The Delaware Limited Liability Company Act, codified at Title 6, Chapter 18 of the Delaware Code, governs how LLCs are formed, managed, and dissolved in the state. Its defining feature is deference to the operating agreement: the statute sets defaults, but members can rewrite almost all of them. Formation is quick and cheap, liability protection is strong, and the annual compliance burden is limited to a flat $300 franchise tax. What follows is what you need to know to work under it.
The Operating Agreement Controls
Everything in the Act flows from one idea. Section 18-1101(b) states the policy of giving “maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”1Justia. Delaware Code 6-18-1101 – Construction and Application of Chapter and Limited Liability Company Agreement In practice, members can draft agreements that override most default rules on governance, profit sharing, voting, and even fiduciary duties.
Section 18-101(9) defines a “limited liability company agreement” broadly, covering written, oral, or implied agreements among members about the company’s affairs.2Justia. Delaware Code 6-18-101 – Definitions Oral and implied agreements are recognized, but proving disputed terms without a written document is hard. For any LLC with more than one member or meaningful assets, a written agreement is the practical standard.
Delaware courts enforce the customizations members build in. In Elf Atochem North America, Inc. v. Jaffari, the Delaware Supreme Court upheld an operating agreement’s forum selection clause directing all disputes to California arbitration, even though the LLC was formed in Delaware, and confirmed that the agreement binds both the members and the LLC itself.3Justia. Elf Atochem N. America, Inc. v. Jaffari
Forming a Delaware LLC
Formation runs through the Delaware Division of Corporations and takes three pieces: a compliant name, a Certificate of Formation, and a registered agent inside the state.
Name
The name must include “Limited Liability Company,” “L.L.C.,” or “LLC” and be distinguishable from other entities on file with the Secretary of State.4Justia. Delaware Code Title 6 Section 18-102 – Name Set Forth in Certificate A matching name is allowed only with written consent from the existing entity, filed with the state.
Certificate of Formation
The Certificate is deliberately minimal. It needs the LLC’s name, the name and address of the registered agent, and any additional provisions the members choose to include.5Justia. Delaware Code 18-201 – Certificate of Formation The filing fee is $110.6Delaware Division of Corporations. Delaware Division of Corporations Fee Schedule Detailed governance provisions belong in the operating agreement, not the Certificate.
Registered Agent
Every Delaware LLC must maintain a registered office and registered agent within the state for service of process.7Justia. Delaware Code 6-18-104 – Registered Office; Registered Agent The agent can be the LLC itself, an individual Delaware resident, or another authorized business entity. An LLC without a Delaware physical presence will typically hire a commercial registered agent, which costs somewhere between $50 and $300 per year.
Federal Tax ID
Most LLCs will need a Federal Employer Identification Number from the IRS after formation. An EIN is required to open a business bank account, apply for licenses, and file tax returns. The application is free through the IRS website.
Choosing a Management Structure
The default is member management. Under Section 18-402, if the operating agreement is silent, management rests with members in proportion to their profit interests, with decisions requiring the approval of members holding more than 50 percent of those interests.8Justia. Delaware Code 6-18-402 – Management of Limited Liability Company
Member management fits smaller LLCs where every owner is involved day-to-day. Manager management fits companies with passive investors or complex operations: members appoint managers (who may or may not be members) and retain only the rights the operating agreement reserves.
The agreement can go well beyond that binary. It can create committees, set different voting thresholds for different decisions, require supermajority approval for major transactions, and reserve specific matters for unanimous consent.
Liability Protection and Its Limits
Section 18-303 provides the core shield. The debts and obligations of a Delaware LLC belong solely to the LLC, and no member or manager is personally liable simply because of their role.9Justia. Delaware Code 18-303 – Liability to Third Parties A member can voluntarily accept personal liability under the operating agreement or a separate agreement, so read what you sign.
The shield holds up on the creditor side too. In CML V, LLC v. Bax, the Delaware Supreme Court held that creditors of an LLC lack standing to bring derivative claims on the LLC’s behalf, even when the LLC is insolvent, applying the plain language of Section 18-1002 to limit derivative standing to members and assignees.10Justia. CML V, LLC, et al. v. Bax, et al. Corporate law lets creditors of an insolvent company sometimes step into its shoes to sue directors; the LLC Act draws a harder line.
When the Shield Can Break
The protection is not absolute. Delaware courts can pierce the veil and reach members personally, though they describe the standard as difficult to meet. Courts look at whether the company was adequately capitalized, whether it was solvent, whether a dominant member siphoned funds, and whether the LLC operated as a facade for its owner. No single factor decides the question, and Delaware public policy disfavors disregarding an entity’s separate existence. For single-member LLCs, courts have acknowledged that few statutory formalities are required, so the absence of formal meetings or resolutions carries less weight than it would in the corporate context.
Fiduciary Duties
This is where the Act diverges most sharply from corporate law. Section 18-1101(c) allows the operating agreement to expand, restrict, or eliminate fiduciary duties that members and managers owe to the company and to each other.1Justia. Delaware Code 6-18-1101 – Construction and Application of Chapter and Limited Liability Company Agreement One hard floor: no operating agreement can eliminate the implied contractual covenant of good faith and fair dealing.
For LLCs with passive investors, this matters. A fund manager, for example, can negotiate an agreement that reduces fiduciary duties to specific, defined obligations rather than the broad loyalty and care duties applied to corporate directors. When the agreement is silent, however, the default duties are less clear. In Gatz Properties, LLC v. Auriga Capital Corp., the Delaware Supreme Court found the operating agreement at issue imposed fiduciary duties based on its specific language, but the court declined to resolve whether the LLC Act imposes default fiduciary duties when an agreement says nothing at all. Address duties explicitly in your agreement rather than leaving them to a court to construe.
Series LLCs
Delaware pioneered the series LLC, which allows a single LLC to create separate internal divisions — each with its own assets, liabilities, and members. When properly structured, the debts of one series cannot be enforced against another series or against the LLC’s general assets.11Justia. Delaware Code 18-215 – Series of Members, Managers, Limited Liability Company Interests or Assets
Three conditions must be met to achieve the liability separation: the operating agreement must permit series, the Certificate of Formation must include notice of the liability limitation, and the records for each series must track its assets separately from the other series and from the LLC at large.
Protected Series vs. Registered Series
Recent amendments split series into two categories. A protected series is the original type. It exists through the operating agreement and internal records without any separate state filing. A registered series is formed by filing a certificate of registered series with the Secretary of State, giving it a public formation record similar to a standalone LLC. The registered series filing fee is $110, and each registered series owes a separate $75 annual tax due June 1.
Both types can achieve liability separation. The registered series simply offers cleaner proof of existence to banks and counterparties, which can make opening accounts and signing contracts easier. For businesses running multiple investment properties or distinct product lines under one umbrella, the series structure avoids the cost of forming a separate LLC for each venture.
Federal Tax Treatment
Federal taxes complicate the picture. The IRS proposed regulations that would treat each series as a separate entity for federal tax purposes, meaning each series would need its own tax classification and potentially its own EIN. Final regulations have not been issued, but the IRS has applied the entity-level approach in practice. Plan on treating each series as a separate taxpayer until the IRS finalizes its position.
Annual Franchise Tax
Every Delaware LLC owes a flat $300 franchise tax each year, due by June 1. Size and revenue do not affect the amount. Missing the deadline triggers a $200 penalty plus interest of 1.5 percent per month on the unpaid balance.12Delaware Division of Revenue. Franchise Taxes
Delaware does not require LLCs to file an annual report.13Delaware Division of Corporations. LLC/LP/GP Franchise Tax Instructions The franchise tax is the only recurring state obligation, which keeps compliance simpler than in states that require both a report and a tax. Failing to pay the tax for three consecutive years lets the state void your Certificate of Formation, which means losing good standing and potentially the liability shield with it.
Operating in Other States
Forming in Delaware does not authorize operations elsewhere. An LLC with a physical office, employees, or significant recurring business activity in another state will generally need to register there as a foreign LLC by filing for a certificate of authority. Filing fees in other states typically fall between $100 and $300, and most states impose their own annual reporting and tax obligations on registered foreign LLCs.
Each state defines “doing business” differently, and most statutes list activities that do not trigger registration, such as maintaining a bank account or conducting isolated transactions. Gray areas include remote employees in a state, storing inventory there, or regularly soliciting customers. If your LLC operates in multiple states, budget for foreign qualification fees, additional registered agents, and state-level compliance in each jurisdiction. This is where a Delaware LLC’s total cost adds up quickly, since you pay Delaware’s annual tax on top of whatever each operating state charges.
Federal Beneficial Ownership Reporting
The Corporate Transparency Act originally required most LLCs to report beneficial owners to the Financial Crimes Enforcement Network. As of March 2025, FinCEN issued an interim final rule exempting all entities formed in the United States from beneficial ownership reporting. Only entities formed under foreign law that have registered to do business in a U.S. state are now considered reporting companies.14FinCEN. Beneficial Ownership Information Reporting FinCEN has stated it will not enforce BOI penalties against U.S. citizens or domestic reporting companies. A domestically formed Delaware LLC currently has no FinCEN filing obligation, though this area has changed multiple times and could shift again through future rulemaking.
Dissolving a Delaware LLC
Section 18-801 governs when an LLC dissolves. If the operating agreement sets a termination date or triggering event, those control. Otherwise, dissolution requires the vote or consent of members holding more than two-thirds of the profit interests.15Justia. Delaware Code 6-18-801 – Dissolution The LLC also dissolves if no members remain, though the operating agreement (or the last member’s personal representative) can allow the company to continue by admitting a new member within 90 days. A court can order judicial dissolution under Section 18-802.
Section 18-803 governs the winding-up period. During that phase, those responsible for winding up can continue to sue and be sued on the LLC’s behalf, settle the company’s business, sell property, pay debts, and distribute what remains to members.16Justia. Delaware Code 6-18-803 – Winding Up Creditors must be paid or provided for before any distributions go to members. Skipping that step exposes the people handling the wind-up to personal liability.
To formally end the LLC’s existence, file a Certificate of Cancellation with the Secretary of State. The filing fee is $220, plus any outstanding annual taxes at the time of cancellation.6Delaware Division of Corporations. Delaware Division of Corporations Fee Schedule Until that certificate is filed, the LLC continues to exist for winding-up purposes and continues to owe annual franchise taxes.