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In what state should I form my LLC?

A: Forming a new Maryland LLC in Maryland is often the easiest and most sensible course of action.  Domesticating a company in one state and operating in another requires additional filings, fees and formalities.  However, Delaware has long been recognized as the nation's preeminent jurisdiction for doing business - more than half of the Fortune 500 companies are legally located in the state - with good reason.  Delaware offers multiple advantages to owners, particularly those in multi-member LLCs.

The following are among the advantages offered by Delaware law:

• The preeminence of the Delaware LLC Act. For a variety of valid substantive reasons, most LLC lawyers view the Delaware LLC Act (the "Delaware Act") as the best LLC act, and many sophisticated investors insist on that act as the act that will govern any LLC in which they invest. Among other advantages, the Delaware Act is the most flexible of all U.S. LLC acts, and it has by far the largest body of case law. More than any other law, the Delaware Act permits maximum flexibility in structuring relationships between members, permitting the full modification and even elimination of fiduciary duties. It also allows unlimited creativity in, among other things, establishing management structures, admissions of new members and dissolution events;

• The expertise of the Delaware Court of Chancery. Delaware maintains a separate court of equity to litigate business disputes. The Court of Chancery is the nation's most advanced in handling business litigation. The massive body of law and expertise established by the Court provides LLC owners a considerable degree of certainty and reduced risk;

• The reliability of the Delaware Secretary of State. In Delaware, LLC filings are made through the division of corporations of secretary of state's office (the "Division"). The Division is unparalleled with is expediency, efficiency and expertise in processing business filings. Formation documents may be filed and certifications obtained in a short as one hour. In contrast, the Maryland SDAT is relatively slow and often error-prone. It is not uncommon for an attempted formation document to be returned unfiled weeks after an initial attempt. Such delays and uncertainty are often unacceptable to many business owners; and

• The prestige of the Delaware LLC Act among investors. Finally, LLC members who want to obtain investment from investors or who anticipate dealing with sophisticated customers, suppliers or other third-party business contacts will usually find it to their advantage to form their LLCs under the Delaware LLC Act.

Because of these business-friendly factors, Delaware is often the most favorable jurisdiction in which to form an LLC.   Many businesses are derailed because of the failure adequately to mitigate risks in advance.  Only a comprehensive discussion with a Delaware-trained and admitted attorney can properly determine if that jurisdiction is appropriate for a business.

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