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Is forming an LLC in Delaware a better option for my business?

Delaware's attractive business climate has always made it a popular choice for businesses that are interested in forming a corporation. However, incorporation in Delaware takes many forms. Data from the state's Economic and Financial Advisory Council reported that in 2012, fewer than 25 percent of new legal entities were traditional C-corporations.

Recently, limited liability corporations (LLC) have become an increasingly popular option for some business owners. This type of business entity can be more flexible than corporations, though it does not make sense for every company.

Defining limited liability company (LLC)

LLCs are defined as a hybrid legal structure. While similar to a partnership in terms of organization, an LLC enjoys the operational flexibility and can choose to be taxed as a partnership or like a traditional C-corp. LLCs are jointly owned by "members," which can be individuals, organizations or even other LLCs. There is no limit or restriction to the number of members who can own an LLC, and it is possible for just one person or entity to claim ownership of the company.

Is forming an LLC right for my business?

LLCs are governed differently from state to state, and regulations can also vary depending on the legal status of the members who own the group – for example, foreign LLCs are managed differently.

Like C-corps, LLC owners are not held liable for the company's debts. However, unlike C-corps, taxes typically "pass through" the company and are reported and paid by the individual owners on their personal tax returns. This could be a benefit or disadvantage depending on your perspective, and it's a chief consideration if you're thinking about forming an LLC in Delaware.

Depending on local regulations, it may make more sense to form an LLC in one jurisdiction than it would in another – some states, for example, don't allow pass-through taxation while others require the payment of franchise fees. The process of raising capital may also be more difficult for an LLC than it would be for a corporation which can accomplish this via stock offerings..