Establishing a Delaware Corporation

Learn how to start a Delaware corporation with a step-by-step guide, covering naming, filing, bylaws, shares, taxes, and benefits.

Updated on
Jan 24, 2024
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Starting a Company
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6 Steps to Create Your Delaware Corporation:

Step 1: Choose a Name for Your Delaware Corporation

Selecting an appropriate name for your entity involves adhering to specific naming requirements. Delaware corporations are prohibited from using variations of the word "Bank" unless they are officially recognized financial institutions. Additionally, your corporation's name must include specific words or their abbreviations, such as "Company," "Corporation," "Foundation," and more. While reserving your corporation's name is not obligatory, it is advisable. Delaware provides an online tool to check name availability for free.

Step 2: Appoint Directors and a Statutory Agent

Every Delaware corporation is required to have a board of directors, comprising one or more members. These directors play a crucial role in the management of the corporation. Furthermore, you must designate a registered agent in Delaware. This individual or entity receives legal notices and acts as the primary point of contact between your corporation and the state. Although you can serve as your registered agent, it is important to meet all the necessary criteria and ensure availability during standard business hours.

The choice of who will be the registered agent is one of the most important decisions a corporation can make, as they could face legal consequences if their registered agent is not available to receive legal notice.

Step 3: Submit the Delaware Certificate of Incorporation

Filing the Certificate of Incorporation is a pivotal step. This legal document outlines key details about your corporation, including its name, business purpose, the number and value of shares, directors, officers, and more. This document can be submitted online or via mail, with a minimum filing fee of $89. Additional fees may apply based on the number of shares.

Step 4: Draft Corporate Bylaws and a Shareholder Agreement

Corporate bylaws establish the operational rules for your corporation's board of directors once the business is incorporated. These guidelines ensure that your operations remain in compliance with legal requirements. Although not all states mandate bylaws, Delaware does. A shareholder agreement, also known as a stockholder agreement, outlines the rights of shareholders, voting processes, and ownership. While not compulsory, they are highly recommended to maintain control and plan for investments.

Step 5: Issue Shares of Stock

Transparently record the number of shares issued to shareholders. This information is crucial for annual reporting and helps determine ownership and equity. Public companies can issue stock to raise capital, whereas private companies have restrictions on stock sales without SEC registration.

Step 6: Obtain an EIN and Fulfill Tax Requirements

An Employer Identification Number (EIN) is essential for identifying your corporation and is typically required. You can apply for an EIN for free on the IRS website. Additionally, it is crucial to obtain the necessary business permits or licenses from the Delaware Division of Revenue and your local government, if applicable. Be aware of federal regulations that may apply to your industry.

Startup Costs for a Delaware Corporation

Starting a Delaware corporation comes with various fees, including name reservation ($75), domain name registration ($25), and franchise tax ($50++). Missing deadlines can lead to penalties and increased costs.

Benefits of a Delaware Corporation

Delaware offers several advantages for corporations, including privacy, structural flexibility, an established legal system, tax savings, limited liability, ease of issuing stock, and international recognition. However, it is essential to be aware of the associated costs and requirements.

Taxation of Delaware Corporations

Delaware corporations are subject to corporate income tax, which varies depending on the type of corporation. C corporations face an 8.7% tax rate on federal taxable income, while S corporations follow federal pass-through income rules. Nonprofit corporations are generally exempt from corporate income tax.

Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. Seek the counsel of a licensed professional for specific questions related to these topics.

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Frequently Asked Questions

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How do I dissolve my Delaware corporation?
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To dissolve your corporation, you must file the Certificate of Dissolution and ensure all taxes are paid to Delaware. Please refer to this post for more information.

Can I form my Delaware corporation online?
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Yes, you can complete the necessary filings online.

How many people are needed to form a corporation in Delaware?
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Only one person, the incorporator, is required to form a corporation.

How do I change my corporation's name in Delaware?
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To change your corporation's name, you need to file an amendment with the Delaware Division of Corporations. Please refer to this post for more information.

What is the difference between an LLC and a corporation in Delaware?
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LLCs are generally less formal and require less paperwork compared to corporations. You may find out more in these article on Delaware LLC and Delaware Corporation.

Does running a corporation in Delaware involve more paperwork than running other types of businesses?
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Yes, corporations typically require more paperwork due to federal and state regulations, especially for public corporations.

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