Out of State LLC's in Delaware

[Zacher Bayonne]

Hi everyone, 

I live in Maryland, but want to set up my LLC in Delaware. Has anyone ever done this? If so, has it been worth it? For some perspective, I live about an hour from the border of Delaware.

[Randall Richardson]

Hi Zachery, My Partner and I just Went thru this but we live in Delaware, my advice to you would be to check out lefalzoom.com, read all the free advice and information on setting up an LLC here. Good Luck!

[Randall Richardson]

sorry Zacher that's Legalzoom.com..

[Zacher Bayonne]

Thank you very much for the advice! I will be calling LegalZoom today. Hopefully, they point me in the right direction!

[Naveen Kumar]

You can set it up in your home state, and if you want to own properties in DE, and any other states, you file a Certificate of Authority in that state.

[Zacher Bayonne]

Naveen Kumar , thank you for the advice. I was considering doing that; however, I learned that Delaware has a more favorable tax structure than Maryland does. I'm doing a cost-benefit analysis to determine if it is actually worth my while (as a single-member LLC) after the franchise fees, etc.

[Todd Magin]

I'm interested in this topic as well. Initially I was interested in forming a Series LLC, but found out that they're not supported in Maryland.

I'm keeping an open mind on the subject until I talk to a RE attorney and discuss my business goals and formulate the proper strategy and structure with them.

[Chris K.]

@Zacher Bayonne

I would love to see what Delaware attorneys have to say about this topic. But as a non-Delaware attorney, here is my take on why Delaware became the "place to incorporate." 

1. Delaware has a special court called the Court of Chancery. Unlike many other state courts, the Court of Chancery only deals with corporate issues. Because many of the largest corporations in the world are incorporated in Delaware, the judges in this Court tend to know what they are doing. This makes businesses feel that the Court will get it "right." This element of predictability is a big deal for big businesses for number of reasons. 

2. Delaware law tends to make things easier for corporation when it comes to formalities. That said, many other states are catching up on that end. 

3. Some people say Delaware is "cheaper" but that's not always the case. In fact, many corporations avoid incorporating in Delaware to avoid paying more (and others). 

4. Many investors that invest in start-up companies prefer Delaware. In most cases, the business model of a start-up is to creating "something" that you can patent or copyright so that you can sell that "something" to a huge corporation. Depending on the size of the project, you need to go through a series of funding where investors give the start-up company money in exchange for equity in the company. Since investors prefer Delaware, it naturally made sense for start-ups to incorporate in Delaware from the first place. 

According to a friend that went through this start-up process a long time ago, his lawyer recommend incorporating in Delaware to show the investors that he and his  partners "knew what they are doing." He is convinced, however, that most people---even investors--- cannot adequately explain why start-ups should incorporate in Delaware if someone presses them on it. 

With the above in mind, I suppose the question is whether the above advantages help most real-estate investors. That's an excellent question to ask your lawyer. :) 

[Jenifer Levini]

Hi All, I'm a lawyer in California who has set up many start-up companies as c-corporations in Delaware. Here's the scoop. @Chris K. is pretty right on about Corporations wanting to form in Delaware. The laws in Delaware favor corporations, whereas the laws in California have not been tested as much. This applies to C-corps whose source of funding is venture capital or other investors who will become share-holders when their investments are converted to stock.

This has nothing to do with real estate, and is especially not applicable if you are a small-time investor (i.e. your investments are worth under $10M). 
Real estate investors hold their property in entities called LLCs for many reasons. A big one is that LLCs require a lot less corporate formalities, which means that you are not paying your lawyer to create a corporate resolution every time you make a business decision.

Another big issue is corporate taxes. You are taxed twice if you form a C-corporation. In LLCs you can pass your income through to your personal taxes so you are only taxed once.

In California, if you form an entity in another state, such as forming a Delaware Corp, you still have to pay California state taxes (min $800/year) if you are doing any of the business from California. So it doesnt save any money to form in another state. This may not be true of all states.

If you live in a state that allows series LLCs, you are very lucky. Form your entity(ies) there. 

[Zacher Bayonne]

Thanks, all! I am in the process of starting up, so there isn't anything in my company yet (being that said "company" doesn't yet exist). I planned on having it viewed as an S-Corp once I hit a certain amount of revenue ($40K-$50K). Therefore, I was unsure of how one in this situation would fare in MD vs. DE. Thanks for the input, everyone.

[Carl Martin]

I live in Maryland and started my LLC in DE. I was advised that it would be less road blocks when getting things done and my taxes would be lower. But, no two persons taxes will be the same. I guess me and you are learning this one together.

[Sebastian Taylor]

If you do business in MD, you have to "register" you foreign entity with MD. Guess what - that means, you pay the same LLC tax to MD that any MD LLC pays, but MD LLC does not pay DE taxes and fees. What is the benefit?