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How to Open a Company in Delaware
Open a company in Delaware has many advantages. The state offers a pro-business environment, with low taxes and a skilled workforce. Delaware is also home to many large businesses, which can provide opportunities for partnerships and collaborations. In addition, the state has a well-developed infrastructure, with access to major markets and transportation hubs. All of these factors make Delaware an attractive destination for starting a business.
There are a few things to keep in mind when starting a business in Delaware. First, it is important to choose the right business structure. Second, businesses must obtain the necessary licenses and permits. Finally, businesses should make sure to have adequate insurance coverage. By following these steps, entrepreneurs can set up their business in Delaware and take advantage of all that the state has to offer.
Choose a Business Structure
When it comes to choosing the right business structure for a company, there are a number of factors to consider. In Delaware, there are 2 main businesses structures to choose from: Corporation (C-Corp) and Limited Liability Company (LLC).
Corporation (C-Corp)
Incorporating a business automatically makes it a regular, or “C” corporation. A C corporation (or C-Corp) is a separate taxpayer, with business income and expenses taxed to the corporation at a corporate tax rate and not the owners. Corporate profits are then distributed to owners (also called as “shareholders”) as dividends and are taxed at personal income tax rate.
Owners must pay personal income tax on the distribution, creating a “double taxation” (profits are taxed first at the corporate level and again at the personal level as dividends). However, C-Corps offer limited liability protection for shareholders. This means that shareholders are not personally liable for the debts and obligations of the corporation. C-corps can also raise capital through the sale of shares. This makes them an attractive option for businesses that need to raise money quickly.
Once incorporated as a C-Corp, investors can choose S corporation status by filing a form with the IRS and with the state, if applicable, so that profits, losses and other tax items pass through the corporation to the investors and are reported on the personal income tax return (the S corporation does not pay tax). This S-Corp status is available only to US citizens. Corporate entities are not eligible to be shareholders and there cannot be more than 100 shareholders. It is important that all shareholders must agree to the S-Corp tax status.
The State of Delaware permits foreigners to act as officers or directors of a Delaware corporation. There is no age restriction for officers, directors, corporate shareholders.
Limited Liability Company (LLC)
An LLC generally offers liability protection similar to that of a corporation but is taxed differently. Generally, the owner’s liability is limited to amount of capital contributed unless acting as guarantor of corporate debt.
Delaware also allows foreigners to act as members of a Delaware LLC. There is no age restriction for officers, directors, or members of Delaware Limited Liability Companies.
Domestic LLCs may be managed by one or more managers or one or more members. In addition to filing the applicable documents with the Secretary of State, an operating agreement must be prepared among the members stating clearly the affairs of the LLC and the conduct of its business. The LLC does not file the operating agreement with the Secretary of State but maintains it at the office where the LLC’s records are kept.
How to Open a C-Corp in Delaware
There are a few things that investors will need to do in order to open a C-Corp in Delaware. First, a Certificate of Incorporation will need to be filed with the Delaware Secretary of State. Certificate of Incorporation may be drafted and mailed to the Delaware Secretary of State office. This document will include information on the company’s name, address, registered agent details, total amount of stock, name and mailing address of the incorporator, and purpose. Additionally, the names and addresses of the company’s directors and officers must be listed. You may also file the Certificate of Incorporation online by uploading the Certificate of Incorporation in the Delaware Secretary of State website, instead of mailing it. Once you reach the government website, follow instructions to complete the online form and upload the Certificate of Incorporation, pay the appropriate government fee and submit the online form. Finally, the company will need to obtain a business license as Delaware requires a general business license that applies to all businesses operating in the state. This process can be completed online and will require the payment of a fee.
Once these steps have been completed, the company will be officially registered as a C-Corp in Delaware. Investors will then be able to begin conducting business in the state.
Step 1: Choose a name, check the name availability and reserve it
When naming a corporation in the State of Delaware, one of the following words or abbreviations must be included: incorporated, corporation, limited, company, Inc., Corp., Ltd., or Co. The corporation’s name cannot include any words or abbreviations that indicate other business types, like the phrase “limited liability company” or the initials “LLC.” Also, including words that refer to certain types of businesses (like “bank” or “law office”) is not allowed, unless your business fits those descriptions.
The Delaware Division of Corporations allows for the reservation of an entity name. This is not a requirement in order to form the entity but will guarantee that the name is held for a period of 120 days. You can reserve the entity name online.
Step 2: Select and Appoint a Registered Agent
Delaware law requires that every business entity have and maintain a Registered Agent in the State of Delaware who may be either an individual resident or business entity that is authorized to do business in the State of Delaware.
Who can be a registered agent?
The registered agent must have a physical street address in Delaware. If the business is physically located in Delaware, then the business may act as its own registered agent. If the registered agent is other than the entity itself, the selected Registered Agent used in the entity formation must be informed. A registered agent may be 1) the entity itself, 2) an individual resident of Delaware, or 3) a domestic or foreign legal entity authorized to transact business in this state.
Step 3: Complete the Certificate of Incorporation
Complete the Certificate of Incorporation form. It is a PDF fillable form and can be submitted using the government website’s Document Upload Service or by mail. All filing fees must be paid upon submission of the request. All requests are returned via regular First-Class mail unless a Federal Express or UPS account number is provided. For online submissions, visit https://icis.corp.delaware.gov/ecorp2/services/e-filing.
First step is to find a registered agent and a P.O. Box number for incorporating in Delaware. The Registered Agent must have a physical address in Delaware, not a P.O. Box number.
When drafting the Certificate of Incorporation, the incorporator shall fill out and submit the Certificate of Incorporation. Incorporator shall sign before submitting the document.
Incorporator needs to provide/add the following information:
- The name of the Corporation;
- The Registered Office of the corporation in the State of Delaware, the name of the Registered Agent;
- Purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware;
- The total number of stock this corporation is authorized to issue;
- The name and mailing address of the incorporator;
- Other terms if any that you would like to add.
After registering the Certificate of Incorporation, apply for your SSN (Social Security Number) as it is required to obtain the EIN (Employer Identification Number), whether or not the company will hire employees. As a foreigner not residing in US, you are still eligible to apply for and receive the EIN with your non-US address.
Step 4: Establish a Corporate record
Corporations are required under Delaware law to document and keep a permanent record of all important company decisions. Some things that are required to be kept in the corporate record include:
- Certificate of Incorporation and bylaws;
- List of shareholders;
- Books and records of account;
- Minutes of all shareholder and director meetings.
The official corporate record may be kept at the corporation’s principal place of business or stored in a safe location elsewhere. Investors should take the opportunity to set up a secure digital or physical location for storing company records as soon as possible.
Step 5: Designate a Board of Director(s)
The incorporator is responsible for selecting the initial director(s) of the corporation. Unless initial directors were specified in the Certificate of Incorporation, the incorporator should record initial director appointments in a signed document and file it to the corporate record. This document is known as the “incorporator’s statement.” The initial directors (every Delaware corporation must have at least one initial director) will serve until new directors are elected at an annual shareholder meeting, or as otherwise indicated in the bylaws. The incorporator may serve as an initial director.
Step 6: Create Corporate Bylaws
Corporate bylaws set out the rules and procedures for how the corporation will operate. Some important topics are typically covered in the bylaws include:
- How shareholders will conduct votes;
- The total number of directors and how each director will be elected;
- How often the board of directors will meet;
- The types of officer roles that will be appointed;
- Procedures for resolving internal disputes.
Delaware corporations are required to establish bylaws. Bylaws help businesses run smoothly, and are sometimes required by financial institutions for opening business bank accounts or acquiring loans. Either the incorporator or the initial directors may prepare the company bylaws. The bylaws should be recorded in an internal company document, signed by the incorporator or a director, and filed to the corporate record. The bylaws are not filed with the state of Delaware.
Step 7: Hold first Board Meeting
After designating a board of directors and preparing bylaws, every corporation is legally required to call for an initial board meeting and to have an annual board meeting going forward. The incorporator often arranges and attends this first meeting. During the first board meeting, the initial directors should plan to cover the following topics:
- Review and approve corporate bylaws;
- Designate officers to manage day-to-day business affairs;
- Choose a bank;
- Approve issuance of stock certificates;
- Determine whether the company should elect to be taxed as a C corporation or S corporation.
Recording Meeting Minutes: a detailed record of all key discussions and decisions during the board meeting should be prepared and distributed to all board members for their review and approval. This record is known as the “minutes”. A copy of the minutes should be sent to each director for review and filed in the company record.
Step 8: Handle Tax Obligations
Investors will need a federal tax ID number (EIN) to operate a corporation in Delaware. It can be obtained from the IRS for free, and it’s a fairly simple process. An EIN is required for a corporation to hire employees, file corporate taxes, open business bank accounts, and more.
Federal
The majority of corporations are C corporations, as they are subject to far fewer restrictions than S corps. With a C-Corp, profits are taxed at the corporate level, and again on the personal tax returns of the shareholders, resulting in what’s commonly referred to as double taxation.
State
On the state level, every Delaware corporation is subject to the corporate income tax. In addition, there are a variety of tax registration requirements that may or may not apply to your company, depending on the nature of the business. These include tobacco taxes, alcohol taxes, etc. Since a company will have employees, the company is also expected to pay withholding taxes on employee wages. Essentially, the company will keep back a small portion of wages from each paycheck and forward that money to the state. If you are a corporation is involved in retail sales, the corporation will also be responsible for the state’s gross receipts tax (Delaware’s alternative to a sales tax).
Local
Keep in mind that the city and/or county may also have taxation requirements as well, so make sure to check with them to make sure the company isn’t missing anything. Here are a few links to different counties with local tax requirements:
Step 9: Obtain Business License & Permits
Delaware requires a general business license that applies to all companies operating in the state. Companies can get it with Delaware’s One Stop https://onestop.delaware.gov. There are also hundreds of industry-specific permits and licenses that companies may need to acquire. Much like investors should check to see if your local government has tax requirements, there’s also county-level occupational licenses that may need to be acquired. Here are some of the larger cities and counties in Delaware with local license requirements:
Step 10: Acquire Insurance
Every business with employees located in the State of Delaware is required by law to obtain two different kinds of insurance policies: workers’ compensation and unemployment insurance, even if they only have one employee on the payroll. In addition, companies should also pursue general liability insurance and other more industry-specific types of insurance, but these are not legally required, unless specified otherwise by local law.
Step 11: Open a Business Bank Account
To operate a corporation and receive the limited liability protection that comes with it, investors have to keep their personal assets entirely separate from the business assets. Due to this requirement, it’s strongly advised to acquire a business bank account for the corporation. Failure to successfully keep personal and business affairs separate could result in the court piercing the corporate veil and investors being personally responsible for the corporation’s liabilities. The following are examples of what banks may ask for when opening a business bank account for a corporation:
- Certificate of Formation/Incorporation;
- Federal Tax ID Number (EIN);
- Photo ID (such as a valid passport);
- Proof of address;
- Banking resolution document;
- Corporate bylaws.
How to Open an LLC in Delaware
In an LLC, the ownership is held with one or more members. The LLC is controlled by members or managers, as set out in operating agreement. Generally, the owner’s liability is limited to amount of capital contributed unless acting as guarantor of corporate debt. The LLC is taxed as partnership, corporation or may be disregarded depending on the election made.
Delaware also allows foreigners to act as members of a Delaware LLC. There is no age restriction for officers, directors, or members of Delaware Limited Liability Companies.
Step 1: Choose a business name
In the State of Delaware, investors are required by law to meet several requirements for the business name. Here’s a quick glimpse at the rules for LLCs:
- The name must include the phrase “Limited Liability Company” or the abbreviations “LLC” or “L.L.C.”;
- The name may include the name of a member or manager;.
- The name cannot include the word “bank” or any variation of it;
- The name must be “distinguishable on the record,” or distinct from the names of other businesses in the state.
Delaware allows investors to reserve the business name if you are still not quite ready to register the business. To do that, file the Application for Reservation of Limited Liability Company Name form along with the requested fee. Filing this reservation protects your chosen name for an exclusive use for 120 days.
Step 2: Appoint a Registered Agent
Delaware law requires that every business entity have and maintain a Registered Agent in the State of Delaware who may be either an individual resident or business entity that is authorized to do business in the State of Delaware.
When appointing a Delaware registered agent, here are the state requirements to be mindful of:
- Every entity that files with the Division of Corporations (both domestic and foreign) must appoint a registered agent;
- The agent may be the business itself, an individual who resides in the state, or a business with authority to do business in the state;
- An agent must be continuously maintained.
Step 3: File formation documents
The Certificate of Formation may be filed by the investor with the Department of State, either online or by mail. It is at this time that investors will determine whether the LLC will be member-managed vs. manager-managed. The Certificate of Formation is a PDF fillable form, available here: https://corpfiles.delaware.gov/LLCFormation.pdf. It can be submitted using the government website’s Document Upload Service or by mail. All filing fees must be paid upon submission of the request. All requests are returned via regular First-Class mail unless a Federal Express or UPS account number is provided. For online submissions, visit https://icis.corp.delaware.gov/ecorp2/services/e-filing.
The Certificate of Formation must be signed by an authorized person of the LLC. The name of the person must be typed or written legibly underneath the signature.
Following is the information that is required to fill out the Certificate of Formation for an LLC:
- Name of the LLC;
- The Registered Office of the LLC in the State of Delaware, the name of the Registered Agent.
For online submissions, visit https://icis.corp.delaware.gov/ecorp2/services/e-filing
First step is to find a registered agent and a P.O. Box number for incorporating in Delaware. The Registered Agent must have a physical address in Delaware, not a P.O. Box number.
When drafting the Certificate of Formation, you may refer to the template at https://corpfiles.delaware.gov/LLCFormation.pdf
If submitting online, you would have to upload the Certificate of Formation and pay the requested fee.
After registering the Certificate of Formation, apply for your SSN (Social Security Number) as it is required to obtain the EIN (Employer Identification Number), whether or not the company will hire employees. As a foreigner not residing in US, you are still eligible to apply for and receive the EIN with your non-US address.
Step 4: Draft an operating agreement
After the LLC is registered in Delaware, investors need to create a detailed outline that explains how the new business be managed. Even though it doesn’t need to be filed with the state, it is recommended to put one together and keep it for the records.
When opening a bank account, investors may be asked for this document. Also keep in mind that any future business partners or managing members may also be interested in seeing the Operating Agreement before joining the company. After all, this document essentially serves as the overall plan for success.
Some of the basic information that could be included are:
- Individual members’ ownership percentages;
- Rights and responsibilities;
- Voting powers and meeting guidelines;
- Allocation of profits and losses;
- Management rules for the LLC;
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death.
Step 5: Handle Tax Obligations
Investors will need a federal tax ID number (EIN) to operate a corporation in Delaware. It can be obtained from the IRS for free, and it’s a fairly painless and simple process. An EIN is required for the LLC to hire employees, file corporate taxes, open business bank accounts, and more. An LLC is always classified in the same manner for Delaware income tax as it is for federal income tax purposes. A single-member LLC can be either a corporation or a single-member “disregarded entity.” To be treated as a corporation, the single-member LLC has to file IRS Form 8832 and elect to be classified as a corporation. A single-member LLC that does not elect to be treated as a corporation will be classified as a “disregarded entity,” which is taxed as a sole proprietorship for income tax purposes. A single member “disregarded entity” that is owned by a corporation is treated as a “branch” or “division” of its owner. Delaware treats a single member “disregarded entity” as a sole proprietorship for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the State of Delaware.
As the sole member of the LLC, investors must report all profits (or losses) of the LLC on Schedule C and submit it with your Delaware personal income tax return (Form 200). Even if investors leave profits in the company’s bank account at the end of the year – for instance, to cover future expenses or expand the business – they must pay income tax on that money. A multi-member LLC can be either a partnership or a corporation, including an S-corporation. To be treated as a corporation, an LLC has to file IRS Form 8832 and elect to be treated as a corporation. A multi-member LLC that does not elect to be treated as a corporation will be classified as a partnership. Limited Liability Companies classified as partnerships must file Delaware Form 300. Limited Liability Companies classified as corporations must file either Delaware Form 1100 or Form 1100S.
Federal
As an LLC owner, the exact tax rates investors will pay depend on the taxation structure chosen for the business. If investors choose to be taxed as a corporation (This choice is made by filing IRS Form 2553 with the IRS), the LLC itself will pay taxes from its own funds. Meanwhile, LLCs taxed as pass-through entities don’t technically pay taxes; its members do. The profits are distributed to the LLCs members, and each member reports that income on Schedule C of their personal taxes. If investors choose to be taxed as a corporation, they will pay 21% to the federal govt. Meanwhile, LLCs taxed as pass-through entities pay between 10-37% to federal govt., rising on a fixed-bracket scale. In order to compliantly file and pay the taxes, investors will fill out a complete copy of federal Form 1065 including all federal K-1s, statements, and attachments.
State
If investors choose to be taxed as a corporation, or the LLC’s taxed as pass-through entity, investors will pay no taxes to the Delaware state government. The State of Delaware, like almost every other state, taxes corporation income. The Delaware corporation income tax is a flat 8.7% of federal taxable income. The tax is payable to the Division of Revenue (DOR). Use the state’s corporation income tax return (Form 1100). All LLCs formed in the State of Delaware are required to pay an annual franchise tax.
Step 6: Obtain Business Licenses and Permits
The LLC must obtain a general state business license. You can easily apply for it by registering through Delaware’s Business OneStop. As an added plus, this also get registered with the Department of Revenue, the Division of Unemployment Insurance, and the Office of Workers’ Compensation—all requirements an investor will need to meet in later steps.
Last but not least, investors should check with the city or county of operation to see if they maintain any licensure requirements.
Step 7: Acquire Insurance
One should pursue general liability insurance and other more industry-specific types of insurance, but these are not legally required. An insurance policy can help you navigate unexpected expenses. If investors have hired employees, they should get workers’ compensation insurance; if an employee is injured on the job, companies are expected to pay for care, or the insurance policy will pay the workers’ compensation benefits. That’s why a workers’ compensation policy is highly recommended.
