Legal Question in Business Law in Delaware

Re: LLC in Delaware Vs. Maryland

Even though you are located in Maryland, you would be much better off forming the LLC in Delaware.

Delaware has a more favorable legal system for businesses, especially internet based businesses. Why? All disputes involving technology and business matters are handled by the Delaware Chancery Court. 5 judges, no juries. Each judge writes about 800 opinions each year on business and technology law matters. Almost all cases get decided in 8 weeks or less. In contrast, it takes a Maryland Circuit Court about 1 year to decide a case. If all of your End User Licenses are governed by Delaware Law, with venue only in Delaware courts, this will save you much time in the case of any customer disputes.

Also, almost all venture capitalists require that you form a business in Delaware as a condition for getting any money from them. Smart angel investors require this too. If you may need angel or VC investment in the future, you will need to form the LLC in Delaware anyway.

Lastly, if the LLC will have more than 1 member, do not form it in Maryland. It is way too easy for a disgruntled member to file a petition in a Circuit Court in Maryland to break up an LLC on the grounds it is not acting in accordance with its Articles of Organization or its operating agreement. In Delaware the grounds for break up are much narrower. Since business break litigation costs $250,000 per person, it makes sense to form the LLC in Delaware and reduce the possibility of such break up litigation.