Delaware and Rhode Island, two distinct states within the United States, each offer their own set of regulations and requirements for Limited Liability Companies (LLCs).
This comparative perspective aims to shed light on key aspects of Delaware and Rhode Island LLCs.
Providing a comprehensive overview of their formation, name requirements, membership structure, management options, operating agreements, annual reporting obligations, and dissolution procedures.
Delaware vs. Rhode Island LLC
Costs: Delaware generally offers lower initial filing fees and higher annual franchise taxes compared to Rhode Island.
Taxation: Delaware has no state sales tax but imposes a higher corporate income tax rate, while Rhode Island has a sales tax but a lower corporate income tax rate.
Annual Fees: Delaware’s annual franchise tax is $300, whereas Rhode Island’s annual report filing fee is $50, which may impact ongoing expenses for LLCs.
| Delaware LLC | Rhode Island LLC |
|---|---|
| Delaware charges an initial filing fee of $90, making it more affordable than Rhode Island’s $150 fee. | Rhode Island requires a higher initial filing fee of $150 for LLC formation. |
| It imposes an annual franchise tax of $300 on LLCs, which is an ongoing cost to maintain the business. | It does not have an annual franchise tax for LLCs, offering potential cost savings. |
| Delaware does not have a state sales tax, making it advantageous for retail and service businesses. | Rhode Island has a 7.00% state sales tax, which can impact businesses’ pricing and operations. |
| It has a corporate income tax rate of 8.70%, which can affect the tax liability of businesses. | It has a lower corporate income tax rate of 7.00%, potentially reducing the tax burden on businesses. |
| Delaware offers a high level of privacy as it does not require the public disclosure of members’ names, enhancing confidentiality. | Rhode Island requires the disclosure of members’ names in public records, offering less privacy for business owners. |
| Its Court of Chancery specializes in business law cases, providing expertise in resolving corporate disputes. | It has a standard legal system, which may not be as specialized in business matters as Delaware’s Chancery Court. |
Cost Breakdown of The Two
You may use our free LLC cost calculator by state to find out filing fees, tax percentages, income taxes, and more.
Delaware LLC:
Filing Fees: Delaware charges a filing fee of $90 to establish an LLC.
Annual Franchise Tax: Delaware imposes an annual franchise tax of $300 on LLCs.
Registered Agent Fees: The cost of a registered agent in Delaware can range from $100 to $300 or more per year, depending on your chosen service provider.
Rhode Island LLC:
Filing Fees: Rhode Island requires a filing fee of $150 to create an LLC.
Annual Report Filing Fee: There is an additional annual report filing fee of $50 in Rhode Island.
Registered Agent Fees: Registered agent fees in Rhode Island typically range from $100 to $300 or more per year, depending on your selected service provider.
Related Posts:
- Delaware LLC: Cost Breakdown, Pros and Cons, Requirements
- Rhode Island LLC: Cost Breakdown, Pros and Cons, Requirements
Similarities Between Delaware and Rhode Island LLC
LLC Structure: Both Delaware and Rhode Island provide a legal framework for LLCs, allowing businesses to enjoy the benefits of limited liability protection.
LLCs in both states are typically formed by filing articles of organization with the respective Secretary of State.
Registered Agent Requirement: Both LLCs are required to designate a registered agent who can accept legal documents and official correspondence on behalf of the company.
This ensures that important documents are received and processed promptly.
Annual Reporting: Both states have an annual reporting or franchise tax requirement for LLCs.
Delaware charges an annual franchise tax, while Rhode Island has an annual report filing fee.
These obligations help maintain the legal standing of the LLCs in their respective states.
Limited Liability Protection: LLCs in both Delaware and Rhode Island offer limited liability protection to their members.
This means that the personal assets of the members are generally shielded from the company’s debts and liabilities.
Flexibility: Both states offer flexibility in terms of management and ownership of LLCs.
Members can usually structure the LLC in a way that suits their needs, whether it’s member-managed or manager-managed.
Additional Resources:
Steps to Form LLC in Delaware
Choose a Name: Select a unique name for your Delaware LLC that complies with state naming rules.
Designate a Registered Agent: Appoint a registered agent in Delaware who can receive legal documents on behalf of the LLC.
File Certificate of Formation: Submit the Certificate of Formation form and pay the $90 filing fee to the Delaware Division of Corporations.
Create an Operating Agreement: Although not required, it’s advisable to draft an operating agreement outlining the LLC’s management and operating procedures.
Obtain an EIN: Get an Employer Identification Number (EIN) from the IRS for tax purposes.
File Annual Franchise Tax: Pay the annual franchise tax of $300 to the Delaware Division of Corporations to maintain your LLC’s active status.
Comply with Ongoing Requirements: Fulfill any additional state requirements, such as annual reports and maintaining a registered agent.
Open a Bank Account: Establish a business bank account for your LLC to keep personal and business finances separate.
Steps to Form LLC in Rhode Island
Choose a Name: Select a unique and available name for your Rhode Island LLC that complies with state naming requirements.
Designate a Registered Agent: Appoint a registered agent in Rhode Island who can receive legal documents on behalf of the LLC.
File Articles of Organization: Submit the Articles of Organization form to the Rhode Island Secretary of State and pay the $150 filing fee.
Create an Operating Agreement: Although not mandatory, it’s advisable to draft an operating agreement outlining the LLC’s management and operational details.
Obtain an EIN: Obtain an Employer Identification Number (EIN) from the IRS for tax purposes.
Pay the Annual Report Fee: Rhode Island requires LLCs to file an annual report and pay a $50 filing fee to maintain active status.
Comply with Ongoing Requirements: Fulfill any additional state requirements, such as maintaining a registered agent and adhering to tax obligations.
Open a Business Bank Account: Establish a dedicated business bank account for your LLC to separate personal and business finances.
Feature Comparisons Between Delaware LLC vs. Rhode Island LLC
1. Formation Costs:
Delaware LLC: Delaware offers lower initial filing fees at $90, while annual franchise taxes are $300.
Rhode Island LLC: Rhode Island charges a higher initial filing fee of $150, but the annual report filing fee is $50.
2. Taxation:
Delaware LLC: Delaware has no state sales tax, but it has a corporate income tax rate of 8.70%. LLC members are not subject to state income tax.
Rhode Island LLC: Rhode Island imposes a 7.00% sales tax and has a lower corporate income tax rate of 7.00%. LLC members are also not subject to state income tax.
3. Annual Requirements:
Delaware LLC: Delaware requires LLCs to pay an annual franchise tax of $300 and maintain a registered agent.
Rhode Island LLC: Rhode Island LLCs must file an annual report for a fee of $50 and also maintain a registered agent.
4. Privacy:
Delaware LLC: Delaware offers a higher level of privacy as it does not require members’ names to be disclosed in public records.
Rhode Island LLC: Rhode Island requires the disclosure of members’ names in public records.
5. Court System:
Delaware LLC: Delaware has a well-established business court system, which can be advantageous for business litigation.
Rhode Island LLC: Rhode Island also has a competent legal system, but it may not be as specialized in business matters as Delaware’s.
Business Environment
Delaware LLC Business Environment:
Business-Friendly Reputation: Delaware is renowned for its business-friendly environment and well-established corporate laws.
It is often considered the top state for forming LLCs and corporations.
Court of Chancery: Delaware’s Court of Chancery specializes in corporate and business law cases, providing a specialized and efficient legal system for businesses.
Privacy: Delaware offers a higher degree of privacy as it doesn’t require members’ names to be disclosed in public records, which can be beneficial for confidentiality.
Tax Benefits: Delaware doesn’t impose a state sales tax and offers certain tax advantages for businesses.
Flexibility: Delaware provides flexibility in LLC management and operation, allowing for various business structures.
Rhode Island LLC Business Environment:
Solid Legal Framework: Rhode Island has a well-established legal system and a Secretary of State’s office that efficiently processes business filings.
Lower Initial Costs: The initial filing fee for forming an LLC in Rhode Island is relatively lower compared to Delaware.
Taxation: Rhode Island imposes a 7.00% sales tax, which can impact retail and service-based businesses.
Annual Report: Rhode Island requires an annual report filing with a $50 fee, which is less expensive compared to Delaware’s annual franchise tax.
Regional Market Access: Rhode Island’s location offers proximity to major cities like Boston and New York, providing access to a significant regional market.
Read Also:
- 30 Best Business Ideas in Delaware
- 28 Best Business Ideas in Rhode Island
- Best States to Form LLC For Consulting
Delaware vs. Rhode Island Taxes
Delaware Taxes:
State Income Tax for Individuals: Delaware has a progressive state income tax ranging from 2.20% to 6.60%, depending on income levels.
State Sales Tax: Delaware is known for not having a state sales tax, making it appealing for retail businesses and consumers.
Corporate Income Tax: Delaware imposes a corporate income tax rate of 8.70%, which can be a factor for businesses operating in the state.
Franchise Tax: Delaware LLCs are subject to an annual franchise tax of $300.
Rhode Island Taxes:
State Income Tax for Individuals: Rhode Island has a progressive state income tax ranging from 3.75% to 5.99%, depending on income levels.
State Sales Tax: Rhode Island has a 7.00% state sales tax, which applies to most tangible personal property and some services.
Corporate Income Tax: Rhode Island’s corporate income tax rate is 7.00%, which is lower than Delaware’s rate.
Franchise Tax: Rhode Island LLCs are not subject to a franchise tax, but they are required to file an annual report with a $50 fee.
Flexibility in Rules and Regulations
Delaware:
Flexible Corporate Law: Delaware is well-known for its flexible and business-friendly corporate laws.
It provides a high degree of flexibility in structuring and managing various business entities, including LLCs and corporations.
Court of Chancery: Delaware’s Court of Chancery specializes in business law cases, offering a streamlined and efficient legal system for resolving business disputes.
This specialization enhances predictability and flexibility in corporate matters.
Privacy: Delaware allows a higher level of privacy for businesses.
It doesn’t require the public disclosure of members’ names in most cases, providing a degree of confidentiality.
Default Rules: Delaware provides a comprehensive set of default rules in its corporate statutes, giving businesses the flexibility to customize their operating agreements and bylaws to suit their specific needs.
Rhode Island:
Solid Legal Framework: Rhode Island has a well-established legal framework for businesses, but it may not offer the same degree of flexibility as Delaware.
Streamlined Filing Process: Rhode Island’s Secretary of State’s office efficiently processes business filings, making it easier for businesses to navigate regulatory requirements.
Flexibility in Operations: Rhode Island allows businesses to customize their operational procedures and management structures to a reasonable extent, providing a level of flexibility.
Key Differences Between Delaware and Rhode Island- An Overview
