of the company's revenue from that state
- Having employees work in that state or having to pay state payroll taxes
- Applying or obtaining a business license in that state
For the state of Delaware, you are required to pay $300 to fulfill the annual franchise tax. This payment is due on or before June 1 of each year after your company is formed. Make sure to not miss this deadline as the state charges a $200 penalty fee, plus interest for all late payments.
Frequently Asked Questions About Delaware
What about other Delaware taxes?
If you are physically doing business in Delaware, you will need to pay a gross receipts tax on sales generated in the state. If you have employees or an office/warehouse and are performing services in Delaware, it counts as physically doing business in the state. However, if your office is out of state and you do all of your business outside of Delaware, then you don’t need to pay the gross receipts tax since everything is considered out-of-state revenue. If you do need to pay gross receipts tax, you’ll need to register with the Delaware Division of Revenue. The specific amount you’ll pay for this tax will vary based on your business type. You’ll need to pay gross receipts taxes (ranging from 0.0945% to 0.7468%) based on your business type.
What about the cost to reserve the name of a Delaware LLC?
If your LLC name is available, you have the option to reserve the name online for up to 120 days for $75. You also can fax or mail a name reservation form to the Division of Corporations.
What about the cost of a DBA?
If you want to operate your LLC under a fictitious business name, in other words, a name that is different from your company’s legal name, you can do so. For example, your LLC’s legal name is “Theresa’s T-Shirts,” but you want to be known by customers as “T’s Tees”. However, to use a DBA, or “doing business as,” you’ll have to register the name within the Delaware county with which you do business. To do so, you’ll complete the Registration of Trade, Business & Fictitious Name Certificate form, and file it with each county Superior Court where you conduct business. There is a $25 filing fee for this form, and it must be notarized.
Do you need a business license in Delaware?
Similar to gross receipts tax, you only need to get a business license when you physically perform business in the state of Delaware. Otherwise, you don’t need to worry about it. To get a Delaware business license, you can create a “One Stop” account and complete the entire process online. The filing fee you’ll have to pay for your license will vary based on the type of business you run, ranging from $50 up to $450.
Forming an LLC in the state of Delaware is a popular choice and for good reason. Delaware is a very business-friendly state and offers many benefits that can protect your LLC and help it grow. Make sure to be prepared to pay the costs associated with those advantages:
- $90 for your Certificate of Formation
- $50 for your Certificate of Good Standing
- Costs vary depending on the registered agent of your choosing
- $300 annual franchise tax
Now that you know the costs associated with forming a Delaware LLC, check out the full list of steps to take next.