Delaware compliance for passive LLC owners

Comprehensive, Delaware-specific compliance guidance for passive LLC owners (summary) Key state requirements (Delaware) - Formation: File a Certificate of Formation with the Delaware Division of Corporations and appoint/maintain a Delaware registered agent with a physical Delaware street address. (Registered agent is required for all Delaware entities.) - Annual tax: All Delaware LLCs (domestic and foreign LLCs/LPs/GPs formed or registered in Delaware) must pay the flat Alternative Entity/Franchise tax of $300.00 on or before June 1 each year.

LLCs do not file an annual report with the Division of Corporations. Late payment penalty is $200 plus 1.5% interest per month on unpaid tax and penalty; continued nonpayment can lead to loss of good standing and eventual cancellation. (No proration; tax is assessed if entity is active in state records at any time during the tax year.) - Series LLCs: Delaware recognizes Protected Series (created in the LLC agreement) and Registered Series (file a certificate of registered series).

Registered Series may trigger additional filings/fees — a Registered Series can be issued its own certificate of good standing and each Registered Series owes an annual franchise tax of $75 (separate from the $300 entity tax).

Carefully follow the statutory notice and records requirements to preserve series-level liability shields. Federal and multistate rules that affect (or may affect) Delaware passive LLC owners - Corporate Transparency Act / FinCEN BOI (status as of early 2025–2026): FinCEN issued an interim final rule (March 26, 2025) narrowing “reporting companies” to foreign entities registered to do business in U.S. jurisdictions and exempting domestic reporting companies and U.S. persons from BOI reporting while the agency finalizes rulemaking.

As a result, most domestic Delaware LLCs (and their U.S beneficial owners) have been exempted from BOI reporting under the interim rule; however, foreign entities that register to do business in a U.S. state (including registering in Delaware) generally remain subject to BOI reporting and related deadlines (FinCEN set accelerated deadlines for certain foreign reporting companies).

This area remains subject to litigation, rulemaking and congressional action — monitor FinCEN/Federal Register updates and consult counsel if any foreign ownership or registration facts apply. - Federal tax / SE tax / passive/active distinctions: For federal self-employment (SE) tax purposes, partners/members in LLCs taxed as partnerships are generally subject to SE tax on their distributive share of trade or business income unless an exclusion applies (e.g., the limited partner exclusion under IRC 1402(a)(13) for limited partners — which generally excludes passive/limited partners’ distributive shares from SE tax other than guaranteed payments).

Whether an LLC member is treated like a “limited partner” (and whether an LLC member’s distributive share is subject to SE tax) depends on facts: member control, participation hours, whether guaranteed payments are made, label vs. substance, and case law.

Material participation rules (IRC §469/IRS Pub 925) determine whether an activity is passive for income-loss offset purposes. Passive investors who truly do not materially participate typically avoid self-employment tax on distributive shares (but may still have state filing/withholding obligations).

Because facts/control matter, get a federal tax analysis for borderline situations. Delaware state income tax and withholding for nonresident members - If a partnership/LLC has Delaware-source income (income from Delaware real property, income from a trade or business carried on in Delaware, or intangible property used in Delaware business), nonresident partners/members with a distributive share of Delaware-source income must file Delaware individual returns (PIT-NON) or be included in a composite return; partnerships report Delaware source items on Form 300 (partnership return) and partners are taxed on their shares.

Delaware may require withholding and estimated payments from nonresident owners — review partnership filing instructions and the Division of Revenue nonresident withholding guidance and withhold if necessary.

Nonresident withholding computation worksheets and instructions are published by the Division of Revenue. Practical compliance checklist for passive Delaware LLC owners (recommended steps)

Comprehensive, Delaware-specific compliance guidance for passive LLC owners (summary) Key state requirements (Delaware)

- Annual tax: All Delaware LLCs (domestic and foreign LLCs/LPs/GPs formed or registered in Delaware) must pay the flat Alternative Entity/Franchise tax of $300.00 on or before June 1 each year. LLCs do not file an annual report with the Division of Corporations.

Late payment penalty is $200 plus 1.5% interest per month on unpaid tax and penalty; continued nonpayment can lead to loss of good standing and eventual cancellation. (No proration; tax is assessed if entity is active in state records at any time during the tax year.) - Series LLCs: Delaware recognizes Protected Series (created in the LLC agreement) and Registered Series (file a certificate of registered series).

Registered Series may trigger additional filings/fees — a Registered Series can be issued its own certificate of good standing and each Registered Series owes an annual franchise tax of $75 (separate from the $300 entity tax).

Carefully follow the statutory notice and records requirements to preserve series-level liability shields. Federal and multistate rules that affect (or may affect) Delaware passive LLC owners - Corporate Transparency Act / FinCEN BOI (status as of early 2025–2026): FinCEN issued an interim final rule (March 26, 2025) narrowing “reporting companies” to foreign entities registered to do business in U.S. jurisdictions and exempting domestic reporting companies and U.S. persons from BOI reporting while the agency finalizes rulemaking.

As a result, most domestic Delaware LLCs (and their U.S beneficial owners) have been exempted from BOI reporting under the interim rule; however, foreign entities that register to do business in a U.S. state (including registering in Delaware) generally remain subject to BOI reporting and related deadlines (FinCEN set accelerated deadlines for certain foreign reporting companies).

This area remains subject to litigation, rulemaking and congressional action — monitor FinCEN/Federal Register updates and consult counsel if any foreign ownership or registration facts apply. - Federal tax / SE tax / passive/active distinctions: For federal self-employment (SE) tax purposes, partners/members in LLCs taxed as partnerships are generally subject to SE tax on their distributive share of trade or business income unless an exclusion applies (e.g., the limited partner exclusion under IRC 1402(a)(13) for limited partners — which generally excludes passive/limited partners’ distributive shares from SE tax other than guaranteed payments).

Whether an LLC member is treated like a “limited partner” (and whether an LLC member’s distributive share is subject to SE tax) depends on facts: member control, participation hours, whether guaranteed payments are made, label vs. substance, and case law.

Material participation rules (IRC §469/IRS Pub 925) determine whether an activity is passive for income-loss offset purposes. Passive investors who truly do not materially participate typically avoid self-employment tax on distributive shares (but may still have state filing/withholding obligations).

Because facts/control matter, get a federal tax analysis for borderline situations. Delaware state income tax and withholding for nonresident members - If a partnership/LLC has Delaware-source income (income from Delaware real property, income from a trade or business carried on in Delaware, or intangible property used in Delaware business), nonresident partners/members with a distributive share of Delaware-source income must file Delaware individual returns (PIT-NON) or be included in a composite return; partnerships report Delaware source items on Form 300 (partnership return) and partners are taxed on their shares.

Delaware may require withholding and estimated payments from nonresident owners — review partnership filing instructions and the Division of Revenue nonresident withholding guidance and withhold if necessary.

Nonresident withholding computation worksheets and instructions are published by the Division of Revenue. Practical compliance checklist for passive Delaware LLC owners (recommended steps)

• Formation: File a Certificate of Formation with the Delaware Division of Corporations and appoint/maintain a Delaware registered agent with a physical Delaware street address. (Registered agent is required for all Delaware entities.)

Formation & documents - File Certificate of Formation and keep registered agent current (Delaware registered agent with a street address required). Maintain an executed Operating Agreement that documents member status (passive vs. active), capital accounts, allocation/distribution rules, and any limitations on member authority. For Series LLCs, include recordkeeping rules and (if creating Registered Series) file certificate of registered series as required.

Federal EIN & tax elections - Obtain an EIN for the LLC. Decide whether the LLC will be taxed as a partnership, S corporation (if eligible), or corporation — federal tax classification can affect SE tax exposure for members.

Annual Delaware requirements - Pay the $300 annual Alternative Entity/Franchise tax by June 1 every year (Delaware Division of Corporations payment portal). For Registered Series, confirm if $75 per registered series applies and pay any required additional fees. Avoid late payment ($200 penalty + 1.5%/month interest) and watch notices sent to the registered agent each December. 4. State income tax and withholding - If the LLC has Delaware-source income, file required partnership returns (Form 300) and ensure nonresident members file PIT-NON or are included in composite filings as applicable. Determine whether withholding on nonresident distributive shares is required and remit on the required schedule. If the LLC operates in states besides Delaware, evaluate nexus/foreign qualification and state filing/withholding obligations in those states. 5. Federal BOI/CTA monitoring - Document beneficial owners and consider getting FinCEN identifiers where helpful, but monitor FinCEN guidance — as of the March 2025 interim rule domestic entities were exempted while FinCEN finalizes the regulation; foreign reporting companies continue to have filing obligations with accelerated deadlines. Ask counsel if your LLC is foreign-owned or is a foreign entity registering to do business in the U.S. 6. Tax reporting and SE tax planning - For passive investors, confirm whether distributions/allocations are truly passive (material participation tests) and whether the limited partner exclusion (IRC 1402(a)(13)) applies to avoid SE tax on distributive shares. Avoid labeling schemes (e.g., converting partner income to wages/guaranteed payments) without analysis — guaranteed payments for services are generally subject to SE tax. Consider S-corporation election for active owners seeking payroll treatment (weigh tradeoffs).

Records & privacy - Maintain separate accounting records (especially for Series LLCs — required to “reasonably identify” series assets to preserve internal shields), an up-to-date member ledger, and the Operating Agreement. Use registered agent services to maintain privacy (Delaware does not require member names in public formation filings), while still keeping internal ownership records.

Get professional help - Because SE tax status, series structure, multistate nexus and BOI obligations are fact-sensitive and subject to ongoing rule changes, have a Delaware corporate attorney and a tax CPA review your facts early. Quick-source references (see full citations with excerpts below)

Delaware Division of Corporations ($300 tax/June 1/penalties), Delaware Division of Revenue partnership instructions (Form 300 and nonresident filing guidance), Delaware Series LLC law/practice notes (Protected vs Registered Series; $75 per registered series), FinCEN/CTA interim rule and fact sheet (foreign reporting companies still report; domestic reporting companies exempted under the interim rule), IRS Publication 925 and federal guidance on self-employment tax and partner treatment. If you want, I will: - Draft a Delaware-specific “passive owner compliance checklist” (one-page) you can give to members and your registered agent; or - Prepare a short newsletter and blog post (SEO friendly) using the above citations and a legal/disclaimer block; or - Prepare a tailored memo analyzing whether your particular member-owner income will be subject to SE tax (need entity documents, member roles/hours, and federal tax classification).