Incorporating in Delaware is one of the smartest choices you can make as an entrepreneur. The largest state in America offers a wide variety of advantages for small and large businesses alike, and it is often been a top choice for entrepreneurs for over 50 years.
With more than 1,000,000 business entities established each year, Delaware has made itself into an economy all its own.
What Is a Delaware Corporation?
A Delaware corporation is a legal business entity formed under the business law of the state of Delaware.
You should not confuse this with a C corporation, because a Delaware corporation can be any number of different types, like an S-corp or LLC Delaware.
These entities allow you to separate ownership and control but keep personal assets separate from the business. In a Delaware corporation, you are the shareholder and owner of stock in the corporation.
The Structure of the Delaware General Corporation
For most Delaware corporations, the structure is as follows:
- The shares will be offered to the public and sold with a prospectus giving all the details about your company. You and your shareholders will have voting rights related to major decisions in your corporation like amendments to by-laws or deciding who gets named chairman of the board.
- The Board of Directors is responsible for overseeing your business and implementing corporate policy. They hire a Chief Executive Officer (CEO) to manage the day-to-day operations of the business.
- The purpose of the board is to protect shareholders. They are in charge of making sure that the CEO is doing their job and that your business’s shareholders’ best interests are served. The board will meet, review reports from the CEO, discuss how the company is going, and have a general say in major decisions for your company.
Types of Delaware corporations:
S-corporations are good for businesses that want to be able to sell their stock publicly without incurring personal liability for the corporation. S-corporations are also good for businesses where the shareholders do not need a high level of control on day-to-day operations.
These companies are known as pass-through entities and each shareholder receives an equal amount of stock in the corporation. Any income passes through to the shareholder and is taxed at individual state income tax rates.
The benefit of S-corporations is that they can be formed quickly, but it also requires a great deal of paperwork. This is why you should choose the LLC form over an S-corporation for most small businesses.
II. L.L.C. (Limited Liability Company)
LLCs are the most common organizational structure in Delaware and they are what most lawyers start with when establishing a company as a small business owner.
In an LLC, each member is known as an “owner”. This can be the person who has originally signed the articles of incorporation into the state of Delaware or a family member.
Each owner will have an equal amount of stock in the LLC and can make all decisions normally. Income passes through to each shareholder and is taxed at individual income tax rates.
The benefit of an LLC is that it allows for flexibility in how the business is run and you can structure it how you want. The disadvantages are that each owner is personally liable for the debts of the business. This includes liabilities for employees and other external suppliers, if applicable.
Since there are no limits on how many shareholders you may have, you can form a corporation to hold assets such as real estate or other property. Corporate stock cannot be held in an LLC.
III. L.C.P.C. (Limited-Liability-Partnership)
In this type of Delaware corporation, business partners are known as partners and each partner will have an equal amount of stock in the corporation. The limited partnership has both a general partner and a limited partner (or backers).
Limited partners do not have any control over the business, nor do they make any day-to-day decisions for the company, but they are liable for all of the debts and liabilities of the company until their initial investment is recovered.
The benefit of an L.C.P.C. is that it allows for flexibility in how the business is run, but partners do not have any control over the business and do not make any day-to-day decisions for the company, but they are liable for all of the debts and liabilities of the company until their initial investment is recovered.
The disadvantage of an L.C.P.C. is that they are more complex than other forms and can be very costly to establish.
IV. L.C.S. (Limited-Liability-Company-Series)
This is similar to limited partnerships, but it allows for more investors without having to draft a new partnership agreement for each one. Each investor will have shares in a particularly limited series and will not be completely liable for all of the debts of the company as in a “regular” partnership or L.L.C.
The benefit of an L.C.S. is that it allows for flexibility in how the business is run, but investors do not have any control over the business and do not make any day-to-day decisions for the company, but they are liable for all of the debts and liabilities of the company until their initial investment is recovered.
The disadvantage of an L.C.S. is that they are more complex than other forms and can be very costly to establish.
Delaware Corporation Advantages
Delaware is a state that is friendly to business owners. Not only can you incorporate quickly and easily, but you will have more protection under the law than anywhere else in the country.
1. Entity Choice
You are the one who chooses which business form you like most. There are no state certification requirements for selecting a specific form of organization. In Delaware, every type of business is technically a corporation, making it easy to choose your structure the way you feel comfortable with.
2. Limited Liability Protection
An LLC protects all corporate owners from personal liability for company debts. Corporate board members do not owe personal debts to the company. In addition, LLCs are able to shield owners from the claims of lawsuits brought against their investment in the company.
3. Less Regulation
In Delaware, businesses are typically easier to incorporate than corporations in other states. For instance, Delaware does not require state certification or business license for incorporation. Additionally, LLCs are able to hold stocks of real estate without incurring liability under the law and the state courts of Delaware have a reputation for being pro-business and business-friendly.
Delaware incorporation costs
- State registration for a corporation: $60 per year (if your company is “domiciled” in Delaware)
- Filing fees for articles of incorporation: $295 per filing (generally, $800 if more than one type of business is incorporated in Delaware at once, or to make more than one change in the articles)
- The state filing fee for a single-member LLC: $150
- State Filing Fee for a single-member LLC with foreign address: $100
- Business registration fee (Delaware only): No fees are required. There are no fees for business license renewals.
All incorporation documents can be downloaded from the Delaware Secretary of State’s website: http://corp.delaware.gov/
Delaware corporation maintenance costs
- All business entities must have a registered agent. Registered agents provide the state with information that is filed when a new business entity is formed, and the registered agent receives any legal notices. The Delaware Department of State offers a free service for businesses in Delaware to use as their registered agent. It costs $100 per year to register with the secretary of state. That fee includes being the registered agent for one LLC, one corporation, and one revocable trust (a trust that isn’t irrevocable). It’s $50 per year to register as a registered agent for a second LLC, corporation, or revocable trust.
- If you want the Secretary of State to additionally receive legal notices on behalf of your business (which is highly recommended), it will cost $125 per year.
- If your business is registered in another state but has an office in Delaware, there is an additional fee to “qualify” for doing business in Delaware. The fee is $25, and it’s not a filing fee. It is required to apply for the $100 State LLC registration fee.
- If you only have one registered agent in Delaware, that one person must be a certified public accountant or certified public secretary in order to register with the secretary of state. If you have more than one agent, they must meet the qualifications as a registered agent.
There is no similar requirement for businesses that are incorporated outside of Delaware if they choose to do business in Delaware.
Delaware Corporation Bylaws
You do not need to submit a by-law document for Delaware corporations, but it is recommended. Delaware has specific laws for the operation of corporations, and you should familiarize yourself with them if you do business in the state.
The Delaware Corporation Code also includes requirements for by-laws, including that they must be drafted in plain language and must be made available upon request as required by law.
Every corporation’s bylaws should address the following:
- Names and purpose of the corporation
- Officers and their duties
- Meetings, quorum, voting requirements, special shareholder meetings, and emergency meetings
- Amendments to bylaws
- Stock issuance guidelines
The Delaware Corporation Annual Report
Every corporation is required to file an annual report within the first two months of the fiscal year. The report is for the state only, and it serves as a record of the corporation’s activity during that period. This report generally includes information about shareholders, capital contributions, stock sales, dividends, and how they were distributed.
The required reports can be obtained online through: http://corp.delaware.gov/
How To File a Delaware Corporation
Delaware’s Secretary of State is responsible for registering corporations in the state. To register a corporation in Delaware, you’ll have to file a certificate of incorporation and pay $295. To do this, you must have already established a Delaware company and include the following information:
- The name of the company
- The purpose of the company (state law only allows certain purposes)
- The number and type of shares authorized, par value, and their classifications. Some corporations can have multiple share classes with different voting rights.
- The names, addresses, and signatures of the members (corporators)
- The date of incorporation by the incorporators
- A statement that they have not been convicted of a felony within the last 10 years.
To register a business entity in Delaware, you’ll have to file articles of incorporation for such entities with the state. These documents must be prepared by attorneys or other professionals certified to do so. Articles of incorporation are submitted to the Secretary of State and either approved or denied within 30 days.
File Certificate of Incorporation
The certificate of incorporation is filed with the Secretary of State. If you’re already doing business in another state, you can incorporate Delaware through its Streamlined LLC Conversion.
States have many different types of tax incentives, and Delaware is no exception. There are a number of these incentives for Delaware corporations.
The state’s Corporation Net Income Tax is paid quarterly by corporations with revenue exceeding $400,000. The rate ranges between 8% and 13%, depending on the amount of net taxable income you earn. The first $25,000 in net taxable income is exempt from taxes in Delaware.
When you incorporate in Delaware, your annual certificate of incorporation must document the name, home state of incorporation, activity, and officers for the corporation.
Delaware’s corporation tax savings rate is 6.7%, and it applies to all net income generated by the corporation. The first $1 million in net income is taxed at 7%. The next $1 million is taxed at 8%.
The Corporate Net Income Tax does not apply to certain entities, such as nonprofits, and it does not apply to businesses that earn income from the sale of capital assets.
The Tax Reform Act of 2014 includes a tax credit for corporations that invest in equipment, computers, and other advanced technology. The credit is equal to 15% of the cost and lasts for five years.
If you’re a corporation director, you can deduct reasonable amounts as a tax deduction. These expenses can include travel, lodging, and meals while conducting business on behalf of the corporation.
Limitations are placed on businesses that trade stocks and bonds or purchase real estate as part of their business operations.
There are certain types of corporations that are not allowed to deduct such expenses, including professional corporations, public improvement corporations, and nonprofit organizations.
Can I incorporate in Delaware if I live in a different country or state?
Yes, you can incorporate in Delaware even if you live in another country or state. To do so, simply follow the steps mentioned on this page and incorporate them under the Delaware LLC or Corporation.
You can later transfer your business to Delaware and conduct all business there. The only hurdle you encounter is to complete the registration process with the Secretary of State, which can be done online.
You need to fill in a few basic details about your business, including business name, address, and contact details, as well as pay a small fee of $295.
Why incorporate with A Delaware Registered Agent Inc.?
There are many laws governing the operation of corporations and other business entities, including filing fees, supervision by government agencies, and compliance with taxation laws.
You need a qualified registered agent to protect your business from legal problems that could be encountered on the road and the Secretary of State is responsible for all types of corporation registrations.
A registered agent is needed to represent the interests of your corporation and will provide you with physical or virtual offices, which would act as an address for your corporation.
Will my Registered Agent Inc. office service and protect my corporation?
Yes, you will receive an email within 24 hours after your purchase with the registered agent service package that you chose. The registered agent office for your company will be located in Wilmington, Delaware. You can use incorporation services or register a foreign business entity. You can use our mailing addresses to receive your business documents from the State of Delaware.
Can my domestic corporation also operate in Delaware?
No. Delaware is one of the few states that enforce a separate entity requirement, as the laws apply to corporations only.
A foreign corporation residing in another state can conduct business in Delaware if they incorporate under the Delaware Corporation or LLC.
A corporation can only qualify to conduct business in Delaware if it incorporates there. Incorporating a foreign corporation will allow it to register an agent for service of process and maintain an office in Dover that provides all required disclosures and instructions from the state’s Secretary of State.
Following this guide, incorporating a corporation in Delaware can be of great assistance to your business. Some of the benefits you will gain are the incorporation itself, which is a huge step to becoming a legitimate corporation, and the tax advantages you get on all your business activities.
Since Delaware is also one of the world’s financial hubs, incorporating your company there means that investors from around the globe will be more likely to invest in your business.