Creating an LLC is a good way to protect yourself and your family while you’re also going into business for yourself. Starting a small business is a huge step, and you need to be informed so you know what kind of business will work best for you.
This article will cover everything you need to know to form your own LLC in Delaware, from the basics to how it helps protect you.
What is an LLC?
LLCs, or limited liability companies, are a specific business structure in the United States designed for small businesses as an alternative to sole proprietorships other kinds of business. LLCs act as a hybrid entity with some characteristics that are similar to corporations, and others that are similar to sole proprietorships and partnerships.
Having an LLC creates a business entity that is responsible for its own debts and liabilities, which keeps your business assets separate from your personal assets. Under an LLC, the owner(s) is not personally liable for the LLC’s debts and liabilities.
Reasons to Form an LLC
LLCs, or limited liability companies, are a specific business structure in the United States designed for small businesses as an alternative to sole proprietorships other kinds of business. LLCs act as a hybrid entity with some characteristics that are similar to corporations, and others that are similar to sole proprietorships and partnerships.
Having an LLC creates a business entity that is responsible for its own debts and liabilities, which keeps your business assets separate from your personal assets. Under an LLC, the owner(s) is not personally liable for the LLC’s debts and liabilities.
Liability Protection
Liability protection is probably one of the core benefits of having an LLC. Once you have an established LLC your assets aren’t at risk if your company is sued. It also helps to protect your assets if your company goes into debt or runs into other financial trouble.
Flexible Tax Management
Because LLCs are created under State governments, they have a lot more options when it comes to federal taxes. They can be taxed as sole proprietorships and S or C corporations. If you have multiple members in your LLC, you can also choose to have your LLC taxed as a partnership depending on which tax structure gives your business the most advantages.
Privacy
You can also form an LLC anonymously, which can help keep your connection to the LLC out of public view. Of course, your bank and the government will still know that you’re connected to the LLC, especially if you’re the sole member of that LLC. But it will make things a little easier to maintain your privacy and keep your personal life separate from your business life.
Professional
Having an LLC can also make your business appear more professional and trustworthy to other businesses and their representatives. It’s a good way to indicate that you are serious about what you’re doing and that your company is trustworthy.
How to Form an LLC
Choose a Location
The first step to forming an LLC is to choose where your LLC will be registered. Generally, you'll form your LLC in your home state since that's where it will be active. However, if you're planning to operate your LLC in multiple states you have a choice of which state you want to register in. Some states are more popular than others based on their regulations surrounding LLCs. Here are some of the most popular options:
- Delaware
- Nevada
- New Mexico
- Wyoming
Choose a Registered Agent
As an LLC you are also required to have a registered agent who will receive mail and information on behalf of your LLC. They are also critical for receiving notice if your LLC has been sued and to receive other critical notifications.
These agents are also known as your statutory agent or resident agent.
Your agent is required to have an address in the state your LLC is registered. Most LLC’s use a member or employee as their registered agent, but you can also use a company that offers registered agent services instead.
Operating Agreement
Operating agreements aren’t required in every state, but it’s always a good idea to have one. Your operating agreement covers all the details about how your LLC should be run, including management style, leadership, and any other management details.
Choose a Name
You also need to choose your LLC's name. While the exact requirements can vary from place to place, almost every state has these two requirements:
- Your name must be unique to you, you cannot register a name another business is already registered under in the same state.
- You must include a variation of Limited Liability Company or LLC in the name, usually at the end.
Your LLC’s official name doesn’t have to be the name you use in public in every state. Some states will also allow you to register a separate Trade Name that you use in your day to day business dealings.
Articles of Organization / Formation
You’ll also need to file Articles of Organization with your state, usually with the Secretary of state, the Division of Corporations, or your state’s equivalent. Every state uses a slightly different form, and some states may also call their form something different. These forms declare your LLC and register with the state so that you can start doing business. It’s also a way for the state to track your business and make sure you’re paying the appropriate state taxes for your kind of business.
Who Should Start an LLC?
Starting an LLC is a good idea for anyone with a small business, a side business, or even a profitable hobby. Since the main purpose of the LLC is protective, they can help keep your personal assets secure while you’re pursuing your entrepreneurial dreams.
Who is an LLC best for?
First, let’s talk about who an LLC isn’t for. LLCs cannot be formed to help shield you from the losses associated with a less than a profitable hobby or side business. If you flip cars, but usually put more money into each vehicle than you get out of it, then you probably won't qualify for an LLC.
But an LLC might be a good option for a professional makeup artist who consistently brings home money and works for themselves.
LLCs might also be a good option if you’re looking to start a business and don’t mind investing some of your money as starter funds into accounts to get your LLC started.
LLCs aren’t strictly necessary, but they are a good idea. Forming an LLC can help protect you, but you can also use a different business structure if an LLC isn’t a good fit.
Yes! You can file for an LLC on your own, or with a group, whichever arrangement works better for you.
Forming an LLC does a couple of things for you. If you’re the sole member of your LLC it can act to protect your resources and create a business entity that is separate from your personal property and accounts. If you’re forming an LLC with a partner or a group, it can help you create a group identity that is distinct from any of the members.
Forming an LLC isn’t difficult, but you should check your state’s local regulations to make sure you aren’t skipping any steps or missing anything that could prevent you from completing the process. You’ll need to file Articles of Organization (or the local equivalent) to form your LLC. You’ll also need a registered agent, and a unique business name registered with the state to form your LLC.
Written By
Jonathan is admitted to practice law in Colorado and Wyoming. In this position, he helps business owners at nearly every level and in nearly every industry with asset protection, estate planning, and business formation. Beyond business owners, Jonathan also helps activists of all political persuasions to legally protect themselves.
