Understanding the Delaware LLC Structure

At a Glance

• Delaware LLCs are a standard structure for venture funds and SPVs because they are flexible, predictable, and widely understood by investors, lawyers, and administrators.

• Delaware’s Series LLC framework allows a single “master” LLC to host multiple series, making it efficient to spin up many SPVs without forming a new standalone entity each time.

• The state’s Court of Chancery and deep body of corporate case law create more predictable legal outcomes and faster resolution of business disputes.

• Delaware generally does not impose state income tax on LLCs that do not conduct business in the state, which can be advantageous for investment vehicles.

• Sydecar leverages the Delaware Series LLC structure to offer scalable, compliant SPV and fund formation, enabling emerging managers to focus on investing rather than entity mechanics.

Why So Many Investment Vehicles Use Delaware

Most venture SPVs and funds are formed in Delaware, even when:

• The GP and LPs are located in other states, and

• The underlying portfolio companies operate elsewhere.

This is because investment entities generally have greater flexibility in where they form than operating businesses. While traditional businesses often must register and pay taxes in each state where they “do business,” passive investment activity is usually treated differently. As a result, sponsors can choose a jurisdiction based on:

• Legal framework and predictability.

• Administrative ease.

• Cost and scalability for multiple vehicles.

Delaware has become the default for many of these reasons.

Cost and the Series LLC Advantage

On paper, Delaware is not the cheapest state for a single LLC. For example:

• Delaware charges a flat annual franchise tax for LLCs.

• Some other states may have lower upfront fees.

However, for managers planning to form multiple SPVs or vehicles, Delaware is often more cost-effective due to its Series LLC structure.

Key points about Delaware Series LLCs:

• You form a single master LLC.

• Within that master, you can create multiple separate series.

• Each series can:

  • Enter into contracts.

  • Hold assets.

  • Be treated as “bankruptcy remote” from other series when properly structured.

Crucially, in Delaware:

• You do not file a new Certificate of Formation for each series.

• The master LLC’s operating agreement can authorize the creation of series without separate public filings for each one.

Compared with states that require a separate filing, fee, and operating agreement for each SPV, this approach:

• Reduces administrative overhead.

• Scales well for managers running many SPVs.

• Keeps the overall structure manageable while preserving separation between vehicles.

Formation: Simple and Business-Friendly

Delaware has streamlined the process for forming LLCs, including Series LLCs.

Typical requirements include:

• Registered agent: A Delaware-based agent to receive official notices and service of process.

• Certificate of Formation: A short filing with the Delaware Division of Corporations.

• Operating agreement: Not required to be filed with the state but strongly recommended to govern internal arrangements and, in a Series LLC, to clearly define series.

Delaware’s administrative practices are also designed around business users:

• Filings are generally processed quickly.

• Extended office hours and expedited services are available through the Division of Corporations.

For fund managers and SPV sponsors, this reduces friction in launching new vehicles on a predictable timeline.

Tax Considerations for Delaware LLCs

From a state tax perspective:

• Delaware generally does not impose state income tax on LLCs that do not conduct business in Delaware.

• Many investment vehicles are treated as pass-through entities for federal income tax purposes, with income and losses reported by their members (LPs).

Because passive investment activity is typically not treated as “doing business” in Delaware:

• Many investment LLCs are not required to register for Delaware income tax or obtain a Delaware business license.

Of course, managers and LPs still need to consider:

• Federal tax obligations.

• Tax rules in the investor’s home jurisdiction or other relevant states.

Proper tax analysis is essential, but Delaware’s approach generally makes it a neutral and efficient home for investment entities.

Legal Framework and the Court of Chancery

Delaware’s legal system is another major reason it has become the default jurisdiction for U.S. corporate and fund structures.

Court of Chancery

Delaware’s Court of Chancery is a specialized business court that:

• Handles disputes involving corporate and business entities.

• Uses judges with deep expertise in corporate and entity law (no juries).

• Is known for relatively predictable and efficient resolution of commercial disputes.

Robust Case Law

Because so many entities are formed in Delaware:

• There is a significant body of case law addressing governance, fiduciary duties, and member and manager rights.

• Parties can often look to prior cases to anticipate how courts might interpret key issues.

In general, Delaware courts:

• Respect decisions made by managers and fiduciaries when they can demonstrate they acted in the best interests of the entity and its members, and

• Provide clear frameworks around duties and standards of conduct.

For fund managers, this legal environment supports:

• Clarity around governance in the LLC agreement.

• Confidence that disputes, if they arise, will be interpreted against a well-established legal backdrop.

How Sydecar Uses the Delaware Series LLC

Sydecar makes it simple and efficient for venture fund and syndicate managers to form SPVs and funds by automating banking, compliance, contracts, and reporting. A key part of that infrastructure is the Delaware Series LLC.

On Sydecar:

• SPVs and certain fund vehicles are formed as series under a Delaware master LLC, not as isolated, standalone entities each time.

• Each series is treated as a distinct vehicle for:

  • Investor onboarding and ownership.

  • Contracts and cap table interactions.

  • Tax reporting and K-1s.

This approach combines:

• The legal robustness and predictability of Delaware.

• The scalability of the Series LLC framework.

• The operational efficiency of standardized, software-driven formation and admin.

For a deeper dive into how the Series LLC works specifically in the SPV context, see our related guide, Understanding the Series LLC.

Summary

Delaware has become the default jurisdiction for many venture funds and SPVs because it offers:

• A flexible LLC and Series LLC framework that scales across many vehicles.

• Business-friendly formation and administration.

• A favorable state tax posture for investment entities that are not doing business in Delaware.

• A mature, predictable legal system through the Court of Chancery and extensive case law.

For emerging managers and syndicate leads, these advantages translate into:

• Faster, more predictable entity formation.

• A structure that grows with their platform as they launch more SPVs or funds.

• A legal and operational foundation that LPs and counterparties understand and trust.

Sydecar builds on this foundation to deliver a turnkey formation and admin experience so managers can focus on sourcing deals, supporting founders, and building durable LP relationships—not on entity paperwork.