Delaware continues to be a top choice for many businesses, including 68% of Fortune 500 companies. In 2020, Delaware saw an 8.72% growth in LLCs and an additional 249,427 business entities formed. As a soon-to-be business owner, you’ll be suited to form your LLC in Delaware because 98.4% of all Delaware businesses are small businesses!
You’re sold, but before starting your LLC in Delaware, you’ll need to know a couple of facts. Here are five things you should know before forming your Delaware LLC.
1. Delaware Lets You Form a Series LLC
A series LLC is a limited liability company with one or multiple entities under a parent LLC. Each series operates as a separate entity (LLC) with its own respective name, assets, bank account, finances, and limited liability.
Series LLCs may have different members and managers in each series. The rights and obligations of these members and managers differ from series to series. Each series may enter into contracts, sue or be sued, and hold title to real and personal property.
Here’s an example: a real estate investor owns one commercial rental property and two residential rental properties. Each property can operate as its own series.
Benefits of Series LLCs
You may be wondering whether or not you should form a series LLC. Here are some of the benefits you will be able to take advantage of if you do so.
- Liability protection for each individual series - if one series gets sued, the assets and finances of other series under the same parent LLC will be protected from liability
- 1 filing fee
- 1 state registration
- 1 tax return
Drawbacks of Series LLCs
While there are some great advantages to series LLCs, there are also disadvantages. Consider these drawbacks before you decide to form a series LLC.
- Each series LLC is required to have its own registered agent - if you have seven series LLCs, then you’ll have to assign seven registered agents
- Each series LLC is required to have a separate business bank account
Delaware is one of the 14 states that allow you to form a series LLC, and the benefits don’t stop there. Keep reading to find out why Delaware is a fit.
2. Delaware LLCs Pay $300 Every Year
Delaware LLCs have to pay a flat-rate Annual Franchise Tax of $300 each year. The $300 tax must be paid by every LLC formed in Delaware, regardless of income or business activity, as a requirement to keep your LLC in compliance with the state.
Your Annual Franchise Tax can only be paid online and cannot be filed by mail. You can make a payment using a credit card or your checking account. You can pay here. Your Annual Franchise Tax must be paid on or before June 1st of every year.
Want a video walkthrough of how to fill out your annual report? Check out TruStart here.
3. Delaware Has No Sales Tax
There are only 5 states that have no sales tax: New Hampshire, Alaska, Oregon, Delaware, and Montana. With no sales tax imposed on purchases, you can buy products at a cheaper rate. Depending on where you live, this can save you up to 10% in your overall purchases. This can be helpful for your business if you plan to purchase inventory or supplies to create your products.
What does this mean for you? You only get this benefit if you SHIP to an address in this state. Sales tax is based on the destination shipping address. So you don't get this benefit if you don't have an address in Delaware.
So, how can you get this benefit? VPM has a Delaware address that allows you to receive shipments, in which case you would then be paying for $0. Check out the location today.
4. Delaware Offers Business Law Expertise
Today, there are 23 states that are specifically catered to business related disputes where the cases can be resolved faster. Lets call these "business courts". Delaware’s Court of Chancery focuses on resolving corporate disputes.
It is a non-trial court that focuses solely on businesses and examines issues involving real property and commercial litigation. It consists of only judges and no juries. Most of its rulings often influence Supreme Court decisions.
The Court of Chancery allows business issues to be resolved in quicker and more efficient processes by a judge and legal team who specializes in corporate law and has experience in resolving complex corporate disputes. This is a huge benefit for small businesses because this court ensures that all decisions are made based on past law cases, as opposed to being influenced by public opinion (which is often clouded by emotions and biases).
5. Do Not Use a PO Box for Your Delaware LLC
Long story short, there are three main reasons not to use a PO box for your Delaware LLC.
- A PO box will not be accepted as your business address to form your LLC (part of forming and maintaining your Delaware LLC).
- You can’t use a PO box for a registered agent address (part of forming your Delaware LLC).
- You cannot use a PO box as the physical address to open your business bank account (part of maintaining business operations after forming your Delaware LLC).
First, a PO box address is not an acceptable form of business address because it doesn’t qualify as a physical address. You might be looking for an alternative option that will protect your privacy when registering and forming your Delaware LLC. Skip the hassle of researching what’s out there and jump to the conclusion for a more ideal business address option for your Delaware LLC.
You Can’t Use a PO Box as Your Registered Agent
Every Delaware LLC is required to designate a registered agent for receiving service of process and any legal documents on behalf of the LLC. If your LLC is served papers for a litigation your registered agent is responsible for receiving this correspondence and communicating it to you.
Often, small business owners like yourself will decide to act as their own registered agent. In that case, you don’t want to use your home address and might consider a PO box. Your registered agent address must be a physical address, so PO boxes don’t make the cut. Don’t risk your LLC’s compliance by using the wrong type of address.
You Can’t Open a Business Bank Account With a PO Box Address
Banks require a physical address that is considered either a commercial or residential address, and, you guessed it! PO boxes do not fit this requirement because it’s not a real street address. So, what can you use instead?
You can use your home address, but if you don’t have a permanent location in Delaware, it’ll be difficult. Commercial addresses are the preferred option, but they are expensive.
What is another option? VirtualPostMail’s (VPM) TruLease service allows you to get a virtual mailbox AND a separate lease agreement located in a commercial building. This lease agreement will function as your proof of address and will be accepted by banks when you go to open a business bank account.
Feel ready to form your LLC in Delaware and join the growing business community? You have the option of forming a series LLC, and you’ll be able to enjoy the benefits of no sales tax and an expert Court of Chancery that can help protect your business should any legal trouble arise.
Warning: there is a $300 tax every year so be sure to budget for that with your Delaware LLC.
If you’re in need of a business address since you can’t use a PO box to form your LLC, look no further. A virtual mailbox is the best option for you! With a virtual mailbox, you’ll get a professional business address at which you can receive your mail and packages. You can also use this address as your LLC’s business address. It’s secure, professional, and protects your privacy.