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Delaware LLC Formation

Delaware is one of the of the best low profile options for tax free trading. Delaware along with Belize, the Seychelles and the British Virgin Islands Delaware is among our top 4 locations. Delaware was the first state to ratify the United States constitution on December 7, 1787. In total area Delaware ranks 49th of the 50 states and is therefore the second smallest state. The land area is 1,982 square miles. It is 96 miles long and varies from 9 to 35 miles in width. Interestingly although it is the second smallest state by area when it comes to the number of companies and LLC’s on its registry it is well ahead of its nearest rival and has occupied the number one spot for many years.

For over 20 years we have recommended Delaware LLC's because without doubt they have always represented one of the best options when it comes to setting up a tax free structure. Some people are surprised when we tell them that the USA offers one of the most efficient tax saving entities in the world. Of course this does not apply if you are an American national, resident or green card holder and an LLC is also unsuitable for trading with the United States but other than these few limitations it is an excellent tool for many tax mitigation strategies. Delaware is the leading US state for company formations by a significant margin and in common with most leading incorporation centers worldwide it is keen to tap into foreign money. In our opinion the most important single benefit of an American LLC is that it sounds much better when you say to your clients "our parent company is American and the head office is based in New York" than to say "we are a subsidiary of a Panamanian company based in Puerto armuelles". The difference in many people's eyes is that the words American owned suggest money and substance where Panamanian suggests something to a bit unusual which can put clients off doing business. Obviously this is not good if you aim to maximize credibility and can be totally counter productive if you end up with the structure which save 40% in taxes but loses 50% of the potential business!

In part the respectability of Delaware derives from the fact the state has been allowing for tax-efficient structures since 1965, whilst these entities are not "offshore" in the traditional sense they are of great benefit to non residents. Of all US states which allow for non-resident incorporation, Delaware is among the most attractive. It’s simple legislation, lack of bureaucracy and comparatively low fees allow for maximum benefit's with the minimum amount of fuss. Delaware's highly developed judiciary system also ensures a fair and liberal interpretation of its legislation in the event that any legal disputes arise.

Important Points to consider
  • Fast formation
  • No filing of accounts
  • Onshore presence with offshore benefits
  • Reasonable initial formation and ongoing costs
  • Conversion between Corporations & LLC's is possible
Although in most ways Delaware LLC's and those from other states are quite similar the vital difference is that the register of members in Delaware is not open to the public which guarantees rock solid privacy. It is this factor together with the efficiency and speed of formation - 7 days start to delivery worldwide - that makes Delaware the leading US state for the formation of LLC’s. We appreciate that in some cases (maybe for contractual or business reasons) another state might be better for your needs where the members appear on public record but for privacy Delaware is the state of choice. We deal with all 50 states so feel free to give us a call or send an email and we can advise you on your specific needs along with the various considerations which apply to that particular state.

In the even you decide to opt for a state other than Delaware our most recommended alternatives are. The key is to ensure the location offers an attractive blend of low initial cost, low filing burdens, low annual cost, and reasonable privacy protection. The states below also warrant consideration.
  • Florida
  • Nevada
  • New Mexico
  • Oklahoma
  • Oregon
  • Wyoming

Returning to Delaware like most states Delaware will let you incorporate regardless of where you reside. All you need is a registered agent in the state to ensure the company remains in good standing. A registered agent acts on the LLC’s behalf in the state where it is registered; the agent fulfils the primary duties of providing a registered office address, receiving service of legal papers, ensuring corporate compliance and dealing with the franchise tax which we will invoice each year.

One thing to keep in mind is that it is vital that you keep us informed of your current contact address, email address and telephone number. Should the registered agent receive important mail, annual documents or a registered delivery on your behalf we would need to be able to let you know, alternatively if you travel regularly or are away for long periods one of the nominees or managers (assuming you decide to use them) could act as a contact point on your behalf.

Finally, it is vital to ensure that we receive the annual fees on time each year to avoid penalties. In the case of Delaware LLC's the annual payment will be invoiced by us in late April or early May. We in turn must ensure payment arrives in Delaware by May 31st to avoid a $250 fine which is levied on any Delaware LLC which pays it's fees even 1 day late! To avoid the penalty we recommend making payment as soon as the invoice arrives because the penalty is high in Delaware compared to some other states.

The Tax Saving benefits of an American LLC

For most clients the primary benefit of an LLC is the "pass-through" taxation. Keep in mind as outlined earlier that the LLC remains tax free on business transactions and benefits only when they are derived outside the United States and the members are non-resident foreigners.

Features of a Delaware Limited Liability Company
  • A Delaware LLC may be formed by one or more organizer or member. For tax purposes, non-resident legal entities (such as companies or Corporations) who are members of the LLC may cause the IRS to classify the LLC as a branch of a foreign company in the US, and the LLC will be taxed on its worldwide income. It is therefore recommended that the non-resident members of Delaware offshore companies be physical persons.
  • An LLC does not issue shares and therefore does not have shareholders. The owners of an LLC are referred to as members.
  • A Delaware LLC is a legal entity, registered with the state, and is treated separate from its members.
  • The Delaware LLC is recognized anywhere in the world as a legally registered US company.
  • Because of the Limited Liability status, the law protects the members (owners) from the debts and other obligations of the LLC.
  • After Delaware offshore incorporation, the risk to an owner of a Delaware offshore LLC is to the extent of his investment in the LLC, and all his personal assets are protected.
  • A Delaware Limited Liability Company may be fully owned by non-resident aliens.
  • An LLC may also be owned by Corporations (companies limited by shares), Partnerships, Trusts, Charitable Organizations and Pension Plans.
  • After Delaware company formation, the Limited Liability Company must have these words after the company name or the abbreviation thereof i.e. "Limited Liability Company", "L.L.C.", or "LLC".
  • The IRS tax treatment of a Delaware LLC is on the flow-through tax basis. That is the LLC is not taxed on its profits.
  • Non-resident aliens are not taxable by the US on income derived outside of the US. If an LLC derives its income outside of the US, the non-resident members do not need to file US tax returns.
  • There is no limit on the number of members allowed in a Delaware LLC.
  • The Management of an LLC is usually undertaken by its members. If it is found necessary, an outside manager may be employed and would report directly to the members.
  • The structure of the LLC does not provide for a Board of Directors. The flexibility in the law allows the members by agreement, written or oral, to decide on the most appropriate management system and on the distribution of profits.
  • The voting authority usually is in direct proportion to member's interest in profits.
  • The manager of a Delaware LLC may also be a member.
  • There are no statutory requirements concerning meetings of members or record keeping. It is recommended that with two or more members, Members' Agreements be entered into.
  • If meetings are held by members, this may be done anywhere in the world and in any way convenient to the members.
  • A Delaware Limited Liability Company (LLC) is a good vehicle for non-resident aliens to earn tax free income (not derived in the USA), utilizing a US business entity.
  • Members of a Delaware LLC are not liable for tax to the United States providing that:
  • The members are non-resident aliens.
  • The LLC does not employ US residents as permanent staff, or rely on a dedicated place of business within the United States.
  • The LLC does not undertake any business activity that is effectively connected with business or trade within the United States.
  • The Delaware LLC has a perpetual life and membership is easily transferable. It is advisable to enter into a Members' Agreement if alternative conditions are required.

Nominees and Managers

Nominees and managers are an option which you might decide to use or decide can be dispensed with but in many ways nominees and managers fulfill a similar and often crucial function. Their main job is to act as a voice and contact point for the company, handle the odd call here and there or convince anyone trying to figure out who owns and controls the structure that they are the true owner. In other words they put distance between the company and the true owners. The key difference between a nominee and a manager is that a nominee controls the bank account and appears on all the records where the manager does not in reality control anything but will convince anyone snooping around that he does and usually stop most problems before they even have chance to escalate. Keep in mind that should you decide to use the services of nominees or managers this service includes the occasional use of their phone and also a dedicated email address which will be provided for the company. Their fee of $299 per annum includes up to 5 hours work - the only charge is the cost of any phone calls they make on the LLC's behalf or stamps if they re-mail letters. Always be cautious regarding nominees or managers because many offshore company service providers use nominees and managers who charge up to $180 per hour on top of their annual fee which is often $400 each. The cost of using them can therefore be much higher that it looks at first glance; I always see it as a bit like car rental the sign says $300 a week but by the time everything else has been added it ends up at $550! We often hear stories of annual fees for disbursements totalling $1500 for only 10 hours work. With us it is clear cut and there is a simple flat fee with no hidden charges. The reason ORCA can provide these services so much cheaper than our competitors is that we have a large network of nominees and managers who also assist clients with other services such as setting up phone lines, arranging fulfillment services for orders, bank introductions, and finding local lawyers and accountants to assist you if needed - around half of our individual nominees are lawyers, business consultants or accountants themselves, the other half are active or retired businessman with a variety of specialist skills which might be needed at some point in the future. Because the nominees and managers carry out a wide range of functions assisting both ourselves and each other they can afford to offer their services at a keen price. The additional benefit of this arrangement is that if you need further services they are in the right place to set up any other local facilities you might need. An example is one of our nominee in the Caribbean who can arrange trust formation at just £340 / $500 / €475 or another in Jersey who can arrange a local non geographic number with free international forwarding for a one off fee of £55 / $80 / €75

Formation Costs and Annual Fees

Incorporation Fee including delivery by Fedex: US$650  Including the Apostille and operating agreement which are required when opening a bank account.

Annual Fees US$650 due before 1st June each year
If you require an Internet domain registration to accompany the formation click here

The above fees include the following services until June 1st.

  • Registered Agent
  • Registered Office
  • All State Fees
  • Filing Fees
  • No other costs will be levied
The Annual Fees in Delaware must reach our agent prior to June 1st each year. These fees include state tax, registered office and registered agent. It is crucial that they are paid on time because the late fee penalty even if they are 1 day late is $300. Admittedly not as bad as Florida which is $500 but still something to avoid. We recommend paying the annual fee in early May at the latest and ensuring you have received our invoicing confirming that the payment has been received. We normally sent the invoice by email and it can be paid online or you can call us and pay over the phone. 

UK / Ireland020 7175 0041
(International +44 20 7175 0041)
US / Canada1 954 866 5986
(INTERNATIONAL +1 954 866 5986)
Australia and New Zealand+61 2 9191 7472
(INTERNATIONAL +61 2 9191 7472)
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