How To Form A Corporation In Delaware

Key takeaways

Delaware is a popular choice for incorporation: The state is home to 55% of all publicly traded US businesses and 66% of Fortune 500 companies.
Types of Delaware corporations: General Corporation, Non-Stock or Non-Profit Corporation, Public Benefit Corporations, and Close Corporation.
Select a unique business name: Ensure it is available by conducting a name search and reserve the chosen name online for a fee of $75.
Appoint a registered agent: All corporations in Delaware must have a registered agent with a physical address in the state.
Submit a certificate of incorporation: Provide details such as business name, registered agent, purpose clause, stock information, and incorporator's name and address.
Create corporate bylaws: These outline the corporation's internal management structure and rules for operations, including director elections, meetings, and ownership rights.
Recruit corporate directors: Initial directors are appointed by the incorporator, and future directors are elected by shareholders.
Issue stock shares: While not legally required, corporations are expected to issue stock certificates to shareholders, representing ownership in the company.
Obtain business permits and licenses: Register for required licenses and consult local offices to determine additional licensing needs.
Receive an EIN (Federal Tax Identification Number): A nine-digit number issued by the IRS to identify businesses for taxation purposes.

Introduction

Have you been looking for a place in the United States to launch a company? Consider Delaware, which boasts fantastic tourist spots, no sales tax, and a business-friendly atmosphere. It has clients from different backgrounds. According to research, Delaware incorporates fifty-five percent of all publicly traded businesses of the US. It incorporates sixty-six percent of Fortune 500. In addition, renowned entrepreneurs favor the state because the case law here protects them under all circumstances. For more information, read on.

Types Of Delaware Corporations

General Corporation

The general corporation can go public and raise funds by selling the shares of stock within the corporation. It has a three-tier structure consisting of stakeholders or owners, directors, and officers.

Non-Stock Or Non-Profit Corporation

It is perfect for individuals with a scientific, religious, charitable, or educational purpose. It can apply for 501(c)(3) tax status.

Public Benefit Corporations

They allow entrepreneurs to be socially responsible. They focus on public interest and not just earn profits. Public benefit corporations are permitted to make valuable social contributions.

Close Corporation

It precedes the LLC. Do not opt for close corporations because they were explicitly designed to bypass necessary formalities.

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Steps To Implement When Forming A Corporation In Delaware

The steps you must implement when forming a corporation in Delaware are as follows –

Select A Name For The Business

The first step is deciding on a name for the business. Also, you must be aware of the rules governing how to form an LLC. Go for a unique, memorable, easy to pronounce and understand name, and represent your company with cent percent precision. Next, search the options you have jotted down to find if they are taken already. It is better to have a few alternatives if the name you settled on cannot be registered in Delaware.

Like almost all states, the Division of Corporations in Delaware can conduct the name search on your behalf. It determines if the name you want to register conflicts with any other registered business.

Is the business name available? Well, then, reserve it online. Pay $75, and the name will be held for two months.

Appoint A Registered Agent

All states require people to designate a registered agent for their business, and Delaware is no exception. A registered agent allows the state to interact with you and receives all official and legal documentation related to your business.

The information of the registered agent is publicly available. This causes privacy concerns for entrepreneurs who do not want their contact details online. You can let a third party act as your business’s registered agent.

Submit File Of Incorporation

To form a corporation in Delaware, specifically the one issuing stock, you must file a certificate of incorporation. Please include the below information –

The name of your business. Ensure it includes the following words: company, association, foundation, corporation, club, syndicate, limited, or union.
The name and address of the agent you registered.
The purpose clause
The number of shares for the business and the value assigned to every stock.
The name and address of the incorporator in Delaware’s Division of Corporations.

Create Corporate Bylaws

Corporate bylaws are a comprehensive set of protocols agreed upon and approved by the directors after the corporation is formed. They state the corporation's internal management structure and are drafted by its founder.

Bylaws enable businesses to maintain steadiness in the way it functions and communicates. They encompass how the directors are elected, conferences are organized, and the summary of the duties. Besides management, bylaws specify the details about yearly meetings, ownership rights, and the removal or addition of directors and officers.

Recruit Corporate Directors

The shareholders usually elect the corporation’s board of directors. However, the incorporator (who signed the certificate) will recruit the initial directors through the ‘statement of incorporator’ for new businesses. All incorporators sign the statement. It is stored as a corporate record.

Sanction Issuance Of Stock Shares

Stock represents the ownership in the corporation. When the shareholders buy stock, they buy small pieces of your business. Even though it is not legally mandatory, all corporations are expected to issue stock certifications to the shareholders.

In private companies, you must set a value for every stock. So, a single share could cost around $100 or $10,000, both of which are acceptable.

Obtain Business Permits And Licenses

All industries in Delaware need licensing and registering your business. The annual fees of licenses vary. For the first location, you have to pay $75. Next, obtain separate licenses for separate business operations. Finally, consult the county and local offices to see if you need extra licenses.

Receive The EIN Number

An EIN or the Federal Tax Identification Number is a nine-digit number the IRS issues to identify businesses for taxation. You can think of it as an SSN or social security number. EIN is one of the last steps you must undertake when setting up your business in Delaware.

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‍ALT-Text: Forming A Corporation

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Reasons To Start A Corporation In Delaware

Delaware has attracted corporations throughout the world because it imposes taxes leniently. Registered corporations that do not carry out business in the state do not pay income taxes. In addition, Delaware does not have sales tax, investment income tax, personal property tax, or inheritance tax. However, companies have to pay a franchise tax.

In Delaware, the registered agent's name is disclosed only in association with the business. Other directors and officers involved do not have to reveal their names, ensuring anonymity. Due to a lack of reporting, shareholders, directors, and officers are not obligated to reside in Delaware.

In Delaware, the incorporation process takes only an hour or so. In addition, to simplify things, the law enables a single person to hold multiple positions. This can be accomplished in other states only with LLCs or sole proprietorships.

Rather than a conventional trial system, the corporate proceedings in Delaware are generally sorted out by the Chancery Court – a court with judges specializing in corporate law. Due to this, Delaware has predictable and well-developed legal precedents that benefit corporations. Standard civil lawsuits take years to resolve. However, such cases in Delaware get resolved quickly due to the state's reliance on judges and prioritization of corporate cases.

Disadvantages Of Forming A Corporation In Delaware

The smaller businesses have no tax savings. Even though Delaware does not tax the companies not operating in the state, your native state will probably tax your income. So, you must register your business in your native state by paying a nominal fee and file yearly reports there. This means double spending and effort.

Big corporations can benefit from Delaware’s tax laws through a lengthy procedure of establishing shell companies. Shell companies are primarily responsible for offsetting taxes. However, small business owners cannot handle the costs and complications of these ambiguities.

To register a business in Delaware, you must hire an agent – a substantial expense. In addition, if your business gets involved in a legal disagreement, you need to hire a lawyer licensed in Delaware. It would help if you also traveled frequently to appear in the court.

Tips To Dissolve A Corporation In Delaware

Since you have learned how to form a corporation in Delaware, it is better to know how to dissolve corporations. Remember, corporations get involuntarily dissolved via a court declaration or have their charter annulled for failing to reimburse franchise tax.

Ending your corporation’s existence as a state-registered business, and preventing the claimants and creditors from reaching it, starts with a formal procedure called ‘dissolution.’ You can file for the certificate of dissolution if your corporation has zero assets and has paid the due fees and franchise taxes till the end of the year.

After dissolution, you must take care of winding up. Discharge all liabilities of your corporation, distribute the remaining assets to the investors, and prosecute or defend suits, whether criminal, administrative, or civil. Send a notice to the claimant specifying the aggregate amount. Inform the next owner about the claimant and the contents of the claim.

Is your corporation functioning in other states? If yes, please file forms to terminate the corporation’s right to conduct business everywhere. The form is called ‘termination of registration,’ application of withdrawal,’ ‘certificate of termination of existence,’ etc.

Conclusion

If you plan on forming a corporation in the state, please make crucial decisions regarding capital and governance structure with utmost diligence. The procedure is straightforward. You must choose a name and entity type and file a certificate of incorporation with a registered agent. For around a hundred years, businesses all across the globe have been incorporated in Delaware. This is due to its flexible and progressive corporate statutes, the efficiency and expertise of the judiciary, and compatible state government.

FAQs

How Much Does It Cost To Form A Delaware Corporation?

You must pay at least $89 to incorporate a business in Delaware. This includes corporation fees worth $50, tax filing fees worth $15, and county fees worth $24. To speed up filing or to incorporate large businesses, get prepared to spend more.

Do I Have To Live In Delaware To Form A Corporation There?

No, you do not need to live in Delaware or conduct business there to form a corporation. However, it would help if you appointed a registered agent with a residence in the state to handle lawsuits and other legal paperwork on your corporation’s behalf.

Which Agency Takes Care Of Business Licenses In Delaware?

Delaware One Stop handles licensing. It is the collaborative efforts of several divisions in the state. Some divisions include 'Division of Revenue,' 'Division of Corporation,' and 'Division of Compensation.'

Is Forming A Corporation In Delaware Difficult?

Forming a corporation in Delaware is easy, thanks to the state’s corporate-friendly rules and streamlined legal structures.

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