LLC vs. S Corp in Delaware 2024: A Comprehensive Comparison

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LLC vs. S Corp in Delaware: Understanding the Differences

Embarking on the entrepreneurial journey in Delaware, also known as The First State, is an exciting and transformative experience. Delaware LLC and S Corporation are two popular options that often top the list of considerations for entrepreneurs. This article serves as your comprehensive guide, comparing LLC vs. S Corp in Delaware and ultimately assisting you in determining the best fit for you.

Dive into business formation with confidence and clarity as LLCBase expert analysis simplifies the complexities of LLCs and S Corps, shedding light on their unique advantages and drawbacks. So, let’s explore the fascinating world of LLCs and S Corps and set your business on the path to success in Delaware.

Compare LLC and S-Corp

What are an LLC and an S-Corp

A Limited Liability Company (LLC) is a popular legal business structure that offers a combination of benefits from both corporations and partnerships. It is specifically designed to provide personal asset protection to its owners, known as members. This protection ensures that the owner’s personal assets are separate from the business liabilities, such as debts and lawsuits.

In Delaware, forming an LLC involves several steps, including paying an initial filing fee. Additionally, LLCs in Delaware are required to pay an annual fee of $0 because it is not mandatory to maintain their legal status and stay compliant with the state regulations.

An LLC in Delaware offers an attractive option for entrepreneurs seeking a flexible business structure with added liability protection and favorable tax treatment.

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On the other hand, an S-Corporation, or S-Corp, is not a separate legal business entity like an LLC. Rather, it is a tax classification that existing corporations and LLCs can elect. A business can bypass double taxation by opting for this tax status, as the profits and losses are directly passed through to the owner’s personal tax return. Starting an S Corp in Delaware  allows business owners to report and pay taxes on their business income as part of their individual income tax filings, eliminating the need for separate corporate taxes.

In Delaware, it is crucial for business owners considering this tax classification to fully understand the implications and requirements of being an S-Corp in Delaware. This includes adhering to specific rules and regulations related to ownership, shareholder limits, and tax filing deadlines. If you want to start an S-Corp, LegalZoom will help you every step of the way!

LLCs and S-Corporations Comparison

Let’s explore the comparison between LLCs and S-Corporations to help you make an informed decision.

1. Taxation Differences in Delaware

One of the main differences between LLCs and S-Corporations in Delaware lies in how they are taxed. LLCs are typically subject to pass-through taxation, meaning the business profits and losses are reported on the owner’s personal tax return. In contrast, S-Corporations must adhere to specific tax requirements, including distributing salaries to shareholders and adhering to the state’s income tax rate.

  • Federal Taxes: When choosing between an LLC or S-Corporation in Delaware, it’s essential to consider several federal tax factors. These factors include differences in Pass-Through Taxes and Self-Employment Taxes.
  • Pass-Through Taxes: Both LLCs and S-Corporations in Delaware benefit from pass-through taxation at the federal level. Due to pass-through taxation, these entities do not pay federal income taxes as separate legal entities. Instead, their owners are required to pay federal income taxes on their share of the business income. This type of taxation prevents the company from being taxed twice. In contrast, C-Corporations in Delaware are subject to double taxation, meaning they must pay federal taxes at the entity level and their owners’ taxes.
  • Self-Employment Taxes: Many LLC owners in Delaware opt for S-Corporation taxation to reduce their self-employment taxes. An S-Corporation owner is not considered self-employed; they can become an employee of the company and receive regular salary benefits. Conversely, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings when calculating their self-employment tax. Share distributions determine the corporate income of S-Corporation shareholders. For example, suppose you are the sole owner of an LLC in Delaware with an annual profit of $150,000 and a fair wage for someone in your location doing the same job as you is $100,000. Under the default LLC taxation, you must pay self-employment taxes on the $150,000 profit. However, if your company is taxed as an S-Corp in Delaware, you would be responsible for paying payroll taxes only on the $100,000 standard wage. Income tax would still apply to the remaining $50,000.
  • Delaware State Taxes: No major tax differences exist between regular LLCs and S-Corporation LLCs at the state level. For filing an annual report in Delaware, it costs $0 because it is not mandatory, which can be paid to the FL Department of State. Additionally, before forming the LLC, you must pay $90.

On the other hand, if you form an S-Corporation in Delaware, you will also need to pay taxes. This includes the S-Corp filing fee and an annual report fee after establishing your S-Corp for one year. You must also go to the FL Department of State to make these payments.

2. Liability Protection

LLCs and S-Corporations in Delaware provide liability protection for their owners. This means that the owner’s personal assets are protected from business debts and lawsuits. However, S-Corporation status does not offer the same level of protection as an LLC, as it is primarily a tax designation.

The following factors exclude certain individuals and entities from becoming shareholders in an S-Corporation in Delaware:

  • Insurance businesses
  • Domestic international sales corporations
  • Partnerships
  • Corporations
  • Unauthorized immigrants
  • Specific financial institutions

While understanding the ownership requirements of LLCs and S-Corporations in Delaware is essential, seeking legal counsel when establishing your business is still advisable. For assistance with your Delaware LLC or Delaware S-Corp, consider consulting with professionals.

3. Ownership Requirements and Restrictions

LLCs and S-Corporations in Delaware have specific ownership requirements and restrictions. For instance, an LLC can have unlimited members, while an S-Corporation is limited to 100 shareholders. Additionally, S-Corporations can only have one class of stock and must follow strict rules regarding shareholder eligibility.

Easier to File in Delaware: LLCs or S-Corporations

While filing an LLC or S-Corporation in Delaware requires time and preparation, proper planning can make the process manageable. Both LLCs and S-Corporations can be filed through the Delaware Registered Agent.

To start an LLC in Delaware, you must submit the Certificate of Formation to the Delaware Secretary of State. This document should contain all the necessary information for your LLC, along with the payment of the associated filing fee.

On the other hand, if you want to elect S-Corporation status for your Delaware LLC, you will need to submit additional paperwork. First, file Form 8832 with the Internal Revenue Service (IRS) to indicate your preference to tax your LLC as a corporation rather than a partnership. Next, submit Form 2553 to choose S-Corporation status.

Remember, maintaining legal compliance is crucial for your LLC. This means submitting annual tax returns and reports after establishing your business entity.

With that, we’ve carefully curated a list of the best LLC services in Delaware to support and guide you through filing an LLC and S-Corp. Check them out!

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Filing Process for LLCs vs. S-Corporations in Delaware

Forming an LLC in Delaware involves several crucial steps. To start, you must file Certificate of Formation with the Delaware Division of Corporations and pay the associated filing fee of $90. Once your LLC is established, you must comply with annual reporting and tax requirements.

On the other hand, if you want to elect an S-Corporation status for your existing LLC or corporation, the process is slightly different. Firstly, you must file Form 8832 with the Internal Revenue Service (IRS) to classify your LLC as a corporation for tax purposes. Then, you must submit Form 2553 to the IRS to choose S-Corporation status. In Delaware, the S-Corporation filing fee is $89 for filing online, fax and by mail.

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The LLC formation and S-Corporation election processes can be completed through three ways, online, by mail and fax. Online incorporation is available at Get the online form from Secretary of State, fill it up, and submit. Don’t refresh the page during the process. It will erase everything. , while offline incorporation can be done at Send the form by mail to Delaware Division of Corporations, 401 Federal Street, Suite 4 Dover, DE 19901 or Fax it to 302-739-3812. It is essential to stay up-to-date with any ongoing reporting and tax requirements for your chosen business structure.

The filing process for LLCs and S-Corporations in Delaware varies slightly, with each requiring specific forms and fees. It’s essential to consider the unique requirements of each business structure before making a decision. Consulting with a legal or financial advisor can provide valuable guidance on which structure best suits your business in Delaware.

FAQs

What is an LLC in Delaware?
LLC stands for Limited Liability Company and it is a type of business entity that has the benefits of both partnership and corporation, while providing individuals with limited liability for the company’s debts and actions.
What is an S Corp in Delaware?
S Corp stands for Small Business Corporation and it is a type of corporation that has various tax benefits.
What makes Delaware a popular state to form an LLC?
Delaware’s business-friendly laws, the Court of Chancery which specializes in resolving business disputes efficiently and the Delaware Division of Corporations makes Delaware popular to form an LLC.
Is owning an LLC in Delaware beneficial in terms of tax laws?
Yes, Delaware has favorable tax laws for LLCs, resulting in lower tax rates.
What are the fees involved in forming an LLC in Delaware?
The cost of forming a Delaware LLC includes a one-time filing fee of $90 and a yearly franchise tax fee that varies depending on the company’s assets or income.
What are the fees involved in forming an S Corp in Delaware?
The cost of forming a Delaware S corporation is similar to that of an LLC, which includes a one-time filing fee of $90 and a yearly franchise tax fee that varies depending on the company’s assets or income.
Are there any residency requirements for an LLC owner in Delaware?
Non-residents can form an LLC in Delaware, there aren’t any residency requirements.
Are there any residency requirements for an S Corp owner in Delaware?
Non-residents can form an S Corp in Delaware, there aren’t any residency requirements.
What is the minimum and maximum number of members allowed in an LLC in Delaware?
An LLC in Delaware can be formed with one member, with no restrictions on the maximum number of members.
What is the minimum and maximum number of shareholders allowed in an S Corp in Delaware?
An S Corporation in Delaware can have no more than 100 shareholders.
Can an LLC or S Corp in Delaware have the same name as another company?
No, Delaware law requires unique company names, you can’t have the same name as an already existing one.
What are the legal requirements to form an LLC in Delaware?
The fundamental requirement to form an LLC in Delaware is to file a Certificate of Formation.
What are the legal requirements to form an S Corp in Delaware?
The legal requirements to form an S Corporation in Delaware include filing articles of incorporation, selecting a registered agent and issuing stock.
Do LLCs have bylaws in Delaware?
Bylaws aren’t mandatory for LLCs in Delaware unlike S Corporations.
Do S Corps have Operating Agreements in Delaware?
S Corporations don’t require Operating Agreements in Delaware, but it is highly recommended.
What is the role of the registered agent in Delaware LLCs?
The registered agent is the company or a person responsible for receiving legal documents and letters on behalf of the LLC. It is mandatory in Delaware for an LLC to appoint a registered agent.
What is the role of the registered agent in Delaware S Corporations?
A registered agent for an S Corporation in Delaware plays a similar role to that of an LLC and is also required.
What is the process for transferring ownership in an LLC in Delaware?
The process to transfer ownership in an LLC in Delaware typically includes drafting a purchase agreement and membership transfer documents.
What is the process for transferring ownership in an S Corp in Delaware?
The process to transfer ownership in an S Corporation in Delaware is similar to that of an LLC, through Stock Transfer.
How are profits and losses allocated in an LLC in Delaware?
In an LLC in Delaware, members decide how to allocate the profits and losses based on the member or agreement formed when the LLC was created.
How are profits and losses allocated in an S Corp in Delaware?
In an S Corporation in Delaware, profits/losses follow the stock ownership percentages. Also, tax return filings define this allocation.
What is the personal liability for LLC owners if the company goes bankrupt or faces debt in Delaware?
There’s limited personal liability for LLC owners in Delaware and they are not responsible for the debts and actions of the company.
What is the personal liability for S Corp owners if the company goes bankrupt or faces debt in Delaware?
Answer:There’s limited personal liability for S Corp owners in Delaware and they are not normally responsible for the debts and actions of the company.
Are there any restrictions on foreign ownership of an LLC or S Corp in Delaware?
There is no foreign ownership restriction on an LLC or an S Corp in Delaware.
Can non-US residents own LLCs and S Corps in Delaware?
Yes, non-US residents can own LLCs and S Corps in Delaware.
How are LLCs and S Corps taxed in Delaware?
LLCs are taxed based on net profits earned and paid annually at both Federal and State levels, whereas S Corporations file an annual informational return.
What types of businesses may form LLCs in Delaware?
Any legal business type may be formed under an LLC that exists in Delaware.
What types of businesses may form S Corps in Delaware?
Ideal for small size single-owner and closely-held family businesses, thus any legal business entity could operate as an S-Corp.
Can an LLC convert into an S Corp in Delaware?
Yes, with application one can change the choosing type of their business.
What is the difference between an LLC and an S corp in Delaware?
LLC is a type of business structure that offers flexibility, whereas an S corporation is designed to avoid double taxation.
Can LLCs and S corps both be based in Delaware?
Yes, Delaware allows businesses to operate as LLCs or S corps.
How do I know which option is best for my business in Delaware?
There is no one-size-fits-all answer, but a business lawyer or accountant can help you choose the best option for your specific needs in Delaware.
How do I form an LLC in Delaware?
You can start by filing Certificate of Formation with the Delaware Secretary of State.
How do I form an S corp in Delaware?
First, you must form a corporation with the Delaware Secretary of State, then you must elect S corp status with the IRS.
Are there any special tax benefits for LLCs in Delaware?
Delaware offers very favorable tax treatment to LLCs, with no franchise or capital stock taxes.
Do S corps have to pay franchise taxes in Delaware?
Yes, S corps in Delaware are required to pay annual franchise taxes, but the exact amount depends on the company’s statewide equity.
Do LLCs and S corps need to hold annual meetings in Delaware?
Both LLCs and S corps are highly encouraged but not required to hold annual meetings in Delaware.
Can LLCs and S corps be owned by non-US residents or entities in Delaware?
Yes, both LLCs and S corps in Delaware can be owned by non-US residents or entities.
Is there a limit to the number of shareholders for S corps in Delaware?
Yes, S corps in Delaware cannot have more than 100 shareholders.
Are LLCs required to have a board of directors in Delaware?
LLCs in Delaware are not required to have a board of directors.
Can LLC owners be held personally liable for the company’s debts in Delaware?
Usually not, Delaware LLC law generally protects owners from personal liability for business debts.
How is income taxed differently between LLCs and S corps in Delaware?
With an LLC, income is typically taxed to each owner individually. With an S corp, profits go to individuals who pay individual income taxes, but not self-employment taxes or payroll taxes.
Can an LLC convert to an S corp in Delaware?
Yes, it is possible to convert an LLC to an S corp in Delaware.
Can an S corp be a partnership or sole proprietor in Delaware?
No, S corps are required to have a board of directors and can only be structured as corporations and can’t be in a sole proprietorship or partnership.
Can a Delaware LLC have only one member?
Yes, Delaware allows LLCs that have only one member.
Are investors in S corps considered shareholders in Delaware law?
Yes, investors in S corps are often described as shareholders.
Can an LLC have subsidiaries in Delaware?
Yes, an LLC in Delaware can own subsidiaries.
Can S corps have subsidiaries in Delaware?
Yes, an S corp in Delaware can own subsidiaries.
Are LLCs taxed as a disregarded entity in Delaware?
Yes, LLCs are considered taxed as a disregarded entity (if the LLC has one owner and not structurally complex) for Delaware income tax purposes.
Are S corps eligible for SBA loans in Delaware?
Yes, S corps are eligible for SBA loans in Delaware, along with LLCs.
Are annual reports required for LLCs and S corps in Delaware?
Yes, annual reports are required for both LLCs and S corps in Delaware.
Are S corps required to distribute dividends to shareholders in Delaware?
No, but S corps in Delaware typically distribute dividends to shareholders.
What happens to an S corp if it loses its “S” status in Delaware?
If an S corp loses its “S” status due to factors like excessive passive income, in some cases, it may still file as a C corp.
What is the cost to form an LLC in Delaware?
$90 is the filing fee to form an LLC in Delaware.
What is the annual tax fee is for delaware corp?
$225 is the annual report tax payment in Delaware.
What is the duration of LLC in delaware?
A domestic LLC must execute a certificate of formation that becomes effective upon filing with the Secretary of State and continues until dissolution or cancellation.
Can a corporation elect S corporation status in Delaware anytime?
No, most corporations meet the taxable year requirements and may elect S corporation status only during the first 2 months and 15 days of each financial year effective for that year.

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Conclusion

Navigating the world of business structures and filings may seem daunting, but with the right information and guidance, you can confidently make the best decision for your unique entrepreneurial journey. Remember, the path to success is paved with well-informed choices and a clear understanding of your business goals. So, take the time to research, consult with professionals, and weigh the pros and cons of LLCs and S-Corporations in Delaware.

As you embark on this exciting adventure, remember that a strong foundation built on sound legal and financial principles will be the backbone of your thriving enterprise. Embrace the challenge, stay curious, and always remember your passion and vision. Visit LLCBase today to access valuable resources, expert guidance, and personalized support tailored to your needs. Don’t wait any longer – let us help you realize your entrepreneurial dreams. 

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