Frequently Asked Questions (FAQ)

While it’s very convenient to be able to form an LLC on American soil, without ever leaving your computer chair, it can be a confusing matter for the uninitiated. Some questions come up often enough to warrant this special “Ask Willy” section.

Note that there’s not too much information here that you couldn’t find when reading through the Handbook, but it may sometimes be presented in a more easily digestable format for those in a hurry.

Why incorporate in the first place?

So, why form a corporation or LLC in the first place, instead of just operating as a sole proprietorship?

Perhaps the most important reason is to safeguard your personal assets against creditors and lawsuits. Without a corporation or LLC, anyone suing your business is actually just suing you personally, putting everything you own (house, cars, bank accounts) at risk of being seized in a judgment. They can claim it’s not personal, but it sure will feel pretty up close and personal.

Sole proprietors are personally responsible for all the liabilities of the business, such as loans, accounts payable, and potential lawsuits. In a Delaware LLC, however, members and managers typically are not liable for the company’s debts and obligations. You can also use a Delaware LLC to hold your personal assets like a house, car or boat. If you are ever personally involved in a lawsuit or bankruptcy, these assets cannot be seized.

Additionally, regardless of your current personal credit standing, you can build up a separate credit history for your Delaware LLC simply by applying for and using corporate credit.

Of course, a Delaware LLC is capable of continuing indefinitely, its existence not affected by the death of members and managers of the LLC.

Refer to Introducing the Delaware LLC >> for a more complete description.

What is a Limited Liability Company?

Similar to the European concept of a “limited company”, the U.S. Limited Liability Company (LLC) is a combination of a corporation and a partnership that has become popular in recent years.

Refer to Introducing the Delaware LLC >> in the Handbook for a complete description.

What’s so special about Delaware?

Refer to Introducing the Delaware LLC: Why Delaware >> in the Handbook.

But what about Nevada?

So, you keep hearing that Delaware is where the action used to be, and Nevada is where it is now? Why should you choose Delaware over Nevada?

First off, I don’t know nearly as much about Nevada LLCs as I do about Delaware LLCs, so take anything I have to say about the subject with a grain of salt.

There might be good reasons to prefer Nevada over Delaware in some cases. However, given Nevada’s current reputation as a haven for online betting and adult websites, Nevada LLCs have recently come under heightened scrutiny by federal regulators.

In contrast, Delaware has a very favorable big-league image, which is reinforced by the fact that almost 60% of all U.S. publicly-traded companies are incorporated in the state.

Delaware’s privacy and asset protection laws are actually stronger than Nevada’s in many cases: as an example, unlike Nevada, Delaware doesn’t require the names of the owners to be listed on the articles of incorporation that are filed with the state. This means Delaware allows anonymous ownership of an LLC, while Nevada doesn’t (unless you use a proxy service offered by some registered agents).

In addition, copies of your corporate bylaws are not required to be on file in the state of Delaware, as they are in Nevada.

Delaware now has also made it possible to convert corporate entities into other corporate forms — that is, LLCs can convert into corporations and corporations can convert into LLCs.

Nevada does has some advantages of its own; just see any Nevada incorporator’s website for a list. But honestly, I don’t think you’ll go wrong incorporating in either state. I just happen to prefer Delaware. Better the devil you know, than the one you don’t.

What is a registered agent?

A registered agent is a professional corporation that is responsible for receiving and forwarding official and legal documents to its client. Some examples of documents received and forwarded by registered agents are annual franchise tax reports from the Secretary of State and service of process (that is, lawsuits) against your company from private litigants.

Delaware law requires you to have a registered agent when your Delaware LLC is first formed and throughout the life of your Delaware company.

Love the website design, who made it?

The new site was designed by an associate of mine. He is a very talented web designer and is available for freelance work. Drop me a note if you’d like his contact information.