Introduction
Delaware is one of the most business-friendly states, offering strong legal protections and tax benefits for companies. However, choosing between a Delaware LLC and a Corporation depends on taxation, liability, and long-term business goals.
This guide compares the tax benefits, filing requirements, and costs of forming a Delaware LLC vs. a Delaware Corporation.
Key Differences Between a Delaware LLC & Corporation
| Feature | Delaware LLC | Delaware Corporation |
|---|---|---|
| Legal Structure | Owned by members | Owned by shareholders |
| Taxation | Pass-through taxation (default) | Double taxation (C-Corp) or pass-through (S-Corp) |
| Franchise Tax | Flat $300 annual fee | Based on shares issued (min. $175, max. $250,000) |
| Filing Requirements | No annual report required | Must file an annual report |
| Best For | Small businesses & freelancers | Startups, investors & large businesses |
How Are Delaware LLCs Taxed?
- Default Taxation (Pass-Through): LLC profits pass directly to the owners and are taxed on their personal tax returns.
- No Corporate Income Tax: LLCs do not pay separate Delaware state corporate tax.
- Self-Employment Taxes Apply: LLC owners must pay Medicare and Social Security taxes on all profits.
- Annual Franchise Tax: LLCs pay a flat $300 Franchise Tax per year.
LLC Tax Example
- Revenue: $100,000
- Expenses: $20,000
- Taxable Profit: $80,000 (reported on the owner’s personal tax return)
How Are Delaware Corporations Taxed?
C-Corp: Subject to Double Taxation
- Corporation pays 8.7% state corporate tax + federal corporate tax.
- Shareholders pay personal income tax on dividends.
S-Corp: Pass-Through Taxation
- Income passes to shareholders and is taxed at personal tax rates.
- No corporate-level tax (avoids double taxation).
- S-Corps must have 100 or fewer shareholders and U.S. ownership.
- Franchise Tax Calculation
- Minimum: $175
- Maximum: $250,000 (based on shares issued)
Corporation Tax Example (C-Corp)
- Corporate Profits: $100,000
- Delaware Corporate Tax (8.7%): $8,700
- Federal Corporate Tax (21%): $21,000
- Total Tax Before Dividends: $29,700
- If dividends are paid to shareholders, they pay additional personal taxes on that income.
Pros & Cons of Delaware LLC vs. Corporation
Delaware LLC Advantages
- No corporate tax – Only pay personal income tax.
- Less paperwork – No annual report required.
- Greater flexibility – No strict ownership or board requirements.
- Easier tax reporting – Pass-through taxation simplifies filings.
Delaware LLC Disadvantages
- Self-employment tax applies to all profits.
- Less investor-friendly – Harder to raise venture capital.
Delaware Corporation Advantages
- Easier to attract investors – Corporations can issue stock.
- Tax flexibility – Can elect S-Corp status to avoid double taxation.
- Stronger legal protections – Preferred structure for large companies.
Delaware Corporation Disadvantages
- Double taxation (for C-Corps) – Corporate profits are taxed twice.
- Higher Franchise Tax – Based on shares issued.
- Annual reporting required – More compliance paperwork than an LLC.
Which Is Best for Your Business?
| Delaware LLC | Delaware Corporation (C-Corp or S-Corp) |
| Lower taxes and simpler filings | Best for raising venture capital |
| No corporate income tax | Strong legal protections for shareholders |
| Ideal for single-member businesses | Preferred for IPOs and stock offerings |
IRS Compliance & Delaware Filing Requirements
- LLCs File Form 1040 (Schedule C) – Report business income on personal tax return.
- Corporations File Form 1120 (C-Corp) or 1120S (S-Corp) – Corporate tax returns.
- Franchise Tax & Annual Report – Corporations must file, LLCs only pay the tax.
Conclusion
A Delaware LLC is ideal for small businesses, freelancers, and those wanting pass-through taxation, while a Delaware Corporation (C-Corp or S-Corp) is better for startups and companies planning to raise investment capital.
Understanding the tax and legal differences helps business owners make the right choice.
For expert guidance on choosing between an LLC or Corporation, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.
Frequently Asked Questions (FAQs)
1. Which is better for tax savings, a Delaware LLC or Corporation?
LLCs avoid double taxation, while Corporations may benefit from lower tax rates if structured properly.
2. Do Delaware LLCs pay state corporate tax?
No, LLCs only pay the $300 Franchise Tax and personal income tax.
3. Can a Delaware Corporation avoid double taxation?
Yes, by electing S-Corp status, a Corporation can avoid corporate-level tax.
4. Is Delaware the best state for incorporating a business?
Yes, Delaware is preferred by many businesses due to its tax benefits, strong corporate laws, and investor-friendly structure.
5. Should I hire a CPA before forming a Delaware LLC or Corporation?
Yes, a CPA ensures you choose the right business structure to minimize taxes and stay compliant.
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant and an IRS Enrolled Agent (EA). He specializes in business tax planning, Delaware entity structuring, and corporate tax compliance.
Schedule a consultation today with Anshul Goyal, CPA, for expert tax planning and business formation guidance.