How to Form a Professional Corporation in Delaware


Steve Goldstein
Steve Goldstein
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Steve Goldstein runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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Form a Professional Corporation in Delaware

Are you considering starting a professional corporation in Delaware? Congratulations! Establishing a professional corporation is an excellent choice for entrepreneurs and professionals alike who seek to benefit from a business structure that provides limited liability protection, tax advantages, and enhanced credibility. However, navigating the process of forming a professional corporation in Delaware can be daunting.

This article aims to provide a comprehensive guide on how to form a professional corporation in Delaware, covering everything from understanding the basics of this business entity to the essential steps and requirements you must comply with to launch your new venture successfully. Let’s dive in and explore the ins and outs of forming a professional corporation in Delaware!

What is a Professional Corporation in Delaware?

A professional service corporation (PSC), sometimes called a professional corporation (abbreviated as PC), is a type of organization authorized by state law to allow owners of particularly licensed professions in Delaware. The owner of a professional corporation is responsible for their own negligence or misconduct, but they are not held personally accountable for the actions of other owners. PC or P.C. is a regularly used abbreviation to identify professional corporations.

PCs and LLCs provide personal asset protection; that is, the personal assets are free from business debts. However, they do not have similar tax benefits. There is no secret formula as to which type of business structure is better than the other. It solely depends on the requirements of your business. However, forming an LLC is easier than setting up a PC in Delaware.

– LLCBuddy Editorial Team

Unlike other types of corporations, owners of Professional Corporations get two types of citizenship. One is where they incorporated the corporation, and the other is where they conduct the business. This benefit is not available for other types of corporations. You can form a free LLC in Delaware if you hire a professional service that provides LLC formation at $0.

How to Form a Professional Corporation in Delaware

To form a Professional Corporation for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Registered Agent, filing the Certificate of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Delaware, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

  • Doctors
  • Architects
  • Engineers
  • Accountants
  • Lawyers and others

You should be qualified to have a license to provide your service. In most cases, once you have graduated with your studies, passed the exam, and got your license, you may now form a professional corporation. However, if you work in an industry that doesn’t offer a license or professional certification, you should consider forming a corporation or limited liability company.

Step 2: Name your Professional Corporation in Delaware

After you have decided on the idea to form a professional corporation in Delaware, deciding the name for your corporation is significant. There is a complete guide on Delaware LLC name guidelines for you to have a proper business name. Here are some regulations you must follow while naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • No confusion with a government entity name.
  • A unique name is needed with no match
  • Limit of restricted words that need a license.

In Delaware, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 120 days. To keep the name, you must file a name reservation application with Delaware Secretary of State.

A professional corporation, professional association, service corporation, or professional service corporation must be present in the name if it doesn’t already. You might opt to register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire to run a clinic or law firm.

Step 3: Choose the Delaware Registered Agent

The next step in forming a professional corporation is hiring the Delaware Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Delaware. Forming a professional corporation for your service will be easier if you have Registered Agent in Delaware.

Alternatively, you can serve as your own Delaware Registered Agent if you have the time. However, you must stay compliant to avoid missing any important documents from Delaware.

Step 4: File the Certificate of Incorporation in Delaware

After you hire a Delaware Registered Agent to form a professional corporation, the next step is to file the Delaware Certificate of Incorporation. In writing the Certificate of Incorporation, the business name, owner’s contact information, corporation address, and Registered Agent contact information should be written. You should also include the names of all co-owners. All owners have to prove they have the proper license to practice the specific profession they intend to.

Filing the Certificate of Incorporation in Delaware may be done with three ways, online, by mail and fax. The Certificate of Incorporation fee may vary from different states. However, in Delaware, it costs $89 for filing online, fax and by mail. Get the online form from Secretary of State, fill it up, and submit. Don’t refresh the page during the process. It will erase everything. . For offline filing, Send the form by mail to Delaware Division of Corporations, 401 Federal Street, Suite 4 Dover, DE 19901 or Fax it to 302-739-3812.

Step 5: Write an Operating Agreement in Delaware

An operating agreement is a document that contains all of your company’s organizational details. It is not required to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The Delaware operating agreement includes information like-

  1. About Business
  2. Members and management
  3. Capital contribution
  4. Profit Distribution
  5. Change of membership
  6. Dissolution

Step 6: Designate the PC Board of Directors in Delaware

The next step is to appoint the initial board of directors in your PC in Delaware. All the initial directors must submit their details to the owner. The owner must keep the records and submit them in accordance with the Delaware SOS. When writing the By-laws, as a shareholder and owner, you must make sure there is a point mentioned about appointing a new director later.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

In creating corporate bylaws, you should include the following on how the decisions will be made.

  • The responsibilities are given to each officer.
  • How will judgments in business be made?
  • Where and when are the annual shareholder meetings?
  • The minimum number of shareholders required for decision-making.
  • Location and timing of dividend payments.

Step 8: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 9: Request an EIN in Delaware

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your professional corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Delaware can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in a number of ways. It will give your professional corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 10: Open a Bank Account and Prepare for Taxes

Once you have filed and received your Employer Identification Number, you should open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in Delaware might be simpler by having a US business bank account because it boosts your company’s legitimacy and liquidity. For firms other than sole proprietorships, most banks demand an EIN to create a business bank account. Also, keeping separate finances helps you avoid combining personal and professional finances. Also, having an EIN makes tax preparation easier. With a professional corporation, you can anticipate paying employment and corporate taxes.

Step 11: Get a Business License in Delaware

Before your professional corporation operates in Delaware, you need to have a business license first. A business license is a formal document issued by the state government agency that allows you to operate your business in the geographic region that that agency governs. In Delaware, business license and permit costs depend on the business’s nature and type. You must check with the local authorities if any special licenses or city-based permits are needed.

Step 12: File Your Taxes in Delaware

Finally, you are down to the last step. After getting a business license and being ready to operate, do not forget to file your taxes first. You should start paying taxes quarterly as soon as possible to avoid a large tax bill. Each state has different tax requirements. Go through the Delaware classification of taxes for the taxes an LLC in Delaware has to pay.

Important Information

Maintaining Professional and Business License in Delaware

Now that you have established your professional corporation, you must maintain or renew your professional license every now and then. Even if your business is established but you don’t have a valid license to operate, your business is irrelevant. And, even if your professional license is still valid for a year or two, but your business license is already expired, it is still irrelevant.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Filing an Annual Report in Delaware

In Delaware, you will be required to submit a report each year. The owners’ and Registered Agent’s names and contact details are listed in the annual report. Also, it should include all of your yearly financial activity. You must submit one yearly in Delaware, and you can do it yourself or hire someone else to handle it. Everything must be precise and up to date.

Advantages of Forming a Professional Corporation in Delaware

A professional corporation takes a lot of time to process and pursue. However, with the help of the Delaware Registered Agent, everything will become easier. In fact, there are advantages that will help you form a professional corporation in Delaware.

  1. Limited Liability: The biggest advantage of setting up a professional corporation is that the owners are not held personally responsible for the debts and obligations of the company. This indicates that only the company’s assets will be confiscated to settle claims and creditors if the business is sued or declares bankruptcy. Additionally, this protection exempts corporate owners from being held accountable for other owners’ reckless or criminally negligent acts.
  1. Tax Deductions: Similar company expenses, such as employee fringe benefits, startup and operating costs, and equipment purchases, can be written off by professional companies in the same ways they can be for other kinds of firms. However, there are several tax deductions professional corporations can take advantage of that other types of businesses can’t. For example, the salaries and bonuses paid to owners and employees are tax-deductible.
  1. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

What is a Professional Corporation in Delaware?
A Professional Corporation in Delaware is a business entity that provides professional services, such as accounting, medicine, law, or architecture, and is organized and operated under Delaware law.
What are the benefits of forming a Professional Corporation in Delaware?
Forming a Professional Corporation in Delaware offers several advantages, including limited liability protection, flexibility in management and operations, tax benefits, and access to Delaware’s corporate and legal services.
What is the formation process for a Professional Corporation in Delaware?
The formation process for a Professional Corporation in Delaware is relatively straightforward. First, the business must file articles of incorporation with the Delaware Division of Corporations. Second, the business must adhere to all applicable Delaware business laws. Finally, the business must obtain any professional licenses or permits necessary to provide its services.
How do I register a Professional Corporation in Delaware?
To register a Professional Corporation in Delaware, business owners must file articles of incorporation with the Delaware Division of Corporations. The articles must include the corporate name, registered agent name and address, and duration of the corporation. The business must also pay a filing fee.
Do I need to be a resident of Delaware to form a Professional Corporation in Delaware?
No, you do not need to be a resident of Delaware to form a Professional Corporation in Delaware. However, the business must appoint a registered agent in Delaware who is authorized to accept legal documents on behalf of the company.
Is there a minimum capital requirement for a Professional Corporation in Delaware?
No, there is no minimum capital requirement for a Professional Corporation in Delaware. However, the business must maintain adequate capital to meet its obligations and remain in good standing with the Delaware Division of Corporations.
What taxes do I need to pay as a Professional Corporation in Delaware?
A Professional Corporation in Delaware is subject to Delaware corporate income tax, Delaware franchise tax, and the Delaware unincorporated business tax. The business may also be subject to federal and local taxes, depending on the type of services provided.
Do I need to file a separate tax return for a Professional Corporation in Delaware?
Yes, a Professional Corporation in Delaware must file a separate tax return with the Delaware Division of Revenue. The business may also need to file a federal corporate tax return, depending on its services and income.
What are the reporting requirements for a Professional Corporation in Delaware?
A Professional Corporation in Delaware must file an annual report with the Delaware Division of Corporations. The annual report must include the name and address of the company, its registered agent, and any other relevant information. The business must also file its taxes on time and adhere to any other applicable laws.
How do I form a Professional Corporation in Delaware?
To form a professional corporation in Delaware, you must first file Articles of Incorporation with the Delaware Division of Corporations. The articles must include the name of the corporation, the number of shares it is authorized to issue, the purpose of the corporation, the name and address of the registered agent, and the name and address of the incorporator.
What are the requirements for a Professional Corporation in Delaware?
In order to form a professional corporation in Delaware, there are certain requirements that must be met. These include filing Articles of Incorporation with the Delaware Division of Corporations, appointing a registered agent in Delaware, obtaining a certificate of good standing, and obtaining a professional license from the applicable licensing board.
Is Delaware a good place to form a Professional Corporation?
Yes, Delaware is an excellent place to form a professional corporation. The state offers a number of benefits, including limited liability protection, flexible corporate structure, easy to maintain, and favorable tax treatment. Additionally, Delaware is a business-friendly state and has a reputation for providing a high level of corporate governance and legal protection.
What are the steps for forming a Professional Corporation in Delaware?
The steps for forming a Professional Corporation in Delaware include choosing a business name, selecting a registered agent, filing the Certificate of Formation, and obtaining any required licenses or permits.
Are there any special requirements for Professional Corporations in Delaware?
Yes, Professional Corporations in Delaware must include the words “Professional Corporation” or the abbreviation “P.C.” in their name, and must obtain a Certificate of Authorization from the Delaware Department of State.
What is the Delaware annual franchise tax?
Delaware’s annual franchise tax is $175 for Professional Corporations.
Is a Delaware Professional Corporation required to have a registered agent?
Yes, all Delaware corporations are required to have a registered agent located in Delaware to receive legal documents.
What is the process for amending a Delaware Professional Corporation?
The process for amending a Delaware Professional Corporation includes filing an Amendment to the Certificate of Formation with the Delaware Department of State.
Is a Professional Corporation in Delaware required to hold annual meetings?
Yes, Professional Corporations in Delaware are required to hold annual shareholder and director meetings.
Is there a filing fee for forming a Professional Corporation in Delaware?
Yes, the filing fee for forming a Professional Corporation in Delaware is $90.
Is there a fee for obtaining a Certificate of Authorization?
Yes, the fee for obtaining a Certificate of Authorization from the Delaware Department of State is $75.
What is the Delaware corporate income tax rate?
Delaware’s corporate income tax rate is 8.7% for Professional Corporations.
Is a Professional Corporation in Delaware required to maintain corporate records?
Yes, Professional Corporations in Delaware are required to maintain corporate records such as meeting minutes, resolutions, and financial statements.
What is the timeline for forming a Professional Corporation in Delaware?
The timeline for forming a Professional Corporation in Delaware is typically within 7-10 business days.
Are there any other taxes or fees associated with forming a Professional Corporation in Delaware?
Yes, there may be additional taxes or fees associated with forming a Professional Corporation in Delaware such as an initial franchise tax and an annual report fee.
Does a Delaware Professional Corporation need to file an annual report?
Yes, all Delaware corporations are required to file an annual report with the Delaware Department of State.
What is the fee for filing an annual report?
The fee for filing an annual report with the Delaware Department of State is $50.
Are there any restrictions on the type of business a Professional Corporation in Delaware can conduct?
Yes, Professional Corporations in Delaware are limited to providing professional services such as accounting, engineering, law, and medical services.
Are there any restrictions on who can own a Professional Corporation in Delaware?
Yes, Professional Corporations in Delaware must have at least one shareholder and may not have more than 30 shareholders.
Are there any other forms that must be filed with the Delaware Department of State when forming a Professional Corporation?
Yes, Professional Corporations in Delaware may need to file additional documents such as a Statement of Authority and a Declaration of Resident Agent.
Why form a Professional Corporation in Delaware?
Delaware is one of the most business-friendly states in the US, with a strong legal system and favorable tax laws that make it an attractive choice for many professionals to form their Professional Corporation.
What are the requirements for forming a Professional Corporation in Delaware?
Professional Corporations must be organized under the laws of Delaware, with at least one director who is a professional and at least one shareholder who is a professional. A Certificate of Incorporation must be filed with the Delaware Secretary of State.
What are the advantages of forming a Professional Corporation in Delaware?
Delaware Professional Corporations provide liability protection for its professional members, an easy filing process and a favorable tax structure. Additionally, a Delaware Professional Corporation can take advantage of the state’s strong business laws and legal system.
Are there any special requirements for a Delaware Professional Corporation?
Yes, a Delaware Professional Corporation must adhere to certain ongoing filing requirements such as annual reports and tax filings. Additionally, there are certain restrictions on the professional services that can be offered.

Also Read

Why Delaware Professional Corporation is So Important

A professional corporation, sometimes referred to as a P.C., is a specific type of corporation that is formed by individuals who provide personal services in certain industries where a licensure requirement exists. One of the key reasons why Delaware professional corporation is so important is because it affords professionals many benefits that other business structures, such as sole proprietorships or partnerships, may not offer.

One of the primary advantages of forming a professional corporation in Delaware is the liability protection it provides. Like any corporation, a professional corporation is a separate legal entity from its owners. This means that if the corporation incurs debts or faces legal liabilities, the personal assets of the professionals are generally protected from being used to satisfy those obligations. Maintaining this separation between business and personal assets is crucial for professionals who want to shield themselves from financial risks that may arise as a result of their practice.

Another benefit of establishing a Delaware professional corporation is the potential for tax savings. Professional corporations offer various tax planning opportunities that can help professionals minimize their tax liabilities. For instance, owners of professional corporations can take advantage of special tax deductions and retirement plans that may not be available to other types of business structures. By carefully structuring their corporations, professionals can potentially reduce their tax burden and retain more of their hard-earned income.

Furthermore, a professional corporation can also enhance the credibility and professionalism of a practice. Clients and business partners may perceive a professional corporation as a more established and trustworthy entity compared to a sole proprietorship or partnership. This perception can help professionals attract new clients, secure lucrative contracts, and build lasting relationships within their industries.

In addition to liability protection, tax advantages, and enhanced credibility, a professional corporation offers professionals greater flexibility in their business operations. Owners of professional corporations have the ability to structure their corporations in a way that aligns with their individual goals and preferences. They can choose to reinvest profits back into the business, distribute dividends to shareholders, or pursue growth opportunities through mergers and acquisitions. The flexibility afforded by a professional corporation enables professionals to adapt to changing market conditions and make strategic decisions that drive long-term success.

In conclusion, the Delaware professional corporation is a valuable business structure for professionals seeking to establish a strong foundation for their practices. With its liability protection, tax savings, credibility, and flexibility, a professional corporation offers a myriad of benefits that can help professionals navigate the complexities of their industries and achieve their business objectives. Whether you are a lawyer, doctor, accountant, or any other licensed professional, forming a professional corporation in Delaware may be a smart decision that propels your practice to new heights of success.

Conclusion

In forming a professional corporation in Delaware, having someone to help you build it is not necessary but suggestible. Even though it is easy because of the listed benefits and advantages above, forming your group of professional individuals will make it somehow successful. Just make sure to be guided by the steps and ensure that every one of the details and records is accurate and precise. And if you have any questions, share them in the comment section below.

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