By Jake Lawson, LLC Formation Strategist
Here’s something that will shock most entrepreneurs researching Delaware business formation: a Delaware general partnership costs more than a Delaware LLC and provides zero additional benefits.
After helping 300+ clients navigate Delaware business formation, I can count on one hand the number of times I’ve recommended a general partnership. The math simply doesn’t work in Delaware’s favor.
The Brutal Reality:
- Delaware General Partnership: $200 filing fee + $300 annual tax + unlimited personal liability
- Delaware LLC: $110 filing fee + $300 annual tax + personal asset protection
You’re paying $90 extra to lose legal protections that could save you hundreds of thousands of dollars. This makes Delaware one of the worst states for general partnership formation.
Let me explain why Delaware’s partnership structure is such a poor choice—and what you should do instead.
Why Delaware General Partnerships Make No Financial Sense
Most states don’t require formal registration for general partnerships. You shake hands, agree to do business together, and you’re legally a partnership. Delaware decided to be different—and expensive.
Delaware’s Unique Partnership Requirements
Mandatory State Filing: Statement of Partnership Existence ($200) Annual Tax: $300 per year (same as LLCs) Business License: Required from Division of Revenue DBA Filing: If using trade name (additional county fees)
Compare to Delaware LLC Formation: State Filing: Certificate of Formation ($110) Annual Tax: $300 per year
Registered Agent: Required (can be yourself if Delaware resident) Business License: Same requirements as partnerships
The Math: You save $90 upfront by choosing an LLC, plus gain unlimited liability protection and professional credibility.
Delaware Business Structure Comparison
Let me break down your Delaware options so you understand what you’re really choosing:
Sole Proprietorship (1 Owner)
- Formation Cost: $0 (no state filing required)
- Annual Costs: Business license fees only
- Liability: Unlimited personal liability
- Best For: Testing business ideas with minimal investment
General Partnership (2+ Owners)
- Formation Cost: $200 (Statement of Partnership Existence)
- Annual Costs: $300 Delaware tax + business license fees
- Liability: Unlimited personal liability for all partners
- Best For: Honestly? I can’t think of a good use case
Delaware LLC (1+ Owners)
- Formation Cost: $110 (Certificate of Formation)
- Annual Costs: $300 Delaware tax + registered agent (if needed)
- Liability: Limited personal liability protection
- Best For: 95% of Delaware business formations
Delaware Corporation (1+ Owners)
- Formation Cost: $110 (Certificate of Incorporation)
- Annual Costs: $300 Delaware tax + registered agent + compliance costs
- Liability: Strong liability protection + ability to raise capital
- Best For: High-growth businesses seeking investment
Jake’s Recommendation: Unless you’re planning to go public or raise venture capital, choose a Delaware LLC. It’s cheaper than a partnership and provides crucial liability protection.
Delaware General Partnership Formation Process
Despite my strong recommendation against partnerships, here’s the complete formation process for those who insist:
Step 1: Business Planning and Partner Selection
Choose Partners Carefully In Delaware partnerships, each partner can legally bind the entire partnership to contracts and obligations. One partner’s poor decision becomes everyone’s personal liability.
Essential Planning Elements:
- Partner Vetting: Credit history, business experience, decision-making style
- Ownership Structure: Capital contributions and profit/loss allocation
- Management Roles: Who handles what business functions
- Exit Strategy: How partners can withdraw or sell their interests
Step 2: Create a Comprehensive Partnership Agreement
Delaware Code Section 15-103 governs partnership agreements. While not required by law, a detailed partnership agreement is essential for business operations and banking.
Critical Agreement Elements:
- Partner names, addresses, and contact information
- Business purpose and scope of operations
- Initial capital contributions and future funding requirements
- Ownership percentages and profit/loss allocation
- Management authority and decision-making processes
- Partner compensation and distribution policies
- Dispute resolution procedures
- Partner withdrawal and death provisions
- Business dissolution procedures
Jake’s Agreement Advice: Have a Delaware business attorney draft your partnership agreement. Generic templates don’t address Delaware-specific laws and could leave you vulnerable.
Step 3: File Statement of Partnership Existence
Unlike most states, Delaware requires formal partnership registration with the Secretary of State.
Filing Options:
Online Filing (Recommended):
- Create account at Delaware One Stop
- Select “Statement of Partnership Existence”
- Complete business information
- Pay $200 filing fee by credit card
- Receive filed documents electronically
Mail Filing:
- Download Statement of Partnership Existence form
- Complete all required information
- Include $200 filing fee (check or money order)
- Include Filing Memo Cover Sheet
- Mail to Delaware Division of Corporations
- Allow 7-10 business days for processing
Required Information:
- Partnership name (must be distinguishable from existing Delaware entities)
- Principal place of business
- Delaware registered office address (if different from principal office)
- General nature of business
- Partner names and addresses
Step 4: Register Trade Name (DBA) If Needed
If your partnership will operate under a name different from your legal partnership name, you need a Delaware Trade Name registration.
Delaware DBA Process:
- Determine the county where you’ll conduct business
- Download Registration of Trade Name Certificate
- Complete form with trade name and partnership information
- Pay $25 fee per trade name to county prothonotary
- File in each county where you’ll do business
County Filing Locations:
- New Castle County: Wilmington (most Delaware businesses)
- Kent County: Dover
- Sussex County: Georgetown
Step 5: Obtain Federal Tax ID Number (EIN)
All Delaware general partnerships must obtain an EIN from the IRS for tax reporting purposes.
EIN Application Process:
- Visit IRS.gov and access online EIN application
- Select “Partnership” as entity type
- Provide partnership and partner information
- Receive EIN immediately upon completion
- Use EIN for banking, taxes, and business transactions
Required Information:
- Partnership legal name and trade name (if applicable)
- Principal business address
- Responsible party (partner) name and SSN
- Business start date and employee count
- Banking and tax purposes for EIN
Step 6: Obtain Delaware Business License
Delaware requires all general partnerships operating in the state to obtain a business license from the Division of Revenue.
License Application Process:
- Determine your business activity and NAICS code
- Complete Delaware business license application
- Pay applicable license fees (varies by business type)
- Submit required documentation
- Renew annually as required
Additional License Considerations:
- Industry-Specific Licenses: Professional services, food service, construction
- Local Permits: City/county business licenses and zoning compliance
- Federal Licenses: If required for your industry (transportation, broadcasting, etc.)
Step 7: Partnership Maintenance and Compliance
Annual Delaware Tax Payment Delaware general partnerships must pay $300 annual tax to the Division of Revenue. This is due by June 1st each year.
Record Keeping Requirements While Delaware doesn’t specify mandatory partnership records, maintain:
- Partnership agreement and amendments
- Partner meeting minutes and resolutions
- Financial statements and tax returns (3 years)
- Capital contribution and distribution records
- Business licenses and permits
Federal Tax Compliance
- File Form 1065 Partnership Return annually
- Provide Schedule K-1 to each partner
- Partners report their share on personal tax returns
- Pay estimated taxes quarterly if required
The Hidden Costs of Delaware General Partnerships
Beyond the obvious filing fees, Delaware partnerships create expensive hidden costs:
Liability Risk Examples
Scenario 1: Partner A signs a 5-year equipment lease without consulting other partners. The partnership defaults, and all partners’ personal assets are at risk for the remaining lease obligations.
Scenario 2: A customer is injured at your Delaware business location. Even if Partner B was solely responsible for safety protocols, all partners face unlimited personal liability for damages.
Scenario 3: Partner C makes unauthorized purchases on behalf of the partnership. When the business can’t pay, creditors can pursue every partner’s personal assets.
Professional Credibility Issues
Banking Challenges:
- Delaware banks often don’t understand general partnership structures
- More complex account opening requirements
- Limited business credit opportunities
- Personal guarantees required from all partners
Business Relationships:
- Clients may question business legitimacy
- Vendors may require additional documentation
- More complex contract negotiations
- Limited legal protections in disputes
Growth Limitations:
- Difficulty attracting investors
- Cannot issue equity interests
- Challenges in business sale or acquisition
- Limited succession planning options
Delaware LLC: The Superior Alternative
For just $110 (vs. $200 for a partnership), a Delaware LLC provides everything a general partnership offers plus crucial additional benefits:
Delaware LLC Advantages
Cost Savings:
- $90 less in formation costs
- Same $300 annual tax
- No additional compliance costs
Liability Protection:
- Personal assets protected from business debts
- Limited liability for member actions
- Protection from other members’ personal creditors
Tax Flexibility:
- Default pass-through taxation (same as partnership)
- Option to elect corporate taxation if beneficial
- Simplified tax compliance and reporting
Professional Credibility:
- Universally understood business structure
- Easier banking and credit applications
- Enhanced client and vendor confidence
- Clear legal framework for operations
Operational Flexibility:
- Flexible management structure options
- Easy to add or remove members
- Clear ownership transfer procedures
- Professional succession planning
Delaware LLC Formation Process
- Choose LLC Name: Must include “LLC” or “Limited Liability Company”
- File Certificate of Formation: $110 to Delaware Division of Corporations
- Appoint Registered Agent: Delaware address for legal documents
- Create Operating Agreement: Define management and ownership structure
- Obtain EIN: Federal tax identification number
- Get Business License: Same requirements as partnerships
Processing Time: 5-7 business days for standard processing Total Investment: $110 state fee + registered agent (if needed)
When General Partnerships Might Make Sense (Extremely Rare)
In 15 years of Delaware business formation, I can think of only a few scenarios where a general partnership might be considered:
1. Very Short-Term Joint Ventures
- Project duration under 3 months
- Minimal financial investment
- Existing comprehensive insurance coverage
- Clear dissolution date and process
2. Family Businesses with Extensive External Protection
- Immediate family members as partners
- Comprehensive business insurance policies
- Existing asset protection structures (trusts, etc.)
- Plans to convert to LLC within 6 months
3. Professional Service Partnerships with Specific Legal Requirements
- Certain licensed professions with partnership requirements
- Existing professional liability insurance
- State licensing board mandates
- Plans to convert to appropriate professional entity
Even in these rare cases, I typically recommend choosing a Delaware LLC for the additional $90 savings and liability protection.
International Entrepreneurs and Delaware Partnerships
Many international entrepreneurs consider Delaware for its business-friendly laws and court system. However, general partnerships create additional complications for non-U.S. residents:
International Partnership Challenges
Tax Complexity:
- Foreign partner tax obligations
- Potential double taxation issues
- Complex reporting requirements
- State tax implications
Banking Difficulties:
- U.S. banks reluctant to serve partnerships with foreign partners
- Enhanced due diligence requirements
- Limited banking product availability
- Complex compliance procedures
Legal Protections:
- Unlimited liability extends to foreign assets
- Cross-border collection challenges
- Complex jurisdictional issues
- Limited asset protection strategies
Better International Options:
- Delaware LLC with proper tax planning
- Delaware Corporation for investment-seeking businesses
- Consider specialized services for international entrepreneurs
Converting from Partnership to LLC
If you’ve already formed a Delaware general partnership, conversion to an LLC is possible but complex:
Conversion Process
- File Delaware LLC Certificate of Formation
- Obtain new EIN for the LLC
- Transfer partnership assets to LLC
- Update business licenses and permits
- Notify banks, vendors, and clients
- File final partnership tax returns
- Begin LLC tax compliance
Tax Implications:
- Potential taxable event for asset transfers
- Need for professional tax guidance
- Timing considerations for conversion
- Impact on depreciation and basis
Costs:
- $110 LLC filing fee
- Legal and accounting fees for conversion
- Time and administrative complexity
- Potential business disruption
Jake’s Conversion Advice: Plan conversions carefully with Delaware tax professionals. The process is complex but usually worthwhile for liability protection.
Delaware Partnership Dissolution
General partnerships dissolve automatically in several situations:
- Partner death or bankruptcy
- Partner withdrawal
- Mutual agreement to dissolve
- Court-ordered dissolution
- Business purpose completion
Dissolution Process
- Partner Agreement: Determine dissolution triggers and procedures
- Wind Down Operations: Complete ongoing business obligations
- Settle Debts: Pay all partnership liabilities
- Distribute Assets: Allocate remaining assets per partnership agreement
- File Final Tax Returns: Complete federal and Delaware tax obligations
- Cancel Licenses: Terminate business licenses and permits
- Close Bank Accounts: Transfer remaining funds per agreement
Liability Concerns: Partners remain personally liable for partnership debts even after dissolution until all obligations are satisfied.
Jake’s Final Recommendation: Choose Delaware LLC
After analyzing hundreds of Delaware business formations, my advice is unequivocal: skip the general partnership and form a Delaware LLC.
The Economics Are Clear:
- Delaware LLC: $110 formation + $300 annual + liability protection
- Delaware Partnership: $200 formation + $300 annual + unlimited liability
The Risk Analysis Is Obvious:
- One lawsuit could cost you everything you own
- One partner’s mistake becomes everyone’s problem
- Limited business growth and credibility opportunities
The Success Stories Speak:
Every client I’ve helped convert from partnership to LLC wishes they’d started with an LLC from day one.
Your Next Steps
If You’re Determined to Form a Delaware Partnership:
- Hire a Delaware business attorney to draft your partnership agreement
- Obtain comprehensive business and professional liability insurance
- Establish clear financial controls and partner oversight
- Plan to convert to LLC within 12 months
If You Want My Recommended Path (Delaware LLC):
- Use our Delaware LLC formation guide for detailed instructions
- Consider professional formation services for assistance
- Focus on building your business instead of managing liability risks
For Either Choice:
- Consult with a Delaware CPA about tax optimization
- Research industry-specific licensing requirements
- Secure appropriate business insurance coverage
- Establish Delaware banking relationships
Delaware Business Formation Services
For Delaware LLC formation (my recommended choice), consider these options:
Budget Option: Northwest Registered Agent – $39 + state fees
- Excellent value and customer service
- Delaware registered agent service included
- No upsells or pressure tactics
Full Service Option: LegalZoom – $149 + state fees
- Comprehensive formation and legal support
- Additional business services available
- Established Delaware presence
Premium Option: Incfile – $149 + state fees
- Specialized Delaware formation expertise
- Additional compliance services
- Strong customer support
DIY Option: File directly with Delaware Division of Corporations
- $110 total cost for LLC formation
- Complete control over the process
- Requires understanding of Delaware requirements
The Bottom Line: The $40-140 difference between DIY and professional services is insignificant compared to the liability protection you gain by choosing an LLC over a partnership.
Jake Lawson has guided over 1,200 entrepreneurs through U.S. business formation, including 300+ Delaware entities. His independent analysis helps founders choose the right structure without sales pressure or hidden agendas.
Ready to form your Delaware business the smart way? Check out our complete Delaware LLC guide or compare Delaware formation services for detailed recommendations.