Delaware vs Florida LLC, Which State Is Better For Forming An LLC?

An LLC is the typical entity structure that most businesses would make the transition to from their sole proprietorship phase. As a corporate vehicle, it’s the most versatile one yet and offers a wide range of perks that can accommodate a company’s newfound growth.

Delaware is a prolific business state that attracts investors and businesses from all walks of life because of its favorable corporate climate and taxation structure. But unless you’re a part of the 1% of mega-corporations that have resources to spare, going to Florida might be a better option.

So if you’re unsure where to go at this crossroads, we’ve prepared a comprehensive write-up detailing the intricacies of each jurisdiction along with a procedural roadmap at the end.

Why Delaware and Florida stand out among other states

Delaware

Delaware is well-known for being a business-friendly state, which is often ranked as one of the top states in the US. In fact, Delaware has consistently been high-ranked as the state most beneficial for business by most trusted magazines for several years.

According to a report released by the U.S. News & World, Delaware was ranked top 10 best states to do business in 2021.

Delaware is the home to some of the largest companies in the world, including AstraZeneca, and Walmart, which means that there is a lot of experience and expertise in the state in terms of business law. Especially for businesses to incorporate in Delaware, the state also has a Court of Chancery to deal with business cases more effectively and unbiasedly.

Florida

Similar to Delaware, Florida is also well-known for its business-friendly environment. And Florida also has a high rank in many famous magazines since it offers a lot of advantages for start-ups, especially for LLCs. For instance, according to Chief Executive magazine, Florida was ranked second in the top state suitable for business.

Florida is home to some of the largest companies in the world, including PetMed Express, Inc., Burger King, and DHL America. Therefore you can be assured that the state itself is far more concerned with creating a favorable environment for businesses since the influx of incorporation is eventually their ultimate goal.

Comparison: Delaware LLC vs Florida LLC

There are a few key things to consider when comparing Delaware LLCs and Florida LLCs

Both states share some commons

Both Delaware and Florida have in common that they are both business-friendly states. They offer many benefits to businesses, including low taxes, easy formation procedures, and flexible laws.

No Minimum Capital Requirements

Unlike some other states, Delaware and Florida do not have minimum capital requirements for LLCs. This means that you can form your LLC with any amount of money.

Flexible Laws

LLCs in both Delaware and Florida have flexible laws that allow them to be customized to fit the needs of the business. For example, in Delaware, LLCs can choose to have different classes of membership, which gives businesses the ability to create different voting rights and ownership structures.

To find out more distinctions between two states for establishing an LLC, dive into the next part!

The differences between both States

Taxation

Delaware LLCs offer flexibility in taxation. Its LLCs can choose to be taxed as a partnership, S corporation, or even a disregarded entity. This means that owners can avoid double taxation by electing to pass-through income directly to themselves. Florida LLCs also possess a similar system. LLCs can ask to be taxed as a corporation or partnership, or sole proprietorship depending on the member of the LLC.

LLC in Delaware will be taxed at a flat annual $300, while the sole proprietorship will be charged the personal income tax. However, your LLC will be imposed for sales tax. Delaware only imposes a gross receipts tax on the seller of goods (tangible or otherwise) or provider of services in the state.

Delaware has a unique tax mechanism called “the Delaware loophole” that allows intangible assets such as trademarks, copyrights, and patents to pass through taxation. Let’s put this into perspective with the following scenario:

You run a stop-motion studio with a +100m yearly net income in California. Right off the bat, your income would be hit with three taxes – state income tax, alternative minimum tax, and a federal corporate tax rate to top it all off.

If you set up a Delaware subsidiary, you can pay it for the rights to use your own patent. And since Delaware doesn’t impose corporate income or sale tax, you’d get better retention from your bottom line. But it’s not something that you should attempt without thorough legal guidance from a certified attorney.

On the other hand, both partnership and proprietorship in Florida will not be taxed, unless these LLCs have employees. However, certain taxes and fees in Florida could make up for these low start-up costs such as state taxes, corporate income taxes, and Franchise and LLC taxes.

So, it is worth considering what your LLC needs most in the long run to balance the benefits and drawbacks of taxation in both states.

Fees charged in incorporation and maintenance

The answer to this question depends on some factors, including the type of business you are running and the state in which you are incorporated. Delaware LLCs are generally more expensive to set up and maintain than Florida LLCs, but they offer some benefits that may make them worth the extra cost.

Foreign corporations can be incorporated in Delaware without having a presence in the state by enlisting a registered agent physically located in Delaware who can accept the service of the process, though it is a bit more costly. While it is inexpensive to do so within the state of Florida, you might need to be wary about the extra fee incurred.

Asset Protection

Both LLCs in Delaware and Florida offer asset protection. But Delaware offers stronger asset protection for LLCs than Florida. In Delaware, LLCs are treated as separate entities from their owners, meaning that the owner’s assets are protected from creditors of the LLC.

If asset protection is a priority, Delaware may be the better choice for forming an LLC. However, both states offer many advantages to businesses, so it is worth considering all factors before making a decision.

Quick checklist for incorporation in Delaware and Florida

Overall, these key differences should be considered when deciding which type of LLC is right for your business. If you’re looking for flexibility and the ability to tailor your business to your specific needs, a Delaware LLC may be the better choice while Florida LLC is more straightforward to manage. Ultimately, it’s important to consult with an experienced business attorney to decide which state you should incorporate your LLC.

If you still need more information about LLC formation, feel free to contact us at service@bbcincorp.com