Delaware is the leading choice of jurisdiction for company incorporation thanks to a great range of distinct benefits. Corporation and Limited Liability Company (LLC) are the most-selected business entities within the state.
In this article, we’re going to cover key features and how to form a corporation in Delaware.
What makes Delaware corporations attractive to entrepreneurs?
Firstly, we will talk about how a Delaware corporation is structured. The ownership of a Delaware corporation is shared among shareholders. They are responsible for making major decisions in the company. They also appoint the Board of Directors for daily business operations.
Delaware corporation has different advantages besides its typical characteristics of a corporation.
Superior legal system. Delaware is well-known for its unique court that is specialized for solving business disputes. The Court of Chancery with its over 200 year existence has extensive legal experience. If your corporation is in the related legal troubles, the court will handle it directly, quickly and efficiently.
Business-friendly tax regime. Assuming that your corporation is registered in Delaware, it will be exempt from state income tax. Moreover, the state doesn’t have economic nexus regulations. This means that you don’t need to add sales tax to your products. If you are an eCommerce business, this is a big plus.
The corporation will have to submit the business taxes, which is different from LLC where business income tax is passed through to the personal income tax. But you can apply for a S corporation status to have the feature of an LLC for tax purposes.
High layer of corporate anonymity. This is a great feature for those who want to own a corporation for fundraising purposes. You don’t need to expose the details of the company shareholders to the public. You can also use nominee services to have a third party to sign on the incorporation papers on behalf of the corporation.
Easy to get funding from venture capitalists. With a more complex structure than other entities, Delaware corporation is an ideal type to get venture capital. The ownership can be flexible.
How to form a Delaware corporation?
There are three main steps to officially own a corporation in Delaware.
Step 1: Choose the company name
A corporate name must follow The Delaware General Corporation Law. Besides, it must be the unique one in the company register. You can always check the availability of the desired name.
Step 2: Appoint a registered agent
The state requires all business owners to have a registered agent to act on their behalf receiving the company papers and notices from the state. The agent is also responsible for forwarding the company communication to the state.
Your corporation can also be a registered agent if it has a physical address within the state.
Step 3: File the Certificate of Incorporation
The certificate is going to be the proof of your company’s legal existence in Delaware.
First, you must prepare all required information and fill in the incorporation application. Such information include:
- Name and address of the corporation;
- Name and address of the appointed registered agent;
- The number of authorized shares and the number of shares issued;
- The corporate purpose;
- Name and address of the incorporator who is authorized to sign and file the incorporation certificate.
After preparing all the required information, you must send it to the State of Delaware, division of corporations.
If you find it difficult to register a company in Delaware, I recommend selecting the Best Delaware company incorporation service as they will offer you a seamless experience and provide all the necessary services.
What are other considerations after incorporation?
Determine stock information. Such information can be the total number of stocks and how many of them will be authorized and issued. Moreover, you must also determine the Par Value, or the initial selling price, of the stocks.
Adopt corporate bylaws. Your corporation is not going to submit this document to the state. However, you should have one for your Delaware corporation. The bylaws should be drafted by a professional lawyer to manage all internal activities of the corporation.
Obtain Employer Identification Number (EIN). The number is not mandatory but you must have it if you are going to open a business account, have employees or use it for tax identification. You can obtain the number via the Internal Revenue Service (IRS).
Open a bank account. A bank account is crucial to manage financial transactions of your Delaware corporation. If you are resident in the US, opening a bank account is straightforward. But in case you are non-resident and you are unlikely to obtain one, you can consider its alternative – an Electronic Money Institution (EMI) account such as Wise, Payoneer or Mercury.
Hold an annual general meeting. You must hold a meeting of shareholders to appoint the initial Board of Directors and officers. In addition, many major decisions and appointments will be made in the meeting.
Submit taxes and annual reports. Your Delaware corporation is required to submit the franchise tax and annual report to the state by the appointed deadline. The amount of tax will depend on the number of shares authorized and issued. You can calculate the amount by using either Authorized Shares Method and the Assumed Par Value Capital Method. Note that exempt corporations are excluded from the franchise tax and annual reporting requirements.
Conclusion
Incorporating a Delaware corporation is straightforward but might confuse you as the newcomer. The process can be lengthy and troublesome if you are inexperienced. You can choose a service provider to take care of all steps for you to relieve your worries and confusion.
