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Q: What is a Limited Liability
Company?
Q: Why should I form a Limited Liability Company?
Q: Will my Limited Liability Company ever be treated as a corporation for tax purposes?
Q: Can a Delaware Limited Liability Company do business in other states?
Q: Will my company be subject to tax in the State of Delaware?
Q: Do I have to come to Delaware to form my company or at any time thereafter?
Q: Why have Delaware Limited Liability Companies become so popular?
Q: What is an Operating Agreement and do I need one?
What is a Limited Liability Company?
A Limited Liability Company is created under Title 6 of the Delaware Code, Chapter 18. A Limited Liability Company is a hybrid of a corporation and a general partnership which is treated like a corporation for liability purposes, and like a partnership for tax purposes.
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Why should I form a Limited Liability Company?
A Delaware limited liability company, like a Delaware corporation, has not only the benefit of "limited liability", i.e., the owner, called members, are not personally liable for the company's debts, but also a limited liability company has the benefit of being treated as a partnership for income tax purposes. Unlike a Subchapter-S corporation, a limited liability company is not limited to 35 shareholders, who may be a shareholder and is not limited by the types of businesses it may transact. A limited liability company is not subject to the risks of double taxation inherent with corporations.
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Will my Limited Liability Company ever be treated as a corporation for tax purposes?
Before January, 1997, the US IRS had issued a complicated set of Regulations which determined whether an LLC would be treated for tax purposes as a partnership or as a corporation.
Effective January 1, 1997, new Regulations have simplified the rules and no longer require complicated provisions in the operating agreement to qualify for "partnership" treatment. Now, an LLC which has two or more members is classified as a "partnership" for tax purposes and if the company has only one memeber it is "disregarded" for tax purposes and is treated as a "sole proprietorship". In either case the company still has limited liability
Delaware Corporate Agents, Inc. makes available to you sample forms of Operating Agreements which may avoid these problems. You may purchase these forms when you pay for your new company.
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Can a Delaware Limited Liability Company do business in other states?
The answer to this question depends on your state's laws. Generally speaking your state will require that you qualify as a "foreign Limited Liability Company." At the present time all states other than Vermont and Hawaii recognize limited liability companies and afford foreign companies full faith and credit. You should check to determine if your state is one which does not recognize limited liability companies. If your state requires qualification, you should order a certificate of good standing when you place your order.
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Will my company be subject to tax in the State of Delaware?
Delaware will only tax income earned by your company within the State of Delaware. If all of your income is earned outside of the State of Delaware you will only have to pay the
$100 USD franchise tax.
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Do I have to come to Delaware to form my company or at any time thereafter?
Delaware does not require that you come to Delaware to either form you company or to hold any meetings thereafter. Delaware Corporate Agents will serve as your registered agent and will be your only contact with Delaware. The entire formation process may be accomplished over the fax or the Web.
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Why have Delaware Limited Liability Companies become so popular?
As with its General Corporation Law, Delaware has taken great pains to keep its Limited Liability Company Act current with the most modern thinking in the legal, financial, accounting and business communities. These efforts have made the Delaware Act the most flexible and the easiest statute for a company to operate under. Unlike other states, Delaware permits a single person to be the sole member and sole manager of a company.
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What is an Operating Agreement and do I need one?
An operating agreement is similar to a partnership agreement. The Act requires that you must have an operating agreement, but that agreement need not be written. The Delaware Act contains a series of provisions governing the operation of companies which become effective so long as you do not have an agreement which varies those terms. You and the other members of your company could agree that your company will be governed by the terms of the Delaware Act. Delaware Corporate Agents makes available to its customers a form of operating agreement which contains many of the standard and some nonstandard clauses. In some cases there are alternative paragraphs to choose from and in other cases specific terms are contained in exhibits to the agreement. The form operating agreement is intended to keep your company treated as a partnership for tax purposes and not as a corporation. One form agreement is designed for member managed companies and the other is for companies which use a manager or managers to operate the company.
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See also:
Frequently Asked Questions about LLCs
What does it cost to form an LLC?
Prorated registered agent fees
Federal
Tax Considerations
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