Legal Question in Business Law in Delaware

Re: Difference between General Corporation and a LLC

In Delaware, a popular location for business formation due to low corporate taxes and a well-developed body of business law, both the LLC and the S-corp. offer flexibility and tax advantages for the small business. Both can result in business income being taxed once, as personal income, rather than as corporate income and then again, when distributed, as personal income.

Here is a summary of Delaware law on LLCs.

Delaware Limited Liability Company Act, 6 Del. C. � 18-101 et seq.

Sec. 18-102 Name must ontain "Limited Liability Company,", "L.L.C.," or "LLC"

Sec. 18-215 LLC may have a series of members, managers, or limited liability company interests

A series LLC allows for operating separate businesses and keep their assets and liabilities separate without forming a separate legal entity for each one

Requirements for a series:

(1) Separate and distinct records are maintained for any such series and the assets associated with any such series are held and accounted for separately from the other assets of the LLC and any other series;

(2) The LLC Agreement provides for a series; and

(3) Notice of the limitation on liabilities of a series is set forth in the Certificate of Formation

Given the requirements for including the existence of a series in the LLC Agreement and Certificate of Formation, a decision whether to utilize a series LLC must be made before the company is formed

Sec. 18-301 An LLC has members (somewhat comparable to shareholders in a corporation or partners in a partnership)

Requirements to become a member of an LLC are set forth in the LLC Agreement

No contribution to the LLC is required to become a member

Sec. 18-401 An LLC may designate managers pursuant to the LLC Agreement

Sec. 18-402 Management of an LLC is vested in its members in proportion to their legal interest in the LLC, unless otherwise provided in the LLC Agreement

Each member and manager has the authority to bind the company unless the LLC Agreement provides otherwise

Sec. 18-1107 Taxation of LLCs

For Delaware tax purposes LLC is classified as a partnership unless a different classification is chosen for federal tax purposes

Please feel free to contact me if you want to explore business organization in Delaware further.