So, now that you have done your research, you decide to form your LLC in Delaware and file the required forms in Delaware. Is that all you need to do? It depends on where you actually conduct business. Most, if not all, states require foreign LLCs (i.e., LLCs formed under the laws of another jurisdiction) to register or apply for authority to do business in that state, if the LLC does business there. What constitutes “doing business” in a particular state is often debatable, but having a principal place of business or regularly engaging in transactions would most likely count as such, subjecting the entity to the state’s foreign LLC filings, fees, and taxes.
Additionally, New York requires domestic and foreign entities to publish notice regarding their formation or qualification to do business in two (2) local newspapers for six (6) consecutive weeks. The cost of complying with this requirement can be quite high, ranging from several hundred to around two thousand dollars, depending on the county. Because failure to publish and provide a certificate of publication may result in suspension of the entity’s authority to carry on business in New York, however, an LLC doing business in New York will not be able to avoid the publication requirement just by organizing in Delaware or elsewhere.
In addition to filing of your formation documents, you should also strongly consider a written LLC agreement for liability protection, clarity of ownership, and other legal protection.
In summary, while Delaware is, and will likely be, the preferred state for many businesses, there is by no means a one-size-fits-all answer. We suggest that business owners consult their lawyer regarding which state might be the best fit for their specific circumstances.
This post was a part of a multi-post blog series on comparison of LLC statutes. You can find the other posts by searching our blogs. If you have any questions about the content of this blog series or other issues not discussed here, please contact us.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
About the Author
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C. which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: (214) 418-0258; firstname.lastname@example.org, or www.mcbrideattorneys.com.