FAQs About Starting a Small or Home-Based Business in Delaware

For many decades, Delaware has been known as one of the most corporate-friendly states in America. International corporations, Fortune 500 companies, and a wide range of other businesses have chosen to incorporate in Delaware for a number of reasons, including the relative predictability of Delaware’s court system. However, if you live in Delaware and are planning to start a small or home-based business, you might not be ready to incorporate just yet. Therefore, the following questions are specifically focused on those who want to start a sole proprietorship or a limited liability company in Delaware.

Should I Choose to Operate a Sole Proprietorship?

By default, your business will be a sole proprietorship unless you formally choose a different legal structure. In the eyes of the law, sole proprietors and their businesses share a single legal identity, so owners are personally responsible for any debts that the business incurs, including judgments and taxes. Your business income will be taxed as personal income when you file your personal tax returns with the IRS and with the state of Delaware. Sole proprietorships are not subject to an annual franchise tax in Delaware. However, they must register their doing-business-as name with the Prothonotary’s Office in every county in which they plan to conduct business.

Should I Form an LLC in Delaware?

An LLC does provide you with more protection for your personal assets. Typically, you and your LLC are separate legal entities, so you only risk the money that you have sunk into your business. LLCs are not required to file annual reports with the state, but they pay an annual tax that is a flat fee. Since 2014, this tax has been $300. You will need to register your LLC with the Delaware Division of Corporations. Like a sole proprietorship, you must register your DBA with the Prothonotary’s Office in every county in which you plan to transact business. Currently, the fee for this is $25 per county.

Do I Need an EIN to Open a Home-Based Business in Delaware?

If you are going to have at least one employee, you will need an Employer Identification Number. You can apply for an EIN at www.IRS.gov. You will also need to register with the state’s Division of Workers’ Compensation and Division of Unemployment Insurance. Furthermore, although sole proprietorships do not need an EIN if they have no employees, all LLCs must obtain one.

Do I Need a Business License in Delaware?

Yes, every person or company conducting business in Delaware must obtain a business license from the state’s Division of Revenue. This is in addition to any professional licenses required by the state or local government. Here are just a few professions that need additional licenses: plant wholesalers and retailers, motor vehicle dealers, home-based childcare facilities, notary publics, construction contractors, all types of food establishments, athletic trainers, and manufacturers or sellers of bedding, pillows, and mattresses. Because the laws vary between counties, you should contact the county in which you plan to start your business to ensure that you do not violate any zoning codes or miss any mandatory licensing or registration requirements. Just to illustrate the point, the city of Dover charges manufacturers a license fee, while in Lewes, your clients or customers cannot visit your home-based business between the hours of 9 p.m. and 7 a.m. Furthermore, many cities only allow people who reside in your home to work as your employees. Most cities also have laws about the amount of noise, glare, heat, dust, smoke, and odors that your business activities can generate.

Do I Need a Registered Agent in Delaware?

If you choose to form an LLC in Delaware, you will need a Delaware registered agent. A registered agent is a business or an individual over the age of 18 with a physical address in the state in which you transact business. Your designated registered agent must be available during normal business hours to accept legal documents on your behalf. Although there are no rules in Delaware to prevent you from naming yourself as your own registered agent, this is usually not a good idea. Serving as your own registered agent limits your ability to visit client sites, take a vacation, attend a trade show, or run errands. If you are not available to accept a legal summons, you could lose your good standing with the state and perhaps have your LLC dissolved.