‘Delaware C Corp vs LLC’ is a quite commonly asked question among international investors, especially non-US business owners. This is mainly because most businesses are not physically located in Delaware.
As a result of this apparent disadvantage to state revenue, Delaware developed a set of tax and regulatory laws (notably the Delaware General Corporation Law) and court systems that are more beneficial to corporations than almost anywhere else in the country, making it the most advantageous place to incorporate for both companies and investors.
Relin Consultants have outlined the major aspects for both a Delaware LLC and Delaware C Corp below for ease of understanding. And contact us to know about Delaware incorporation service.
WHAT EXACTLY ARE DELAWARE C CORP AND A DELAWARE LLC?
Also known as ‘C Corp’, it is a taxable corporation or commercial organization established in Delaware. Because a C corporation is distinct from its stockholders, C-corps provide Directors and shareholders with minimal liability protection. Furthermore, C-Corps differ from other businesses in terms of taxation and capacity to obtain investor money, although sharing the same form.
A Delaware LLC is a Limited Liability Corporation that was established in Delaware. A Delaware LLC is a business entity that exists legally apart from its owners. A Delaware LLC’s owners and management are not personally accountable for the company’s debts and liabilities. For tax purposes, a Delaware LLC can be classified as a pass-through business.
DELAWARE C CORP VS LLC – SIMILARITIES AND DIFFERENCES
WHAT ARE THE SIMILARITIES BETWEEN A DELAWARE C CORP AND LLC?
Despite having a lot of differences, both the Delaware C Corp and LLC share several similarities, which are: –
- Once established, they must both be registered with the state.
- Unless otherwise stated, they both exist indefinitely.
- In both sorts of entities, members and stockholders are protected from personal culpability.
- Both entities are unrestricted in terms of ownership.
WHAT ARE THE KEY DIFFERENCES BETWEEN A DELAWARE C CORP AND LLC?
Even though both of these entities share some similarities, there are a few key differences that you should know of. The differences are analyzed below: –
(a) Company structure
A Delaware LLC must have at least one manager and members who are company owners. An Operating Agreement is essential for an LLC since it outlines the company’s structure, most formalities, and operating processes. This document is also regarded as one of the features that distinguish a Delaware LLC from a corporation.
If you decide to form a Delaware C Corp, remember that it is a three-tiered bureaucracy. Its organizational structure is divided into three tiers, which are as follows:
- Shareholders: Company owner
- Board of Directors: Selected by shareholder
- Officers: Arranged by the Board of Director
(b) The ability to raise capital
A Delaware LLC does not have stock. Usually, the company raises capital based on the amount of money invested in the company by investors.
Unlike a Delaware LLC, a Delaware C Corp includes stock. Stocks are used to share ownership in Delaware businesses. Furthermore, stockholders have the power to issue and sell stocks in order to raise cash.
(c) Rights to vote
When it comes to a Delaware LLC, the voting rights of LLC members are varied and can be established in the Operating Agreement. Furthermore, any changes can be made directly to the Agreement.
Delaware C Corps, on the other hand, often have only one stock class. It is permissible to establish extra classes that correspond to different degrees of voting rights. However, any addition must be clearly stated in the Incorporation Certificate.
(d) Taxed income
A Delaware LLC is a pass-through entity. Income will be transmitted via the business (LLCs are not taxed at the corporate level) and taxed at the members’ tax rate. A single-member LLC and a multi-member LLC, in particular, must be taxed differently.
- Single-member LLC: Taxed as a discarded entity
- Multi-member LLC: Taxed as a partnership
Through tax status elections, Delaware C Corps can choose how they will be taxed. If no other status is chosen, the C Corp status is the default tax classification for a corporation in Delaware. C corporations are taxed both individually and corporately. In most circumstances, double taxation is seen as the most significant disadvantage of C corporations.
(e) Confidentiality and other compliance requirements
- Regarding confidentiality and privacy, a Delaware LLC is a sensible choice. Because the identity of LLC members is not obliged to be divulged in most instances, there is a higher assurance of privacy. Delaware LLCs are also exempt from the requirement to file an annual report, have meetings, or keep minutes.
- Delaware C Corps, on the other hand, are more likely to maintain consistency, which means they must adhere to tight standards and conditions outlined in connected legislation. One of these criteria is the disclosure of directors’ or officers’ names and addresses. In addition, filing an annual report is a requirement for Delaware corporations.
BETWEEN A DELAWARE LLC AND A DELAWARE C CORP, WHICH ENTITY IS THE BETTER CHOICE FOR NON-US RESIDENTS?
- A Delaware LLC formation appears to surpass C Corps in many ways for start-ups and small enterprises. Its advantages include cheaper tax burden, privacy guarantee, or easy maintenance requirements.
- With a consistent feature and stock ownership, a Delaware C Corp is a strong option for venture capitalists.
Based on all the information above, there is no clear winner or loser when it comes to comparing a Delaware LLC and a Delaware C Corp. Ultimately, it will come down to the nature of your business and your preferences. Therefore, we strongly suggest you seek advice from our experienced agents at Relin Consultants. Contact us at +65 8756 2027 for more information.
1. Are Annual Grand Meetings required for a Delaware LLC and C Corp?
A Delaware LLC is not required to hold an Annual Grand Meeting.
A Delaware C Corp is required to hold an Annual Grand Meeting.
2. What are the filing fees for a Delaware LLC and C Corp?
The filing fee for forming an LLC in Delaware is $90, which is low in comparison to other states. Some jurisdictions, such as Illinois and Massachusetts, impose filing fees of $500 or more.
For a Delaware C Corp, its fees are as follows: –
- Divisions of Corporations fee: $15
- Filing fee tax: $15
- County fees:$24
- Extra pages:$9
3. Are Delaware LLC, and C Corps protected against unwanted partners?
Right of First Offer (ROFO) and Right of First Refusal (ROFR) are two terms that can be included in an LLC Agreement to limit what is allowable when a member retires, dies, or decides to sell his or her LLC investment for whatever reason. It is also feasible to prevent a member’s LLC investment from being sold.
For C Corps, the only method to keep undesired investors out is via a Stockholder Agreement, which outlines stockholders’ powers and rights, as well as their relationship with the business, and must be signed by all stockholders. It may impose limits on stock transfers. These agreements are especially significant in closely held firms with a small number of stockholders since they control the relationship between the investors.