Why You Shouldn't Form an LLC in Delaware

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6 Reasons Why You Shouldn’t
Form an LLC in Delaware

How to form an LLC in Delaware
This Quick Start Guide is a brief overview of how to form an LLC in Delaware.

Detailed Lessons:

 

Delaware LLC costs:
LLC formation cost: $90 (one-time fee)
Annual franchise tax: $300 (every year)

Need help?
Hire a company to form your Delaware LLC:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)

(check out Northwest vs LegalZoom)


Video Transcript:

Hey folks, Matt Horwitz, LLCUniversity.com. Six reasons why you should not form an LLC in Delaware. I just got finished writing this and figured it would be an excellent piece to make a video on, and we get so many phone calls. This is such a pain point for so many people, and they make a lot of mistakes here. Note if you live in Delaware or you do business in Delaware, this information does not apply to you, you should form an LLC in Delaware. If you don’t live in Delaware and you don’t do business in Delaware, and you’ve heard that you should form an LLC in this magical state, let me save you a lot of money and headaches. Don’t form an LLC in Delaware. The disadvantages of forming an LLC in Delaware far outweigh the perceived advantages. Let’s look at an example. Nathan is from Connecticut. He reads online that Delaware is the best state to form an LLC in, so he forms an LLC in Delaware. He’s a resident of Connecticut, he already pays taxes in Connecticut, and his home office is based in Connecticut. Most people aren’t aware of, but there’s a lot of issues with this setup, illegally transacting business without authority. Nathan’s Delaware LLC is doing business illegally in Connecticut. The Connecticut secretary of state is going to enforce it’s laws and will soon be sending Nathan a citation in the mail with a fine, so he needs to register as a Foreign LLC. To remedy the citation and because it’s the law, Nathan must now- It’s hard to read your own writing. Nathan must now register his Delaware LLC as a Foreign LLC in Connecticut. He needs to file a Connecticut Foreign LLC registration, pay the state filing fee, which is $120 in Connecticut, it’s a lot more expensive in other states. Then he must keep this Foreign LLC in compliance with Connecticut law. That means filing an annual report every year and paying that fee, as well as paying a Connecticut business entity tax of $250 every other year. Remember, this is already on top of him paying the $90 registration fee in Delaware, the $300 required annual franchise tax in Delaware, and $125 every year for his Delaware registered agent. In short, Nathan now needs to maintain two LLCs. He has a Domestic LLC in Delaware and a Foreign LLC in Connecticut, and it gets worse. Nathan was deceived into forming a Delaware LLC because he read it was a tax friendly state, and while this is true, it really only applies to large, multi-million dollar companies and not small business LLCs. Look, don’t just take our word for it. Read what the Delaware secretary of state has to say about the hype … I guess you can’t click the link, but the link is below the video. Most people are unaware of this simple fact, taxes are paid where the money is made, not where your LLC is set up. That means Nathan still owes Connecticut taxes, which could include but aren’t limited to sales and use tax, business entity tax, withholding tax, corporate business tax, net income tax, franchise tax, property tax, and more. Remember, Nathan’s a resident of Connecticut and an LLC is a pass through entity, which means the profits of the LLC are reported on his federal income tax return, as well as his Connecticut personal income tax return. In short, the whole reason that he formed the Delaware LLC in the first place is defeated. It’s not saving him any money on taxes. In fact, this whole loophole is unknowingly costing him a lot more money. What about the Delaware Court of Chancery and Delaware Law? I’m sure you’ve read online something about these. The Delaware Court of Chancery is the oldest and most established business court in America, and Delaware has the most robust business case law. Who cares? What are you starting, some lawsuit rampant company where you’re going to go to court every other month? Look, take your reality check. Not that this information is not true, it just doesn’t apply to you. Again, take a reality check. Most of the companies promoting Delaware, they don’t give a crap about your business’s long term success and well being, and all the headaches that you’re going to have to deal with. They just want your money. Don’t be misled into the headaches. Focus your energy on running a legitimate and successful company in the state where you actually live and do business in. Whew… alright, I get a little angry here. Other industry related issues. Again, we get painful phone calls from our readers about these issues. Recently, a guy from Pennsylvania running a trucking company in Pennsylvania formed an LLC in Delaware. Later, he tried to register his trucks as being in Delaware with the department of transportation. They denied his application because he was not a resident of Delaware, and that ended up costing him $20,000 of business that month. I’m not going to list out dozens and dozens of examples here, but I just want to let you know. This information, you’re not going to find on websites promoting Delaware, and you’re probably going to hit industry specific quirks where you’re going to have issues with your out of state LLC. All right, take away. Instead of forming an LLC out of state and then later learning that you need to register your out of state LLC as a Foreign LLC in your home state, paying for an extra registered agent, paying annual reports in two states, having tax liabilities potentially in two states, and dealing with the headaches of two LLCs, just form the LLC in the home state and the state where you’re doing business. If you’d like more information on this whole topic, we have another video, link below. Here’s an excuse I hear, “But I work online!” Even if you run a business from home or online, you’re still a resident of your home state and you’re still transacting business in that state. You can’t get around your state’s tax obligations simply by forming an LLC out of state. If you really want to, you’ve got to move. Again, put your time and energy into building a successful company, not wasting your time on a handful of loopholes you’ve read on the internet. Again, if you live in Delaware or you do business in Delaware, just please disregard this, form an LLC in Delaware. If not, form your LLC in your home state and/or the state where you’re transacting business. Hope this information is helpful. Take care.

Note: If you live in Delaware, or do business in the state, then this information does not apply to you. You should form an LLC in Delaware.

If you don’t live in, or do business in Delaware, and you’ve heard that you should form an LLC in Delaware, let me save you a lot of money and headaches: you should not form an LLC in Delaware.

The disadvantages of forming an LLC in Delaware far outweigh any “advantages” you may have read.

Let’s look at an example:
• Nathan is from Connecticut
• He read online “Delaware is the best state to form an LLC”
• He forms an LLC in Delaware
• He is a resident of Connecticut
• He already pays taxes in Connecticut
• His home office is in Connecticut

Most people are unaware, but there are a handful of issues with this setup…

Illegally Transacting Business Without Authority

Nathan’s DE LLC is doing business illegally in CT. The CT Secretary of State enforces its laws and will soon be sending Nathan a citation and a fine in the mail.

Needing to Register a Foreign LLC

To remedy the above citation (and because it’s the law), Nathan must now register his DE LLC as a “Foreign LLC” in CT.

He first needs to file a Connecticut Foreign LLC Registration and pay the state filing fee ($120). He must then keep his Foreign LLC in compliance with CT law. That means filing a Connecticut Annual Report every year ($20), as well as paying the Business Entity Tax ($250) every other year.

Remember, this is on top of already paying the $90 filing fee in Delaware, the $300 required Annual Franchise Tax in Delaware, and the $125 annual fee for his DE Registered Agent.

In short, Nathan now needs to maintain 2 LLCs. A “Domestic LLC” in Delaware and a “Foreign LLC” in his home state of Connecticut.

It gets worse…

Taxes Are Paid Where Money is Made

Nathan was deceived into forming an LLC in Delaware because he read it was a “tax-friendly state”.

And while this is true, it really only applies to large, multi-million dollar Corporations, not small business LLCs.

And don’t just take our word for it. Read what the Delaware Secretary of State has to say about the hype: http://corplaw.delaware.gov/facts-and-myths/

Most people are unaware of this one simple fact: taxes are paid where the money is made.

That means Nathan still owes Connecticut taxes, which could include (but are not limited to) sales and use tax, business entity tax, withholding tax, corporate business tax, net income tax, surtax, franchise tax, property tax, and more.

And remember, Nathan is a resident of Connecticut. And an LLC is a pass-through entity. Which means the profits from his LLC are reported on his federal income tax return, as well as his Connecticut personal income tax return.

In short, the whole reason he formed the DE LLC is defeated. It’s not saving him any money on taxes. In fact, this whole “loophole” is unknowingly costing him a lot more money.

But What About the Delaware Court of Chancery and Delaware Law?

I’m sure you’ve read something along these lines: “The Delaware Court of Chancery is the oldest and most established business court in America,” and “Delaware has the most robust business case law.”

Who cares!

What are you starting: some lawsuit-rampant company where you’re going to court every other month?

Take a reality check. Most of these companies promoting Delaware don’t give a crap about your business’s long-term success and well-being. They just want your money.

Don’t be misled into the headaches. Focus your energy on running a legitimate and successful company in the state where you actually live and do business.

Other Industry-Related Issues

We get painful phone calls from many of our readers about these issues. Recently a man from Pennsylvania who runs a trucking company (in PA) formed an LLC in Delaware.

Later, when he tried to register his trucks with the Department of Transportation, they denied his application because he was not a resident of Delaware. This ended up costing him over $20,000 in business that month.

Instead of listing out dozens of other examples, we just want to warn you that you’ll likely hit industry-specific “quirks” with LLCs registered outside the state where you reside and/or actually do business.

Takeaway

Instead of:

– forming an LLC out-of-state and then later learning that you need to register your out-of-state LLC as a Foreign LLC in your home state,

– paying for an extra Registered Agent,

– paying annual reports in 2 states,

– having tax liabilities in 2 states,

– and dealing with the headaches of maintaining 2 LLCs,

just form your LLC in your home state, or the state where you are doing business. If you’d like more information on why it’s best to form an LLC in your home state, please see this video.

“But I Work Online!”

Even if you run an online business from home, you are still a resident of your home state and you are still transacting business in that state. You cannot get around your state’s tax obligations simply by forming an LLC out-of-state.

Put your time and energy into building a successful company, not wasting your time on a handful of “loopholes” you read on the internet.

If you live in, or do business in Delaware

Then this article does not apply to your situation. You should form your LLC in Delaware. Get step-by-step instructions on how to do that here: How to Form an LLC in Delaware.

Matt Horwitz
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.
Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

53 Comments

  1. Ed September 19, 2018

    Hi Matt,

    I live in DE and have rental property in NJ. Can I just create a domestic NJ LLC and use my DE home address as the business address, or would I need to create a domestic DE LLC and register as a foreign NJ LLC?

    reply
    • Matt Horwitz October 18, 2018

      Hi Ed, if you form a Domestic NJ LLC, your Main Business Address (aka Principal Office Address) can be a Delaware address, but your Registered Agent address must be in New Jersey. You don’t have to form a Domestic DE LLC and register it as a Foreign NJ LLC. You can just form a Domestic NJ LLC if you’d like since that’s where you’re doing business. Hope that helps.

      reply
  2. Kamran September 22, 2018

    Hi Matt,

    First of all awesome job for writing this and to help everyone!!!
    Here is my situation, i am in the planning phase of opening up an LLC in GA for marketing, my llc will make money on selling US based cable companies services. Although all the marketing services will be outsourced from a company based in india. So main expenses will be to pay to indian based company for providing call center/marketing services.
    I want to know what kind of llc should i open to separate taxes from my personal taxes, also any advice to save on taxes will be much appreciated.

    Thanks a lot in advance.
    -Kamran

    reply
    • Matt Horwitz October 18, 2018

      Hey Kamran, you’re very welcome! And thank you :) Although marketing services will be outsourced, you’ll still be running your LLC and doing business in Georgia, so a Georgia LLC is the way to go. Check out our article about how are LLCs taxed. If your net income begins approaching $70,000 per year (more or less), you can begin looking into having your LLC taxed as an S-Corp. Hope that helps.

      reply
  3. carlos October 8, 2018

    Hi Matt, thanks a lot for your post. I have a question about this.

    I’m not a US resident or citizen but 3 or 4 times per year i do online business (eg. design, edition, photography retouching) for NYC based companies. Since I’m thinking about expanding my business they recommended me opening an LCC in Delaware for this purposes. Are they correct or is there another option?

    thanks in advance
    c

    reply
    • Matt Horwitz October 25, 2018

      Hi Carlos, as a non-US resident/citizen, you can pick any state you’d like, however, we recommend “working backwards” and figuring where you want to open a bank account for your LLC (it’ll need to be opened in person in the state where the LLC is formed) and figuring out what documentation and addresses they want. We have more information here: US LLC bank account for foreigners. Hope that helps.

      reply
  4. Eric October 20, 2018

    Hi Matt,

    Great article and thanks for all the tips. I wasn’t able to see if my particular situation applied to any stated above. I’m a US citizen currently working abroad for an undetermined amount of years and want to form an LLC for an online Amazon business in the states. My last place of residence was Virginia which is impossible to abandon so I am considered a VA resident when it comes to paying state taxes. Does this mean I should form my LLC in Virginia even though I’m not actually “doing” work or have a physical presence there? Would it be ok to form it in Delaware, Nevada or Wyoming?

    Thanks for the advice,

    Eric

    reply
    • Matt Horwitz November 22, 2018

      Hi Eric, this falls into the gray zone. Not sure what the best course of action is. Why not just form the LLC in Virginia? What is your reason to go out of state? The Virginia Annual Registration Fee is $50/year. Delaware is $300. Nevada is $350 (not to mention $425 to form). Wyoming is the same cost; $50. Virginia also has charging order protection.

      reply
      • Jules January 16, 2019

        I have a similar situation except that I already have a Virginia single member LLC for online business. Most of my clients are out of state. I do not have employees in Virginia either. Will transfering my LLC to Delaware or Nevada help with tax savings?
        Thank you.

        reply
        • Matt Horwitz January 18, 2019

          Hi Jules, it’s best to discuss details with an accountant. Based on what you said, you’re still transacting business in Virginia (you’re there, running you’re business from there). So even if you formed an LLC out of state, you’d end up apportioning your income back to Virginia and paying income taxes there. In addition to needing to register your out-of-state LLC as a foreign LLC in Virginia. Hope that helps.

          reply
  5. AD October 30, 2018

    Hi Matt,
    I am a permanent resident of US and plan to start an LLC for online software marketing and networking which will be used throughout the world. Currently I am between projects so I have been moving around staying in different states in an apartment lease. Eventually i pay my taxes based on the number of months i have been in each state. Do you think it makes sense to register the LLC in Delaware and have a registered agent in this scenario? Once i decide on a permanent project in a state, can i then transfer the LLC to that state?

    Thanks,
    AD

    reply
    • Matt Horwitz November 22, 2018

      Hey AD, this falls into somewhat of a gray zone. When you say “move” an LLC, you’re likely desiring to redomesticate, however, not all states allow this. It might be worth considering where you will ultimately make your state of residency and then forming an LLC there. Hope that helps.

      reply
      • AD December 10, 2018

        Thank you Matt!

        reply
  6. Sophie October 31, 2018

    Hi Matt,

    I am a non-US resident from the UK and it looks like I may have fallen in the trap of registering my business as an LLC in Delaware even though my business will not be operating there at all.

    My business is essentially an online business providing musicians for events which are in California and so I assume that even though I am a non-resident and the business has no employees, the business is still being carried out in California by contracting musicians to play. Does this mean that the LLC would need to file for foreign qualification in California?

    If this is the case, do you recommend dissolving the Delaware LLC and start ing afresh in California, saving future double payments and general headaches?

    Thank you so much!

    reply
    • Matt Horwitz November 22, 2018

      Hi Sophie, this was originally written for those considered US persons for tax purposes, however, if your LLC is actually doing business in California, then you may want to consider forming a California LLC (California tax will likely need to be filed, even as a non-resident) and dissolving your Delaware LLC. However, this falls in the “gray zone”, so it might actually be best to speak to a few attorneys and a few accountants to get a better idea of the best course of action. Hope that’s helpful.

      reply
  7. Illia November 13, 2018

    Hi, thanks for the vid and article. It was pretty helpful, but I have a question. What if the person live out of US, and form an LLC in Delaware to provide web services for customers in California with no presece in US. In this case, should he register as a Foreign LLC in California in order to do business?
    Thanks

    reply
  8. Sai November 19, 2018

    Hi Sir,

    we started LLC in delaware when we were in Delaware state.Now we have moved to Arkansas and we want to keep running our business from Arkansas.What is the viable option scrap delaware company and fresh start in Arkasnas .We are worried to change all the details with manufacturers.This is very good article and eye opener to all small business like us. Really Appreciate your response and time.

    Regards,
    Sai

    reply
    • Matt Horwitz November 23, 2018

      Hey Sai, you’re very welcome. If you want to keep the bank account, EIN, and company history, you can either 1) register your Delaware LLC as a Foreign LLC in Arkansas or 2) domesticate/convert your Delaware LLC into an Arkansas LLC. Having said that, I don’t think option 2 is available in Arkansas (only some states allow for domestication). We don’t cover this subject matter in depth though, so we recommend calling the Arkansas Commercial Services Department to find out. If #2 is not available and you don’t want to do #1, then you’d want to consider dissolving the Delaware LLC and forming an Arkansas LLC. However, in that case, you’d need a new EIN, new bank account, and you’d need to update the manufacturers you work with. Essentially, it’s an entirely new company. In summary, you’ll want to weigh the value of the Delaware LLC’s existing history, relationship, registrations, etc., and determine if it’s just easier to leave the Delaware LLC open and file as a Foreign LLC in Arkansas. Hope that helps.

      reply
  9. Tiffany December 11, 2018

    Hey Matt,

    This thread has been super helpful. Thank you!

    I have a logistical question: I’m based out of RI. I currently consult about 4x a year for an institution in MA and have been filing as 1099 income (I have a full time job in RI separate from consulting). An addition and more lucrative consulting opportunity has come along (also based in MA) that has me thinking that I should form an LLC for protection should there be any issues with either place. I don’t have issues with paying the taxes, etc. But if I LLC in RI, my home state, do I have to file as foreign LLC in MA? (both locations are expensive)

    reply
    • Matt Horwitz December 16, 2018

      Hi Tiffany, you’re very welcome! You’ll want to run this by an attorney and discuss if what you’re doing is “doing business” or if it is isolated transactions. If you’re doing business in Massachusetts, then you’ll want to consider forming your LLC there or forming your LLC in Rhode Island and registering as a Foreign LLC in Massachusetts. Hope that helps.

      reply
  10. D Collyar January 7, 2019

    Thank you for your useful information. I have 2 partners and we’re setting up an LLC, but all of us live in different states. We thought setting up in Delaware was a good solution. Any suggestions since at least 3 states would be involved anyway?

    reply
    • Matt Horwitz January 7, 2019

      Hey D, it comes down to where the LLC is transacting business. That’s what should established where it’s formed. If if you form in Delaware, that is also what would establish where a foreign LLC filing would take place. Hope that helps.

      reply
  11. Stephanie January 7, 2019

    Hey Matt!
    This post is amazing and your dedication to responding to questions/comments is really cool of you!

    I live in NYC as I have a corporate job here. I also own a home in Florida. My current license is a FL one, but have thought to change it. I want to starting making films and need to create an LLC. I am not sure what locations I would be shooting in (not NYC.. maybe New Jersey), but am unsure where to file my LLC. Clearly it is cheaper in FL, but I want to do whatever is right.

    Can you advise? Thank you so much!

    reply
    • Matt Horwitz January 7, 2019

      Hi Stephanie, it comes down to where you’re primarily transacting business. I understand that’s a bit gray now, but that is what dictates the state and that’s what can also cause issues/headaches later as your business grows. For example, if you form a Florida LLC, but establish your business in NY or NJ, you’d then need to register your FL LLC as a foreign LLC. If you want to elect S-Corp taxation and take payroll, you’d have to register as a foreign LLC first in order to register with the state Department of Revenue (where you’re working and will pay payroll taxes). The S-Corp may not apply, but just wanted to paint some example of some headaches that could arise. Hope that helps.

      reply
  12. Jules January 16, 2019

    Hi Matt,
    Thank you for all this great information!
    I am a US person working overseas for an indefinite period of time. My last state of residence was Virginia, which I learned is very hard to abandon. I have an active single member LLC in Virginia, although the majority of clients are not from there, and there are no employees. I do not reside in Virginia so I am not physically doing work there.
    Will transfering my LLC to Delaware, Nevada, Wyoming help with saving on a state tax bill?

    reply
    • Matt Horwitz January 18, 2019

      Hi Jules, just seeing this after replying to your other comment. If you’re not transacting business in Virginia, then you have more flexibility. Having said that, it’s probably still a good idea to run this by a tax attorney.

      reply
  13. Valentin January 29, 2019

    Hi Matt,
    Many thanks, this thread is very helpful. I am a non US resident living in the UAE and I am considering forming an LLC in Delaware.
    I am wondering why US business bank account is required? Would it be possible to run business in Europe with a Dela are LLC with a non US business bank account?

    reply
    • Matt Horwitz February 7, 2019

      Hey Valentin, you’re welcome. We’re actually not sure about that. Have you checked with the banks there? It would also be wise to speak to an accountant as there could be tax implications. Feel free to share any of your findings. Thanks.

      reply
  14. Derek January 31, 2019

    Hi Matt,
    Thank you for this helpful information.
    So lets see if i got this right:
    I am a US citizen who currently lives overseas and haven’t resided or have a permanent address in the US for over 25 years. I’m planning on starting up an eCommerce business with the intention of selling products worldwide. Been researching my options on where to register my LLC and open a bank account in order to transact on my new online venture. Now there is a possibility that i move back to the US in the next few months and live (not necessarily be a resident) in Georgia. Your recommendation would be that i form my LLC in Georgia even though my site would be selling all over the US and other countries? And even if i may only live in Georgia 4-6 consecutive months out of the year? Is that correct?
    Would really appreciate your input on such a situation.
    Thank you

    reply
    • Matt Horwitz February 8, 2019

      Hi Derek, great question. It comes down to where you’re legally transacting business. That is where an LLC should be formed (or registered, if it was formed out of state). Seems your situation is a tad gray. Best practice would be to speak to an attorney or two. Feel free to share any of your findings if you’d like :) Hope that helps and thank you for your understanding.

      reply
  15. Ferdinando February 7, 2019

    Hell, Your video and suggestions agre great.
    I am in italian citizen living in Italy and with my partner we opened up last year a LLC in Delaware. last year we closed with $0 profit and we are going to pay in the next months the annual franchise fee of $300 plus $50 registered agent fee. We do business consultancy worldwide, if we have italian clients, can we deposit their checks into a us bank account and naturally pay taxes in Delaware? Also, with US clients from other state, like NY State, we do consultancy for them, we have to sign a W9 form, can we consult them and sign the w9 with them and deposit checks into our bank account and pay taxes at the end of the year? We do not have office in ny state or other states and we do not have any employee. Thank you in advance.

    reply
    • Matt Horwitz February 13, 2019

      Hi Ferdinando, you’ll want to find an accountant to speak to about this matter. There are far more details to get into and taxes aren’t always straight forward. Thank you for your understanding.

      reply
  16. Jennifer Flagen February 21, 2019

    Hello,
    I plan to officially launch my fitness training business this year and I currently reside in NC, however I know that in the next 8-12 months I will be moving to VA permanently. Would it be better to wait until I have my permanent address in VA to file the LLC there or go ahead and file in NC and then go through the process of transferring the LLC when I have moved?
    What are my options once I have moved to VA?
    Can I start conducting business in VA even though I incorporate the LLC in NC?
    Would I be required to transfer the LLC from NC to VA?

    reply
    • Matt Horwitz February 21, 2019

      Hi Jennifer, the process of moving an LLC’s jurisdiction into Virginia is called domestication. It’s a bit more complicated than just forming an LLC. It’s worth considering just forming the LLC in Virginia since that’s where you’ll ultimately be working from and transacting business. Since you don’t have a Virginia address yet, you can hire a Registered Agent (see Virginia LLC Registered Agent) and use their address in the Articles of Organization. Then after you move you can change the address if you’d like. Hope that helps.

      reply
      • Jennifer February 21, 2019

        Thanks for the response. From previous research NC to VA domestication wouldn’t be available as an option because both states (the to and the from) have to accept llc domestication. VA does but NC does not. Do you know if that is true?

        reply
        • Matt Horwitz February 21, 2019

          Hey Jennifer, you may be right. We don’t do a lot with conversions and domestications. I know Virginia allows them coming in, but not sure about North Carolina. There is info from the Virginia State Corporation Commission here: Foreign Limited Liability Companies (see LLC1077-PDF). I recommend calling the NC Secretary of State and the VA State Corporation Commission to dig into the details. Hope that helps.

          reply
  17. Diego February 24, 2019

    Hi,i am a non US Citizen looking to open an LLC in the USA,and i’ve been told Delaware would work well for me,i do not live in the USA either,but i will be selling throughout Amazon(e-commerce),does this still apply to me? also,do US sales taxes still apply to me when it comes to e-commerce?
    I’d appreciate your answer,thank you in advance!

    reply
  18. Laura Clarke January 13, 2020

    Thanks for sharing such useful information about why anyone shouldn’t form an LLC in Delaware.

    reply
    • Matt Horwitz January 14, 2020

      Hi Laura, you’re very welcome. We’re glad it was helpful.

      reply
  19. Pauline Truong February 3, 2020

    Hi Matt,
    I have a LLC in Delaware and been paying the annual taxes and agent for over 6 years. I do not have a business or live in Delaware. I live in CA and have a rental property and would like to change the title of the CA rental property to the LLC in Delaware. is it better for me to change the rental property title to the Delaware LLC or open a LLC or Corp in CA and have the rental property under CA LLC or corp?

    reply
    • Matt Horwitz February 5, 2020

      Hi Pauline, do you currently own the property in California in your own name? And do you have a mortgage? If you form a Delaware LLC that is transacting business in California (which in this case it is), you would need to register your Delaware LLC as a foreign LLC in California. In that scenario, you would need to maintain the LLC filings in both states, maintain a Registered Agent in both states, and fulfill the LLC annual requirements in both states. If you decide an California LLC is better, you can dissolve the Delaware LLC and form an LLC in California… that is though… if you have a mortgage in place, if the bank will allow for the change of title to your LLC. Hope that helps.

      reply
  20. Bola A February 3, 2020

    Hi Matt!
    Thank you for the very detailed and thorough article, it has truly helped me reconsider registering my company in Delaware.
    I am in a bit of a Dilemna where I want to launch an app and I am unsure of two things 1) whether I register my company as an LLC or c-corp
    and 2) whether I should register in Delaware or Maryland(my home state).
    Most startup companies register as c-corps in Delaware for basic reasons. I am currently in a phase where I know I will not be profiting from the application for a while so I’m questioning if registering as a c-corp would be worthwhile due to the double taxation. however, I eventually would like to get funding from VC’s. I am also unsure of registering in Delaware because it is not my home state, however, because it’s a software/online-based business I don’t think I will need to file for foreign qualification. Would you recommend I register in Maryland or do the laws of Delaware’s court system seem like a better fit for my startup?
    Thank you!

    reply
    • Matt Horwitz February 5, 2020

      Hi Bola! You’re very welcome! If you’re interested in heading the VC-backed funding route, a Delaware Corporation is very common. If you form a Delaware Corporation, you would need to register it as a foreign Corporation in Maryland since you’re transacting business there. Yes, it’s online, but the states don’t care about that. You are running the operations/business from Maryland. Hope that helps.

      reply
  21. Pauline Truong February 5, 2020

    Hi Matt,
    Yes the CA property is in my name and I do have a mortgage. I think it wouldn’t make sense to pay both states (CA & Delaware) annual fees if I registered the Delaware LLC as a foreign LLC. Based on your information you shared, I think it’s best if I form a LLC in CA and put the LLC CA in this property and dissolve the Delaware LLC which I paid annual $300 and $100 registered agent each year which I don’t need.

    Thanks for sharing this useful information, it’s was very helpful.

    reply
    • Matt Horwitz February 5, 2020

      Hi Pauline, you’re very welcome. Do keep in mind that California LLCs have an $800 annual franchise tax due every year. And the timing of the first payment is something to keep an eye out for (make sure to avoid “back to back” payments). For more information, please see California LLC annual franchise tax.

      reply
  22. Des February 6, 2020

    Hi Matt,

    What do I do if I already made the mistake of creating an LLC in Delaware? I created our LLC a few years ago when living in Virginia but now live in FL. The business is just my husband and I and is now just really getting off the ground. Should we dissolve the LLC in Delaware and file in FL? Thanks!

    reply
    • Matt Horwitz February 6, 2020

      Hi Des, since the business is up and running and likely has EIN history, banking history, bookkeeping history, etc., I would consider one of two things. First, register the Delaware LLC as a foreign LLC in Florida. This brings your entity into compliance and allows the Delaware LLC to legally transact business in Florida. This foreign LLC registration (aka qualification) would require a Florida Registered Agent. But you can use your address if you’d like to save money. The foreign LLC would also need to file a Florida Annual Report each year. This would be the easiest. It’s the same bank account, same EIN, same everything. It’s really one LLC (a Delaware LLC) that is allowed to transact business in both Delaware and Florida. You could also convert (known as “domestication” in Florida) your Delaware LLC into a Florida LLC. And after that’s processed, dissolve the Delaware LLC. However, domestication filings are often more administratively intense and if you DIY, it could be prone to error. We always recommend working with an attorney to property file the domestication, amend the Operating Agreement, and logistically and organizationally make sure everything else is handled properly. The slight benefit to domestication is that after you dissolve the Delaware LLC, you then no longer need to maintain a Delaware Registered Agent or pay the Delaware Annual Franchise Tax. But then again, depending on the growth and revenue of the business, spending a few hundreds dollars per year to keep a Delaware LLC in compliance may not be a bit deal. Hope that helps.

      reply
    • Des February 6, 2020

      Thanks for your quick reply – very helpful. However, although we established the LLC a few years ago we don’t have any bank accounts in the LLC name nor have we generated any income. We do have an EIN, but otherwise, it has basically sat as I waited to retire and build my micro-small yoga business.

      I was planning on waiting until we moved to FL to set up the LLC, but as you mention in your article, we read online (and in books) and heard from several friends how much easier it is to establish an LLC in Delaware, so we did! Now that I find that I will have to also file annual reports and pay fees in FL, it certainly doesn’t make sense to pay fees and file reports in two states.

      So, with these additional details, do you think we should still file as a foreign entity in FL? Is there a simple way to just correct our boo-boo in Delaware and start over in FL? :-) Thanks again!!!

      reply
      • Matt Horwitz February 6, 2020

        You’re welcome Des. Okay, in this case… if there is nothing you need to retain from the Delaware LLC, you could dissolve the Delaware LLC and then form a Florida LLC (just follow the “detailed lessons” in order). And you don’t have to wait for the dissolution to process before forming an LLC in Florida. In fact, you can form the LLC in Florida first if you’d like. It’s not necessary, but if you’d like, you can cancel the EIN for the Delaware LLC. If the Delaware LLC has a bank account, you’ll want to close that account. After your Florida LLC is approved, you will want to apply for a new EIN and open a new LLC bank account. Hope that helps :)

        reply
    • Des February 6, 2020

      Awesome – thanks so much Matt!

      reply
      • Matt Horwitz February 6, 2020

        You’re welcome Des! Congrats on things taking off!

        reply

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