Delaware LLC Operating AgreementThe most contractually-flexible LLC statute, the Court of Chancery, and the series LLC option
Why Delaware? Contractual Freedom and Specialist Courts
The Delaware LLC Act is unique in giving the operating agreement near-total authority over the LLC's internal affairs. Section 18-1101(b) states the policy explicitly: "It is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements." Almost every default rule in the statute starts with "unless otherwise provided in a limited liability company agreement", a structural choice that puts the agreement first and the statute second.
The Court of Chancery is the second reason. Established in 1792, it is one of the oldest business courts in the world. Cases are heard by Vice Chancellors and the Chancellor (specialist business judges), without juries, and decisions typically issue within months rather than years. Chancery decisions on LLC operating agreements are the most cited body of LLC law in the United States. When a clause in your Delaware operating agreement is ambiguous, the Court of Chancery will likely have ruled on similar language before, providing predictability that no other state can match.
The third reason is the case law itself. Delaware courts have published thousands of opinions on LLC operating agreement interpretation. Common drafting patterns are well-tested. Unusual clauses are likely to have been litigated. For high-stakes structures (private equity, venture-backed companies, joint ventures between large corporations), Delaware case-law depth is the deciding factor in choosing Delaware over a cheaper state.
Default Rules Under 6 Del. C. § 18
The Delaware LLC Act defaults are deliberately minimal because the statute presumes members will draft their own terms. The most important defaults are listed below.
| Topic | Default Rule | Statute |
|---|---|---|
| Profit allocation | On the basis of the agreed value of contributions | 6 Del. C. § 18-503 |
| Voting | Per-capita unless agreement provides otherwise | 6 Del. C. § 18-302 |
| Management | Member-managed unless Certificate or agreement specifies otherwise | 6 Del. C. § 18-402 |
| Member admission | All-member consent unless agreement provides otherwise | 6 Del. C. § 18-301 |
| Distributions | On members' decision per agreement; default per profit allocation | 6 Del. C. § 18-504 |
| Dissolution | Two-thirds-in-interest of members unless agreement provides otherwise | 6 Del. C. § 18-801 |
| Member withdrawal | Permitted only as provided in operating agreement | 6 Del. C. § 18-603 |
| Fiduciary duties | Default duties of care and loyalty; may be modified by agreement | 6 Del. C. § 18-1101 |
Compare with California or New York: those statutes default to per-capita allocation, while Delaware defaults to allocation based on the agreed value of contributions. The Delaware default is closer to capital-proportional allocation but still depends on the company records establishing what the agreed value was. The first paragraph of every well-drafted Delaware operating agreement should establish the agreed value of each member's initial contribution.
Series LLCs in Delaware
Delaware was the first state to authorise series LLCs, in 1996. Since then, Delaware has continued to evolve the structure: in 2019, Delaware added "registered series" alongside the original "protected series". Protected series exist by virtue of the operating agreement; registered series are formally recorded with the Division of Corporations.
The benefit of registered series is that each series receives a Certificate of Registered Series and can transact business under its own name with its own EIN. The benefit of protected series is lower cost (no per-series filing fee). Most series LLCs use protected series unless a particular series will hold real estate or transact business in its own name, in which case a registered series simplifies title and banking.
The structural requirement for liability isolation is the same regardless of series type: each series must maintain separate records sufficient to identify its assets and liabilities. If records are commingled, the liability shield collapses, and creditors of one series can reach the assets of another. The Delaware Court of Chancery has enforced this records requirement strictly.
Delaware Filing Fees and Recurring Costs
| Item | Amount | Notes |
|---|---|---|
| Certificate of Formation | $90 (one-time) | Filed with Division of Corporations |
| Annual franchise tax | $300 (annual, due 1 June) | Same flat amount regardless of revenue |
| Registered agent service | $50 to $300 (annual) | Required; commercial agents handle service of process |
| Certificate of Cancellation | $200 | Filed when winding up the LLC |
| Series LLC Certificate of Designation | $110 per series (registered series only) | Optional; protected series do not require designation |
Delaware is one of the cheaper states for LLC formation ($90 Certificate of Formation) and one of the more expensive for ongoing maintenance ($300 annual franchise tax). The trade-off is the Court of Chancery access and the case-law depth, which are not priced into any other state's fees.
Sample Delaware-Specific Clauses
The clauses below take advantage of Delaware-specific contractual freedom. Each is illustrative only.
Forming a Delaware LLC: The Five Steps
- Choose and check a name. Search the Division of Corporations name database. Names must include "Limited Liability Company", "LLC", or "L.L.C." Reserved names $75 for 120 days.
- Appoint a Delaware registered agent. Required under 6 Del. C. § 18-104. Must have a Delaware physical street address. Commercial agents typical; cost $50 to $300 per year.
- File Certificate of Formation. $90 fee. Filed with the Delaware Division of Corporations. Online filing available; processing typically 1 to 2 business days.
- Adopt the operating agreement. Not legally required but universal practice. The agreement is the centrepiece of the Delaware LLC regime.
- Obtain EIN and calendar 1 June franchise tax. EIN is free from the IRS. Franchise tax is $300 annually due 1 June regardless of formation date.
Five Delaware-Specific Issues to Address
Without an explicit Delaware Court of Chancery forum-selection clause, a member could sue in their home state, defeating the Delaware-jurisdiction benefit. Always specify the Court of Chancery.
6 Del. C. § 18-1101(c) lets you eliminate fiduciary duties, but doing so removes a layer of member protection. Most agreements modify rather than eliminate, and always preserve good-faith covenant.
If you set up a series LLC, you must keep series records separate from day one. Commingled records collapse the shield. Use separate bank accounts and separate accounting for each series.
The $300 franchise tax is due 1 June regardless of formation date. Many founders forget because the date is unrelated to formation. Set a calendar reminder for 1 May to leave a 30-day buffer.
If you form in Delaware but operate from California, you must register as a foreign LLC in California, owe California franchise tax ($800 minimum), and follow California requirements. Delaware is the formation state, not a tax-avoidance shelter.
Statutory Sources
- Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et seq., official text at delcode.delaware.gov
- Delaware Division of Corporations, LLC formation forms and fees
- Delaware Court of Chancery, overview and recent LLC opinions
- 6 Del. C. § 18-215 (series LLC statute), series LLC text
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