Frequently Asked Questions
Advantages of an LLC
Why is a LLC typically better than an INC?
Non-resident business owners stand to gain many benefits when they register a company as a Delaware-formed LLC (Limited Liability Company):
Limited Liability Protection
Unlike a sole proprietor or general partner, an LLC’s legal obligations usually do not put the LLC owner’s personal assets, such as a home or individual bank account, at risk. Owners are not held personally responsible for business debts and liabilities. When an LLC is filed correctly, only LLC assets, and not personal assets, are used to pay off business debts.
Flexibility in allocating profits among owners
LLCs offer owners flexibility in allocating profits and losses among its various owners.
LLC members are not limited to their proportion of ownership, but may decide to divide up profits in a different manner. For example, one member may agree to take less than her proportional share in profits if another member agrees to put in extra hours and efforts toward the LLC’s daily operations.
While corporations (INC) also offer limited liability, but they have to observe certain requirements that may not be well suited to a small, informally run business. For instance, corporations typically must hold annual shareholder meetings, make annual reports and pay annual fees to the state. They also tend to have substantial recordkeeping requirements. LLCs, however, do not have to hold annual meetings and usually are not required to keep extensive records.
No public share register
LLCs do not have a public share register like corporations (INC). Ownership, management, distributions and other information is kept in the Operating Agreement which may be updated by the LLC owners at any time. This document is not filed with the State and there is no need to inform them of the changes.
Typically an LLC does not pay taxes at the business level. Income/loss is reported on the owners’ personal tax returns and any tax due is paid at the individual level.
No other business licenses needed
According to Section 2301(b) and (d) of the State’s code, Delaware LLCs not doing business in Delaware are not required to obtain a business license, register with the Department of Revenue, or pay Delaware’s gross receipts tax.
Limited Liability Company assets can be protected from creditors
Delaware’s “Charging Order” process may prevents creditors of your business from taking over the company. Instead, they can only get an economic interest in the LLC’s distributions to that member.