One of the biggest decisions you’ll be faced with making as a business owner is determining where to incorporate your online business. While there’s no wrong answer, there is one location in particular that can provide your business with a clear set of advantages: Delaware.
With a long list of benefits that includes asset protection, strong pro-business laws, and 0% sales tax, it’s easy to see why Delaware has held the #1 spot when it comes to LLC formation. The formation process is quick, straightforward, and requires minimal effort.
In this guide, you’ll learn how to form your Delaware LLC, what documents you’ll need to open a business bank account, and how to maintain compliance year after year.
Step 1: Register Your Delaware LLC Name
First, you’ll want to choose a unique name for your Delaware LLC. Though this is arguably one of the more fun parts of forming your Delaware LLC, there are some rules and regulations you’ll need to follow in regards to your name choice:
- It must contain the phrase “Limited Liability Company” either spelled out or shortened to one of its abbreviations (LLC or L.L.C.).
- Words that relate to government agencies (FBI, Treasury, etc.) are off limits.
- It should be distinctive and describe your business or services, and be available.
To check to see if your name is available, you can perform a name search on the official Delaware State website. Here’s how to do that:
- Once you’re on the Delaware State website, enter your LLC name in the “Entity Name” Box. (Note: You can omit the “LLC” at the end, as well as any punctuation).
- Click “Search” and browse the list of existing Delaware businesses that matches your search query.
- If your desired name already exists, you’ll need to choose a different one. If your desired name does not appear in the search results or you see a “No Record” message, then that means it’s available for use. You can proceed to the next step.
If you’ve decided on the perfect name for your Delaware LLC, but aren’t quite ready to get the ball rolling just yet, you can reserve your name for up to 120 days for a fee of $75.
Need some inspiration when it comes to naming your future LLC? Below are a few examples of good vs. bad LLC names.
Examples of Good vs. Bad LLC Names
Your Delaware LLC name will be the first thing a customer notices when checking out your online business. It creates an image for your brand that will either resonate with potential customers or turn them away. In other words, what you decide to name your LLC is a big deal.
Good Delaware LLC Names
The best LLC names are original, relevant, and easy to say and write. Your LLC name should give people an idea of what it is that you’re selling or offering. Keep in mind that the more unique it is, the easier it is to discern yourself from your competitors. At the same time, word-of-mouth referrals can make or break a business, so you’ll want to refrain from naming your LLC anything too crazy.
Let’s put these into practice. Your online business sells women’s clothing. You want to use your personal name, Tory Roberts, as the face of the brand. Here are a few LLC names that you might use:
- Tory’s Boutique
- Tory Roberts Boutique
- TR Boutique
Bad Delaware LLC Names
Now that you know what makes a good LLC name, you should be aware of what makes a bad one. Names that are vague, too long, use odd spellings, or involve any kind of acronym should be avoided. You’ll also want to steer clear of using names that are too similar to another business name that already exists.
Using the same scenario from above, here are some examples of bad LLC names:
- The Wardrobe
- Trendy Boutique
- Closet Store
Step 2: Get Your Delaware Business Address
Next, you’ll want to designate a business address. This address will be used for receiving mail and packages, tax returns, communicating with customers, and just about any other business-related purpose.
What are my business address options?
Wondering if you can use a PO Box as your business address? The short answer is no, this is not an acceptable form of address when registering a Delaware LLC; therefore, you’ll need to choose an alternate option.
You can choose any of the following business address options for your Delaware LLC:
- A home address
- A virtual office
- A virtual mailbox
Let’s dive into the specifics of each one.
Using a Home Address as Your Business Address
Although listing your home address is free and easy, it lacks credibility, diminishes customer trust, and creates a major privacy breach for you and your online business. Your customers can easily find out where you live since your home address will be listed on your website, invoices, and emails.
Imagine being stalked by an angry customer that continuously shows up at your door because they aren’t happy with a product and can’t get ahold of you. That’s a scary thought! If you don’t care about protecting your privacy, you can designate your home address as your business address. However, this option is not advised.
Using a Virtual Office as Your Business Address
A virtual office gets you a business address along with several office-related perks, including phone and fax services, video conferencing, and meeting rooms. But does your remote business really need all of those? If you meet with clients or host in-person team meetings often, a virtual office may be an ideal business address option for you. Otherwise, you can probably skip it.
Using a Virtual Mailbox as Your Business Address
Perfect for remote business owners who don’t want to expose their home address and don’t need extra physical space, a virtual mailbox offers the best of both worlds. With VPM’s virtual mailbox service, you’ll get a permanent business address that never changes, no matter how often you need to move your business.
Other benefits of a virtual mailbox include:
- An additional layer of privacy protection. You won’t have to list your home address on public documents and websites. Instead, you can use your virtual mailbox to give you anonymity. Never worry about customers showing up at your front door and keep your home a safe space.
- The ability to manage your mail and packages online 24/7 at the touch of a button. Think of a virtual mailbox like email, where you can organize, store, and maintain all of your important mail items in one easy-to-access place. Plus, get other services like package forwarding and check depositing.
- A boost to your business’s image. You might be running your online business out of your home, but that doesn’t mean your customers need to know. Your commercial mailing address will be located in a prestigious area, which helps give your business a professional and polished appearance.
Step 3: Select a Delaware Registered Agent
To form your Delaware LLC, you’ll be required to list the name and address of your registered agent. A registered agent is a person or entity that will receive service of process, legal documents, and other notices on behalf of your business.
Registered Agent Requirements
Regardless of who you designate as your business’s registered agent, they will need to meet the following criteria:
- The registered agent must be a resident of the state of Delaware.
- The registered agent must have a physical street address. PO Boxes are not accepted.
- The agent needs to be available to receive official documents (service of process) during normal business hours.
Now that you know what’s required of a Delaware registered agent, let’s discuss your options.
What are my registered agent options?
When it comes to selecting a Delaware registered agent, you have two choices:
You Can Act as Your Own Registered Agent
Though being your own registered agent is free, most business owners find the process inconvenient and time-consuming. It also requires your name and address to be listed as public information, so you can say goodbye to your privacy.
You’ll need to be familiar with compliance processes and be available to receive documents during normal business hours. If you’re someone who travels for work or are uncomfortable with legal rules and regulations, this is probably not an ideal option for you.
You Can Hire a Registered Agent Service
When you hire a registered agent service, you’ll never have to stress about maintaining compliance or being available during business hours to accept legal documents – your dedicated registered agent will take care of that for you.
VPM offers a FREE registered agent (saving you over $100 or more a year) with select virtual mailbox plans, allowing you to protect your privacy and get same-day access to service of process. This also means you’ll get to use VPM’s name and address on documents instead of your home address.
Do I need a registered agent?
Yes. In addition to being a legal requirement, there are penalties and potential liabilities, as well as the possible suspension of your company by the state, if you don’t keep your information up-to-date.
Step 4: File Certificate of Formation
Once you’ve chosen a registered agent for your Delaware LLC, you are ready to file your Certificate of Formation. This document is important in that it recognizes your LLC as a legal entity in the state of Delaware. Think of it as your LLC’s birth certificate.
To initiate the filing process, head over to the Delaware state website. Under Corporate Forms and Certificates for a Limited Liability Company, you will find the “Formation” form, which you can then download and fill out.
Your Certificate of Formation should contain the following information regarding your business:
- The name of your LLC, which must end with “Limited Liability Company”, LLC, or L.L.C..
- The name and address of your Delaware registered agent.
- A cover letter with the name and signature of the person filing the Certificate of Formation.
When it comes time to file the certificate, you can do this one of two ways:
- Filling out the form and digitally uploading a completed Certificate of Formation (when you do this online you don’t need a cover letter).
- Mailing in a hard copy of the Certificate of Formation and cover letter.
Regardless of which option you choose, you’ll be responsible for paying the state filing fee of $90.
Having trouble with this step? VPM’s TruStart course provides self-paced visual walkthroughs that show you how to fill out and submit the Certificate of Formation, both online and through mail.
Step 5: Obtain an EIN
You’ll also need to acquire an Employee Identification Number (EIN) for your remote online business. An EIN is a unique, nine-digit tax ID number assigned to your business by the IRS that will be used for a number of purposes. Some of these purposes include:
- Opening a business bank account
- Applying for a business license
- Acquiring business loans
- Filing tax returns
Need help with your EIN? VPM’s TruStart course provides a visual step-by-step of how to apply for an Employer Identification Number (EIN). These self-paced video lessons cover the two primary ways you can obtain your EIN (applying online and mailing in the SS-4 form).
Once you are assigned an EIN, it never expires. There are four different ways to apply for an EIN:
- Online (the easiest and fastest way)
- By mail (you’ll need to fill out the SS-4 form)
- By phone
- By fax (you’ll need to fill out the SS-4 form)
If you have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) you can apply for your EIN online. If you don’t have either of these, you’ll need to fill-out the SS-4 form, which must be mailed in or faxed.
How to Get an EIN From Outside the US
If you live overseas and don’t have a SSN, ITIN, or EIN, you can apply for an EIN by calling 267-941-1099 between the hours of 6AM and 11PM (EST) Monday through Friday. You’ll be required to answer the questions contained on the SS-4 form, which include:
- Your business’s mailing address
- The type of entity your company is
- Your reason for an EIN
- Your industry
Pro-tip: It’s recommended that you print and fill out the SS-4 form ahead of time so that you are ready to answer the questions when asked.
Step 6: Draft Your Operating Agreement
While an operating agreement is not required, it is highly recommended that your business have one.
An operating agreement is like the blueprint to your online business. It sets a precedent for how your company is to be run, outlines rules and regulations regarding ownership and structure, and covers other important aspects, like finances.
Ready to draft your operating agreement? VPM’s TruStart course will take you through each step of creating an operating agreement for your Delaware LLC.
Though you aren’t required to file your operating agreement, it should be kept up-to-date and placed in your internal records for safekeeping. That way, you can revert back to the agreement when you need clarity on rules and operations regarding your business. Also, as best practice, be sure to always keep your operating agreement up-to-date as your business grows.
Step 7: Acquire Necessary Business Licenses
Once your business's operating agreement has been drafted, your next step is to obtain any required business licenses on a federal, state, and local level. These are typically dependent on what industry you’re in and where your business is located.
Delaware County or City Licenses
The location of your business will determine whether or not you are required to apply for county or city licenses or permits. Rules and regulations vary between cities/towns and counties, so you’ll need to do some research if your business will be operating in the state of Delaware.
Delaware Business License
You’ll need to register your business with the Division of Revenue if any of the following apply to your business:
- Your business is located in Delaware
- You have employees working in Delaware (in this case, you’ll also need to register for Unemployment Insurance and Workers Compensation)
- You plan to generate sales in Delaware
To apply for a business license in the state of Delaware, you can create a One Stop account on the Delaware Division of Revenue website and complete the entire process online.
Note: Businesses that are not operating in Delaware (for example: businesses that are incorporated in Delaware but don’t transact business in the state) can skip this step.
Step 8: Open a Business Bank Account
Maintaining the separation of your personal and business funds ensures your personal assets are protected in the event of a lawsuit. Can you imagine losing everything you’ve worked so hard for? Picture your savings, home, car all being taken away. Pretty scary, right?
The minor inconvenience of having to set up a business bank account is 100% worth the protection it entails. Having a dedicated business bank account also simplifies tax reporting, makes it easier to keep track of any business expenses, and allows you to accept credit card payments for your business.
What documents do I need to open a business bank account?
In order to open a business bank account in the state of Delaware, most financial institutions will ask for the following:
- A filed copy of your LLC’s Certificate of Formation.
- A copy of your LLC’s operating agreement.
- A federal tax ID number (EIN).
- A business address (residential or commercial street addresses both work) in which your business office is located. PO Boxes are not permitted.
- The mailing address in which you receive business mail and packages.
- A valid ID of the company owner(s) or members.
How to Get a Business Bank Account From Outside the US
As of 2020, non-US residents can now open a business bank account online through Mercury. To open a bank account for your LLC, you’ll need:
- A stamped and approved copy of your Certificate of Formation.
- A valid passport.
- Your physical business address (need help getting one? Check out VPM’s TruLease plan).
- An employee identification number (EIN).
If you are a non-US resident/citizen and plan to open a bank account in person, you’ll need to check with the bank to see if they support international businesses and what documents they require.
Step 9: Maintain Compliance
Congratulations on forming your Delaware LLC! There are a few more steps you’ll need to take to ensure you maintain compliance year after year.
Pay Your Annual Taxes
Your annual taxes will amount to a flat-rate of $300 a year. They must be paid online and are due on or before March 1st. If you fail to pay your annual taxes on time, you’ll be fined a $200 penalty plus 1.5% interest per month.
Keep Your State, County, and City Licenses Up-to-Date
Your Delaware business license will need to be renewed each year. If you plan to conduct business in the state long-term, you can opt to renew in 3-year increments after your first year is up. As far as county and city licenses go, you will need to look into these individually.
Renew Your Registered Agent
Most registered agent services require you to renew your contract on an annual basis. However, if you are using VPM’s free registered agent service, you don’t have to worry about this step.
Get Your Delaware LLC Started in a Day or Less
Need assistance forming your Delaware LLC? VPM’s TruStart course features self-paced video lessons that describe each step of the LLC formation process in detail.
You'll learn how to fill out and submit each document listed above. Plus, receive unlimited access to video lessons and get continued support through community forums, which will be available for you to use long after you finish the course.
What are you waiting for? Learn how to form your Delaware LLC, open a business bank account, and stay compliant with state taxes and laws today!