How to Start a Delaware Corporation


Steve Goldstein
Steve Goldstein
Business Formation Expert
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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Start a Delaware Corporation

When you plan to start a business in Delaware, you must decide on the appropriate structure. Starting a corporation may be more complicated than creating an LLC in Delaware or a sole proprietorship. However, it is not that difficult as well. There are a few guidelines that you should be aware of when it comes to creating Delaware corporation. Starting a corporation involves a legal process, that is, the process of incorporation.

In this article, I will share a step-by-step guide to start a corporation in Delaware. I will also enlighten you on the advantages and disadvantages of having a corporation. Some people consider starting a corporation in Delaware more than other business structures since it has many advantages over other forms.

What is a Corporation in Delaware

In definition, a corporation is a formal organization established by stockholders, shareholders, or other people to make a profit. Like individuals, corporations can undertake contracts, own assets, sue and be sued, pay taxes, limit state and federal taxes, and loan funds from banking institutions.

Common Types of Corporations

Before you start with the process of forming a corporation, you should know what type of corporation you will form. There are several different forms of corporations you can take into consideration, depending on your corporation’s objectives and ownership structure.

  • C-Corporation: C-Corporation is the most known type of incorporation. They have almost all corporate distinguishing characteristics. Profits are distributed to corporate owners who are taxed at an individual level. The corporation is taxed similarly to a business unit.
  • S-Corporation: An S-Corporation is set up similarly to a C-corporation but has different tax implications and owner limits. S-corps have no more than 100 stockholders and are not taxed separately. These business units must also file paperwork with the Internal Revenue Service (IRS) to obtain their status.
  • Non-profit Corporation: Nonprofit businesses are frequently used by religious, educational, and charity institutions to run their operations without making a profit. Thus, a nonprofit corporation is exempt from paying taxes. The nonprofit organization’s gifts, contributions, or cash are reinvested in the company to fund its growth, future endeavors, or operations. Read how to start a nonprofit corp in Delaware to learn about nonprofit corporations.

If you have a small business, it is recommended that you form an LLC instead of a corporation in Delaware. LLCs have more tax benefits than other structures. Besides, LLCs protect your personal assets. However, it is wise to consult a legal expert before you start setting up your business in Delaware.

– LLCBuddy Editorial Team

How to Start a Corporation in Delaware

To start a corporation in Delaware, you must follow the below steps that, include forming a corporation name, appointing a board of directors, filing for Certificate of Incorporation, drafting corporate bylaws, meeting with the board of directors, issuing stocks, creating a shareholders agreement, requesting for an EIN, and getting a license and permit. All these steps are basic ones. It can be changed depending on the type of corporation you form and the nature of your business.

Step 1: Choose a Corporation Name in Delaware

Naming your business is one of the most crucial activities during the startup phase. Your corporation name serves as the foundation for your brand. Legal procedures should be taken into account when choosing your corporation name. Choose a corporation name that will enable you to develop a strong brand identity without being hampered by irrelevant factors.

If you are forming an LLC, there is a complete guide on Delaware LLC name guidelines for a proper LLC name. Here are some guidelines you must follow while naming your corporation in Delaware-

  • Your business name must contain entity identifiers, such as “Incorporated,” “Limited,” “Corporation,” or “Company,” or an abbreviation, such as “Inc.,” “Co.,” or “Ltd.”
  • Exclude any words in your business name, such as “Trust,” “Bank,” “Credit Union,” or “Trustee,” or words related to a government agency, such as “FBI,” “State Department,” or “Treasury.”

Step 2: Board of Directors Initial Appointment

To form a corporation in Delaware, you must appoint an initial board of directors before making them permanent once the corporation is formed. In Delaware, you may appoint at least One board of directors. The initial board of directors is in charge of guiding the overall strategy of your business. The structure, responsibilities, and powers given to a board of directors are determined by the bylaws of a company or organization. So, appointing your corporation’s initial board of directors in Delaware is a big step in forming a corporation.

Step 3: Filing the Certificate of Incorporation in Delaware

After you appoint the initial board of directors in your Delaware corporation, the next step is to write and file a Certificate of Incorporation. In writing, the Delaware Certificate of Incorporation, the corporation name, principal place of business, the purpose of business, Delaware Registered Agent contact information, and the names and addresses of incorporators and/or initial board members, should be written.

Filing a 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.

  • Online Filing: 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.
  • 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 4: Draft Corporate Bylaws

Now you are done filing a Certificate of Incorporation in Delaware, 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 5: 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 6: Issuing Stock in a Corporation

After starting your Delaware corporation, one of the first official corporate actions is issuing stock to the shareholders. Keep track of the number of shares issued to each shareholder and the purchase price. A corporation in Delaware is managed by its shareholders, who contribute to the business in exchange for ownership shares.

Step 7: Draft and Finalize a Shareholders Agreement

Even though drafting and finalizing a shareholders agreement is unnecessary, I suggest you still comply since it will benefit your corporation and its shareholders. A small business’s shareholders enter into a shareholder agreement contract. It establishes how ownership will be handled in unexpected situations, like a shareholder passes away, retires, becomes disabled, or quits the corporation. Early on in the life of your Delaware corporation, signing a shareholders’ agreement can help maintain corporate continuity and prevent future disputes.

Step 8: Request an EIN in Delaware

After everything is in place, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your Delaware 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 EIN online 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 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 corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 9: Get Licenses and Permits for your Corporation in Delaware

Before your corporation operates in Delaware, you must have a business license. A business license is a document issued by a government agency that permits you to operate your business in the geographic region that that agency governs. To legally operate your corporation, you’ll need a business license. Numerous corporate licenses need to be filed and renewed regularly. Check out how to get business licenses and permits in Delaware to know more.

You must also register a DBA name if you intend to conduct business using a name other than your corporation’s legal name. The DBA name is sometimes known as “doing business as” or a “fictitious business name.” Depending on your location, you may need to register the DBA with your state, city, and county. You can skip this step if your business solely uses your legal company name.

Important Information

Paying your Taxes in Delaware

Even if you have established your corporation in Delaware, pay your taxes and keep everything up to date so you won’t pay any penalty. Unlike an LLC, there is a corporate tax that every corporation in Delaware has to pay. On the other hand, they must pay income taxes based on their business income. Some other types of taxes in Delaware are sales tax, franchise tax (not applicable to all the states), and other state taxes.

Cost of Forming a Corporation in Delaware

A filing and annual fee must be paid to form a corporation in Delaware. Without it, your corporation won’t operate. The initial filing fee for a corporation may vary depending on the state. However, in Delaware, it costs $89 for filing online, fax and by mail. The corporation in Delaware also has to file an annual report (though it might not be mandatory, it is recommended to file one). Ensure you comply with all the necessary fees and costs so your corporation will run successfully and smoothly. If, in the future, you make any changes to your corporation, you must file the Delaware Amendment. It costs $194 to file an amendment in Delaware.

Advantages of Starting a Corporation in Delaware

  1. Limited Liability: The biggest advantage of setting up a Delaware corporation is that the shareholders are not personally responsible for the debts of the company. As a result, when you incorporate as a corporation, personal assets like homes, vehicles, and other possessions are prohibited. One of the main benefits of setting up a corporation over a general partnership or sole proprietorship business structure is that neither the business nor the owners are held legally responsible for the obligations of the business, even if it means giving up their personal assets.
  1. Limitless Corporation: The fact that a corporation’s existence is independent of its owners is another significant benefit of incorporation. In other words, a corporation has an endless life and will continue operating normally even if the owner dies or decides to sell their ownership.
  1. Advantages in Tax: The deduction of health insurance premium payments made on behalf of an owner-employee is one of the many financial benefits to which corporations are entitled. Corporations also save on self-employment taxes since their revenue is not subject to workers’ compensation, Social Security, or medical taxes. Tax rates on corporate profits are lower than those on individual income.

FAQs

What are the advantages of incorporating in Delaware?
Incorporating in Delaware offers several advantages including its well-defined corporate laws, its Court of Chancery, and its long history of business-friendly legislation. It is also often the preferred jurisdiction of choice for many large companies, as it has favorable tax laws, a strong business climate, and a strong reputation for protecting corporate assets.
What documents do I need to form a Delaware corporation?
To form a Delaware corporation, you will need to file the Certificate of Incorporation with the Delaware Division of Corporations. You will also need to complete the initial organizational meeting and draft the Articles of Incorporation. Additionally, you will need to appoint a registered agent and obtain a corporate EIN from the IRS.
What is the cost to incorporate in Delaware?
The cost to incorporate in Delaware varies depending on the type of corporation and the services you need. The Delaware Division of Corporations charges a filing fee of $89 for domestic corporations and $200 for foreign corporations. You will also need to pay the franchise tax and any legal or accounting fees.
What is the turnaround time to incorporate in Delaware?
Generally, it takes five to ten business days for the Delaware Division of Corporations to process and approve a Certificate of Incorporation. However, if you use an expedited filing service, you can receive approval in as little as one business day.
How do I maintain my Delaware corporation?
To maintain your Delaware corporation, you will need to file an annual report and pay the annual franchise tax. You will also need to hold annual meetings and keep accurate records of all corporate actions. Additionally, you will need to appoint officers, directors, and a registered agent.
What are the benefits of forming a corporation in Delaware?
Forming a corporation in Delaware has many benefits, including providing a corporate veil of protection for shareholders, limited liability for directors, access to Delaware’s legal system, and lower corporate taxes.
What are the steps to starting a corporation in Delaware?
The steps for starting a corporation in Delaware include selecting the corporate name, filing the Articles of Incorporation, preparing the corporate Bylaws, obtaining an Employer Identification Number (EIN), and appointing directors.
What is the filing fee for forming a Delaware corporation?
The filing fee for forming a Delaware corporation is $89.
Do I have to be a resident of Delaware to form a corporation in Delaware?
No, you do not have to be a resident of Delaware to form a corporation in Delaware.
What is the minimum number of shareholders required to form a Delaware corporation?
The minimum number of shareholders required to form a Delaware corporation is one.
Is there an annual fee to maintain a Delaware corporation?
Yes, there is an annual fee to maintain a Delaware corporation, which is called the Franchise Tax. The Franchise Tax is based on the amount of shares authorized by the corporation.
Does a Delaware corporation need to have an office in Delaware?
No, a Delaware corporation does not need to have an office in Delaware.
Does a Delaware corporation need to have a registered agent in Delaware?
Yes, a Delaware corporation must have a registered agent in Delaware. The registered agent must be located in Delaware and must be available to accept service of process on behalf of the corporation.
What are the requirements for naming a Delaware corporation?
The name of a Delaware corporation must be distinguishable from existing entities on file with the Delaware Division of Corporations, contain the word “corporation”, “incorporated” or “limited”, and not contain words that are restricted by the state.
Are there tax benefits to forming a corporation in Delaware?
Yes, there are tax benefits to forming a corporation in Delaware. Delaware has a lower corporate tax rate than most other states and provides a wide range of tax incentives to businesses. Additionally, Delaware has favorable laws regarding corporate governance and shareholder rights.
What documents are needed to form a Delaware corporation?
The documents needed to form a Delaware corporation are the Articles of Incorporation, which must be filed with the Delaware Division of Corporations, and the corporate Bylaws, which govern the internal management of the corporation.
How long does it take to form a Delaware corporation?
It typically takes between two and three weeks to form a Delaware corporation.
Does a Delaware corporation need to hold an annual meeting?
Yes, a Delaware corporation must hold an annual meeting of the shareholders and directors.
How long does a Delaware corporation exist?
A Delaware corporation exists in perpetuity, unless it is dissolved by the shareholders or the state.
Is forming a Delaware corporation a good choice for a small business?
Yes, forming a Delaware corporation is a good choice for a small business. Delaware offers many advantages to businesses, including providing a corporate veil of protection, limited liability for directors, access to Delaware’s legal system, and lower corporate taxes.
Does a Delaware corporation need to file an annual report?
Yes, a Delaware corporation must file an annual report with the Delaware Division of Corporations. The report must be filed before the 15th day of the fourth month after the close of the fiscal year.
What are the Delaware requirements for a corporate seal?
Delaware requires that a corporation have a corporate seal that contains the name of the corporation and the state of Delaware. The seal may also contain the words “corporate seal” and the year of incorporation.
Can I form a Delaware corporation online?
Yes, you can form a Delaware corporation online. There are many companies that offer online incorporation services for businesses in Delaware.
What is the Delaware Division of Corporations?
The Delaware Division of Corporations is a state agency responsible for the formation and maintenance of corporations in Delaware. The Division of Corporations is located in Dover, Delaware.
Can I form an LLC in Delaware?
Yes, you can form an LLC in Delaware. The process for forming an LLC in Delaware is similar to the process for forming a corporation in Delaware.
Do I need a lawyer to form a Delaware corporation?
No, you do not need a lawyer to form a Delaware corporation. You can use an online incorporation service or you can file the necessary documents directly with the Delaware Division of Corporations.
Does a Delaware corporation need to issue stock?
Yes, a Delaware corporation must issue stock in order to exist. The corporation must issue at least one share of stock, but can issue as many shares as are authorized by the Articles of Incorporation.
How is a Delaware corporation regulated?
A Delaware corporation is regulated by the Delaware General Corporation Law and the Delaware Division of Corporations.
What are the legal requirements for forming a Delaware corporation?
The legal requirements for forming a Delaware corporation include selecting the corporate name, filing the Articles of Incorporation, preparing the corporate Bylaws, obtaining an Employer Identification Number (EIN), and appointing directors.
Is there an annual fee for a Delaware LLC?
Yes, there is an annual fee for a Delaware LLC, which is called the Franchise Tax. The Franchise Tax is based on the amount of capital that the LLC has in its accounts.
Can a Delaware corporation issue stock options?
Yes, a Delaware corporation can issue stock options to employees and other investors. Stock options give the holder the right to purchase stock at a predetermined price.
Does a Delaware corporation need to have a board of directors?
Yes, a Delaware corporation must have a board of directors. The board of directors is responsible for setting corporate policy and overseeing the affairs of the corporation.
Does a Delaware corporation need to have an annual audit?
Most Delaware corporations are not required to have an annual audit. However, certain types of corporations, such as publicly-traded corporations, may be required to have an audit.

Also Read

Why Delaware Corporation is So Important

First and foremost, Delaware has a long history of corporate-friendly laws that have been designed to encourage businesses to incorporate within the state. For decades, Delaware has been at the forefront of creating laws that protect both companies and their shareholders, including establishing well-defined legal standards for directors’ duties, providing flexibility for corporate governance, and creating efficient legal processes for dispute resolution. This predictability and stability in the legal system are crucial for businesses looking to minimize risks and uncertainties, making Delaware an attractive choice for incorporations.

Another reason why a Delaware corporation is so important is the state’s well-established and well-respected court system. Delaware’s Court of Chancery is the nation’s oldest business court and has developed a reputation for expertise in corporate law matters. The judges are well-versed in corporate law and have consistently ruled in favor of shareholders’ rights, providing companies with a sense of security and fairness in their legal affairs. Additionally, the court’s specialty in business issues allows for timely and efficient resolution of corporate disputes, helping companies maintain their focus on growth and profitability rather than getting bogged down in legal battles.

Delaware’s tax advantages are also a significant factor in its popularity among corporations. The state offers favorable tax treatment for corporations, with no state corporate income tax on companies that do not do business in Delaware. This tax-friendly environment has made Delaware a haven for businesses looking to maximize their profits and reduce their tax burdens, attracting companies of all sizes to incorporate within the state.

In addition to legal and tax advantages, Delaware also offers privacy benefits for corporations. In Delaware, corporations are not required to disclose the identity of their shareholders, directors, or officers in their public filings, providing a level of anonymity that can be beneficial for companies operating in competitive industries. This privacy shield allows businesses to protect sensitive information and strategic decisions from their competitors while still enjoying the legal and financial benefits of incorporating in Delaware.

Overall, the combination of legal, judicial, tax, and privacy advantages makes Delaware a top choice for companies seeking to establish themselves as corporations. The state’s business-friendly environment, coupled with its reputation for expertise and efficiency in corporate matters, makes it an ideal destination for companies looking to grow and succeed. By choosing to incorporate as a Delaware corporation, businesses can benefit from a well-defined legal framework, a respected court system, favorable tax treatment, and privacy protections that can help them thrive and prosper in today’s competitive business landscape.

Conclusion

When determining which corporate form is best for you, be selective. You must know which business structure is bet-fitted for your product/service in Delaware. Consult a legal professional before you take the first step while setting up your business. Finding the ideal ratio of corporate advantages and legal protection that meets your unique needs is very important. In forming a corporation in Delaware, you need to ensure that every detail is well-formed so that your corporation will be successful. And if you have any questions, share them in the comment section below.

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