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Once you form an LLC in Delaware, your requirements and responsibilities are not over. Every LLC will face both internal and external requirements on an ongoing basis, and you must meet these responsibilities to enjoy the benefits of a Delaware LLC. Internal Requirements of a Delaware LLC Many business owners choose to form an LLC because this business entity is not required to hold annual meetings of the managers and members. Still, it's definitely recommended, as maintaining formal records of business decisions is a good idea if a dispute arises down the road. It's also a good idea to issue membership interest certificates to measure membership interest of owners of an LLC, which keeps a formal record of LLC ownership status. It's not necessary to create an operating agreement for a Delaware LLC, although this is definitely advised and does not need to be filed with the Certificate of Formation, if you choose to create one. External Requirements of a Delaware LLC The state of Delaware does impose a number of external requirements on LLCs. This includes filing periodic reports with the Secretary of State, which helps states maintain current information on LLCs in the state. Annual statements are also normal. A Delaware LLC is also required to file an Annual Franchise Tax Statement, which carries a fee of $250 and is due June 1 of every year payable to the Delaware Division of Corporations Franchise Tax Section. When you form an LLC, you will also need to maintain a registered agent. If you do business in the state of Delaware, your business can be its own registered agent and you may use your business address. If you do not operate in Delaware, you will need to appoint a registered agent with an address in the state to accept legal mail and documents on your behalf. If you have employees or more than one member, you will need a federal tax identification number (EIN), and most banks will require this as well to open a business bank account. If you choose to form an LLC with only one member but elect to have it taxed as a corporation, you will also need an EIN through the IRS. Delaware does not require a state tax identification number. You will also need business licenses or permits if you operate in the state. Delaware law recognizes businesses that operate as an LLC, so you will be treated like a partnership for federal tax purposes. What Happens if You Aren't Compliant? Unfortunately, many small business owners believe these ongoing responsibilities of an LLC do not apply to them. Failing to observe these requirements comes with very stiff consequences, and yo may lose your LLC status in the state as well as the limited liability protection. If your LLC is sued and cannot show that it followed all formalities and regulations, a judge could rule it was operating as a general partnership or sole proprietorship, in which case they may bypass your LLC status and extend 100% liability to you and other owners. On the state level, your company will no longer be in good standing with the state of Delaware. In some cases, extra fees and interest may be imposed, or even administrative dissolution of your company with Delaware. This means you will lose all benefits of having an LLC. You must keep the so-called corporate veil intact by meeting all requirements. Fortunately, Delaware does not impose too many requirements when you form an LLC in the state, which is just one reason so many businesses choose Delaware when they learn how to incorporate a business. Christine Daniel writes for USA Corporate Services, which offers business formation services for US residents and non-residents in all 50 states.
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