What is an LLC and why should I care?
The incorporation process creates a business entity that provides a protective layer between your personal assets and those of your business. There are a number of forms of incorporation, each with its own advantages and disadvantages, but the most common among small online business is the Limited Liability Company (LLC).
An LLC offers the liability protection of a corporation: attorneys and debt holders, in most cases, have to come after the business, not you. In addition, it provides the "pass-through" tax simplicities of a sole proprietorship or partnership, meaning that you avoid being taxed both at the corporate level and for the income you personally take from the LLC.
(No, you don't have to live there!)
Delaware charges a one-time $90 application fee and a $250 annual fee to maintain your LLC - not out of line with similar costs in other states. The only other requirement is that you retain a "registered agent" in-state - someone who's physically present to accept legal documents delivered to your business and forward them to you.
Forming a Delaware LLC is very easy because a whole industry has sprung up in support of the incorporation process, and many of the firms in this industry specialize in creating Delaware companies, offering various levels of package deals to make the process simple and cost effective, handling most of paperwork for you. The biggest and best known of these is The Company Corporation, but there are a myriad of others as well. Most will offer to provide registered agency for an annual fee, but it might be worthwhile to shop around for deals on this service. The state maintains a list of registered agents here.
As with any legal process, be sure to consult with an expert about your best options for forming your business - but the Delaware LLC is an excellent option worth exploring!