Delaware LLC Formation: Myth Busted
Brad Smith • October 25, 2019
A common misconception we’ve noticed over the years is that many people think forming a business in Delaware is cheaper than doing so in other states, such as Illinois and Missouri.
In this post, we’ll dispel that rumor and reveal some of the hidden costs of doing business. Here are some misconceptions about Delaware LLC formation:
The Costs Of Registering A Delaware LLC
Registering a Delaware LLC used to be considerably less expensive than in other states. However, one by one, states are lowering their fees.
As of 2016, Delaware charges $90 to file a certificate of formation. By comparison, Missouri
charges $50 to file the certificates online (and $105 by paper). Illinois
recently reduced this fee from $500 to $150.
Table 1: Comparing LLC Registration Fees By State (Non-Exhaustive)
State
Fee (Paper)
Fee (Online)
Delaware
$90
N/A
Missouri
$105
$50
Illinois
$150
N/A
As you can see, LLC registration fees are relatively in line with each other for these states.
LLC University has a complete listing of LLC fees for each state.
Where Costs Start To Add Up
Costs begin to add up when you register your organization in several states.
For example, you can set up your organization in Delaware and pay the Delaware fees, but you also still have to register your company in states in which your company does business, such as Illinois or Missouri.
In other words, if you do business in a state and are physically working out of that state, you still have to pay the taxes and registration fees in the states in which you are located.
Larger companies, who, for example, may launch an IPO and sell stock would likely need to set up their organization in Delaware.
Smaller companies, though—particularly mom-and-pop stores doing less than $5 million in revenue—should probably not register in Delaware. There’s no need to pay the additional fees.
Another area that adds up is legal fees.
If you’re sued, you are not a local company. You run the risk of someone filing a lawsuit in Delaware that you have to defend. Juries typically don’t want to see local businesses go under from lawsuits.
On the other hand, if you file a lawsuit, you might have to go to federal court or file your lawsuit in Delaware. In this scenario, you have no connections to lawyers and you must travel to Delaware to prosecute or defend a lawsuit compared to if you were doing the same in your local area.
In brief, the cost of forming a business in Delaware is more nuanced than saying that it simply has a lower registration fee. The costs of doing business in Delaware, especially for small- to medium-sized businesses, raise a number of other concerns that business owners should evaluate.
If you’ve thought about whether to establish your business in Delaware, but you aren’t sure of all the details, contact us today. We’d be happy to help provide the best advice for your company.
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