Business Lawyers in Columbus, Ohio
By Drew Stevens - January 23, 2019 - Corporate & Business
Even though I’m a Columbus, Ohio business law lawyer, I get a number of questions revolving around filing and forming LLCs in difference states, especially for Ohio LLCs and Delaware LLCs. Sometimes, it may be advantageous for a company or startup to file in Delaware as opposed to the startup’s home state of operations.
This may be especially true for software or technology companies that may seek venture capital funding. In this post, we’ll break down what you need to file a Delaware LLC and get your business running.
Where Ohio requires your LLC to file what is called the articles of organization, Delaware requires you to file the certificate of formation with the Delaware Division of Corporations.
The certificate of formation itself is relatively straightforward and only asks for, at minimum, two items – the name of the limited liability company and the address of the registered agent.
With the registered agent, the address and agent must be located in the state of Delaware. For technology or software startups that don’t have a physical office in the state of Delaware, there are a variety of companies that will serve as the registered agent and will notify you of any correspondence sent to the agent.
In terms of naming your Delaware LLC, keep in mind two standard rules. First, the company name must include either “limited liability company”, “L.L.C.”, or “LLC”. Second, take the time to search for your proposed name with the Division of Corporations’ business entity search. This step should not be skipped if you want to avoid being rejected.
Finally, don’t forget the filing fees. While Delaware beats Ohio by $9 and only charges $90 for a filing fee, Delaware does have an annual fee that is due every year of $300.
As with any business entity, your startup or business will need an EIN – the employer identification number. If filed by an individual, one of the members can file an application online by providing basic company information and some of the individual’s personal information, such as the social security number.
The operating agreement for your Delaware LLC can be as simple or complex as you want and need to make it. At the minimum, your operating agreement should cover the basic areas of forming and maintaining an LLC.
This includes addressing organizational matters, the issuance of units, capital contributions and capital accounts, allocations, distributions, indemnification, and dissolution and liquidation. Care should also be taken with defining the powers and limitations of the members, including voting percentages, meetings, and actions that may be taken without meetings.
More advanced components of a Delaware LLC operating agreement include issues such as establishing a board of managers and transfer restrictions. Similar to a corporation’s board of directors, a board of managers can be established to manage the affairs and business of your company. Provisions to address include appointment of initial directors, board composition, removal of directors, meetings of the directors, quorum, and actions without meetings.
Transfer restrictions can help avoid future issues with the sale and transfer of units. Concepts to consider include giving the company and other members a right of first refusal, tag along rights, and drag along rights.
Deciding where to file your Delaware LLC and what needs to go in your operating agreement can raise a number of issues. If you would like to talk to a business attorney in Columbus, Ohio, call our firm today.