Forming an LLC in Delaware: Is It Right for You?

Almost every day, it seems someone asks us if forming an LLC in Delaware is a good move for them and the answer seems to surprise them.

First, it would be great to simply answer this question with a simple yes or no; however, there are a number of factors that go into making a good decision.  As a result, we can’t really answer the question directly or even offer advice. What we can do is spell out the pros and cons so you can decide if forming an LLC in Delaware is a good idea or not.

 For many of our customers, Delaware has an almost magical status, which they believe will make their LLC better. Most companies might actually do as well or better in their home state.

 Here’s why:

 If you are a small company and only intend to conduct business in your home state, you may be required to file your Delaware LLC as a foreign entity in your home state. This means that to your home state you look like a company from another state coming in to do business. They will charge you filing fees just as if you were filing your original company. So now you have paid to file an LLC in Delaware and you will also pay to file an LLC in your home state. These fees may apply every year if renewals are required.

 On the opposite end of the scale, things work differently. If you intend to conduct business in a larger number of states and will be filing in each state anyway, the additional expense is practically built in. That’s why larger companies may choose forming an LLC in Delaware over another state. In fact, many of the larger companies in the U.S. are formed in Delaware.

 There is one reason for forming an LLC is Delaware that is worth considering. No matter what state you file your company in, you will be governed by the legal statutes of that state if you are ever involved in a legal suit brought against your company. In other words, forming an LLC in Delaware would bind your company to the legal statutes of Delaware and would also bind anyone who sues you to those same statutes. Here is the important part…Delaware is regularly ranked #1 in terms of its laws being business friendly in lawsuits. I once heard an attorney say that you have a better chance of being struck by lightning than having the corporate veil of a business pierced, unless there has been fraudulent activity on the behalf of the company.

 Let’s recap:

• Many small businesses find that forming an LLC in their home state is the best choice.
• Many large companies turn to Delaware for their company.
• If your business may be prone to lawsuits, Delaware is considered to be the most business friendly state in the country.

 I know this doesn’t clearly answer the question, but it should give you a great starting point for determining is forming an LLC in Delaware is right for your situation. If you need more help, you can always give us a call and one of our specialists will be glad to help you.