Someone told you to form your LLC in Delaware. Here’s why that advice might cost you thousands.
Every year, thousands of entrepreneurs hear the same thing: “Just form in Delaware.” It comes from blog posts, from that friend who took a business law class, from the guy at the coworking space who “knows a thing or two about startups.”
And look, Delaware is a great state for business entities. There’s a reason over 1.5 million businesses are registered there. I’ve formed hundreds of businesses in Delaware for clients myself. But here’s what nobody mentions in those breathless “Why Delaware Is the Best” articles: most of those businesses are corporations or are vehicles spun up to pool capital (think investment funds). And most of the advantages people cite apply to companies raising institutional capital, not to the freelancer in Cedar City, Utah who needs liability protection for her consulting practice.
If you’re a Utah-based entrepreneur trying to decide where to form your LLC, this post will give you the real numbers, the actual tradeoffs, and a clear framework for making the right call. Just the math and the law. And keep in mind that your situation is unique, so we’ll cover a number of factors here, but if you can afford to have a lawyer AND tax advisor help guide you, it should be more than worth it to pay for their advice.
The Short Answer
If you’re operating a business primarily in Utah, you should probably form your LLC in Utah.
If that’s all you needed, great — go file your Utah LLC and get back to work. But if you want to understand why, keep reading.
Formation Costs: Delaware vs. Utah
Let’s start where everyone should start — the money.
| Utah | Delaware | |
|---|---|---|
| Formation Filing | $59 | $90 |
| Registered Agent | $0 (self) — $150/yr | $50 — $300/yr |
| Certified Copy | N/A | $50 |
| First-Year Total | $59 — $209 | $190 — $440 |
And it gets more expensive every year after that.
Ongoing Annual Costs
| Utah | Delaware | |
|---|---|---|
| Annual Report/Franchise Tax | $18 | $300 |
| Registered Agent | $0 — $150 | $50 — $300 |
| Foreign Qualification (Utah) | N/A | $54 + UT registered agent |
| Annual Total | $18 — $168 | $404 — $654 |
A Delaware LLC operating in Utah costs you roughly $400—$750 more per year than just forming in Utah. Every single year.
For a venture-backed startup burning through millions, that’s a rounding error. For a bootstrapped business? That’s real money going to filing fees instead of marketing, inventory, or your own paycheck.
The Delaware Trap
If you form an LLC in Delaware but you live in Utah, have employees in Utah, meet clients in Utah, or conduct any significant business activity in Utah, guess what? Utah considers you to be “doing business” in the state. And Utah requires you to register as a foreign LLC and comply with all the same requirements as a domestic Utah LLC.
That means:
- You register in Delaware. Pay their fees.
- You register as a foreign LLC in Utah. Pay those fees too.
- You maintain a registered agent in Delaware. Because Delaware requires it.
- You maintain a registered agent in Utah. Because Utah requires it for foreign LLCs.
- You pay Delaware’s $300 annual franchise tax. Non-negotiable.
- You file Utah’s annual renewal. Another $18.
- You comply with both states’ laws. Double the paperwork, double the deadlines, double the chances to miss something and get hit with penalties.
You haven’t gained much. You’ve just added a layer of complexity and cost.
The Court System: Chancery Court vs. Utah Courts
Delaware’s Chancery Court is a specialized business court. No juries. Judges who have spent their careers handling corporate disputes. Decades of case law that makes outcomes more predictable. If you’re in a complex corporate governance dispute with multiple shareholders, institutional investors, and millions on the line, Chancery Court is genuinely valuable.
Utah is working on developing a Business and Chancery Court so this might be less of an issue in the future.
For the vast majority of LLCs, especially single-member or small multi-member LLCs, disputes get resolved through the operating agreement, mediation, arbitration, or the regular court system (or they just work it out amongst themselves). Utah’s courts handle business disputes just fine.
The Chancery Court advantage is real, but it’s relevant to maybe 1-2% of LLCs. If you’re reading this post, it’s probably not relevant to you.
Privacy
Delaware does offer slightly more privacy in its formation documents. You don’t need to list the names of members or managers in the Certificate of Formation or the address of the company, just a registered agent.
But here’s the thing: If you are doing business in Utah, you’ll have to register as a foreign LLC doing business in Utah anyway, so the privacy benefit doesn’t exactly exist (this is a complex topic itself and I’m not going into it here).
If you’re looking for maximum privacy, there are strategies that work in either state. The formation state isn’t the key variable.
Operating Agreement Flexibility
Delaware’s LLC Act (Title 6, Chapter 18) is famous for its flexibility. It gives LLC members enormous freedom to structure their operating agreement however they want. The statute defaults can be overridden by agreement on almost everything.
Utah’s Revised Uniform Limited Liability Company Act is also quite flexible, more so than many states.
Are there cases where Delaware’s statute gives you options that Utah’s doesn’t? Sure. If you’re structuring a complex multi-class membership interest arrangement with waterfall distributions and custom fiduciary duty modifications, Delaware’s case law gives you more certainty.
For a standard operating agreement? Utah’s statute handles it just fine. Your attorney can draft an operating agreement under Utah law that does everything you need.
When Delaware Actually Makes Sense
Delaware isn’t wrong for everyone. Here’s when it genuinely makes sense:
1. You’re raising capital. Most VC firms prefer, and some require, Delaware entities. Yes, other states are starting to gain traction, but they are still the minority. Their legal documents are standardized for Delaware law. Their lawyers know Delaware inside and out. If you’re pursuing institutional funding, forming in Delaware reduces friction in the fundraising process.
2. You have co-founders or members in multiple states. When nobody is in the same state anyway, Delaware provides a neutral, well-understood legal framework. No one has “home court advantage.”
3. You’re planning to go public. If an IPO is genuinely on your roadmap (not just a fantasy), Delaware is the standard. The vast majority of publicly traded companies are incorporated in Delaware.
4. You’re creating a holding company or complex entity structure. For holding companies, series LLCs, or complex multi-entity structures, Delaware’s statute and case law provide more certainty and flexibility, although Utah also permits Series LLCs under its statute, so a series LLC alone is probably not sufficient reason to choose Delaware.
5. Your attorney specifically recommends it for your situation. There are niche situations — specific industries, specific transaction structures, specific liability concerns — where Delaware is the right call. Trust your attorney’s judgment, not a blog post.
One of the key points of jurisdiction selection for your entity is that the jurisdiction you choose will govern disputes among the owners, including partners and investors. It doesn’t govern other contracts you enter into unless the contract itself chooses Delaware law.
When Utah Is the Better Choice
For most readers of this post, Utah wins. Here’s when:
1. You’re operating primarily in Utah. Your customers are here, your office is here, you live here. Forming in Delaware just adds cost and complexity with no significant benefit.
2. You’re a single-member LLC. The governance advantages of Delaware are almost entirely irrelevant when there’s only one member. There’s nobody to have a dispute with. But see the section on charging orders below.
3. You’re cost-conscious. Saving $400—$750 per year adds up. Over five years, that’s $2,000—$3,750 you kept in your business instead of sending it to Delaware and registered agent services.
4. You want simplicity. One state. One filing. One set of deadlines. One registered agent (which can be you). Simple is good. Simple means fewer things to forget, fewer penalties to risk, fewer fees to pay.
5. You’re a service business, freelancer, or local operation. Consultants, contractors, agencies, restaurants, retail shops, professional practices — if your business is fundamentally local or regional, Utah is the obvious choice.
The Decision Framework
Still not sure? Run through this checklist:
- Are you raising or planning to raise capital? → Consider Delaware
- Do you have co-founders in different states? → Consider Delaware
- Do you have founders that are potentially litigious? → Consider Delaware
- Is an IPO on your realistic roadmap? → Delaware
- Are you a single-member LLC? → Utah (But see Charging Orders below)
- Are you operating primarily in Utah? → Utah
- Is your annual revenue under $1M? → Utah
- Do you want to minimize cost and complexity? → Utah
If you checked more boxes in the Utah column, form in Utah. It really is that simple.
Download our complete LLC formation checklist to make sure you don’t miss any steps.
What About Wyoming? Nevada? Other “Business-Friendly” States?
You’ll see articles touting Wyoming and Nevada as alternatives. The same logic applies: if you’re not physically located there and not operating there, you’re just adding a layer of registration, cost, and complexity for marginal benefits. There are situations where it can make sense and Wyoming, for example, can definitely save you cash over going to Delaware.
What About Charging Orders?
This is a great question. For multi-member LLCs, each state provides similar statutory protection giving creditors of owners of LLCs the right only to the distributions of an LLC, not to the membership interests. So this means that if your partner is sued, you aren’t at risk of becoming partners with your partner’s creditors. However, in Utah, if you run a single-member LLC, a creditor with a charging order on your LLC can foreclose on your interests and become a member, taking your ownership in the business from you. This is potentially a reason to avoid Utah, but some make it out to be a bigger issue than it probably is. A creditor with a charging order can still take all distributions that you would otherwise be entitled to receive, so you still effectively lose your economic rights until the creditor is repaid. LLCs are designed to protect the owner from the creditors of the LLC, not the LLC from the creditors of the owner. That is another topic for another day.
The Bottom Line
Delaware’s reputation is earned — but it’s earned primarily by corporations raising institutional capital, not by LLCs serving local markets. The “just form in Delaware” advice is not wrong in the abstract, but it’s wrong for the situation.
If you make a mistake, you can convert from a Utah LLC to Delaware later, so just get started. Get professional advice if you can.
Need help deciding? Grab our free LLC formation checklist or reach out to Black Hill Law. We help Utah entrepreneurs form the right entity, in the right state, without overpaying for advice they don’t need.