Delaware is a popular destination for businesses to incorporate due to its corporate-friendly tax system, efficient courts, and flexible laws. In fact, many successful companies including Google, Apple, and Coca-Cola are incorporated there. If you are considering starting a Delaware corporation, here is a step-by-step guide to help you get started.
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Step 1: Choose a company name
According to Delaware law, incorporating companies must have a unique name and end with one of the following suffixes: "Incorporated," "Corp," or "Limited" (or an abbreviation thereof). Before choosing a name, make sure to check the Delaware Division of Corporations to make sure it is available.
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Step 2: Decide on the type of corporation
There are two types of corporations in Delaware- a C-Corporation and an S-Corporation. The primary difference between the two is how they're taxed. A C-corporation is taxed as a separate legal entity from its owners while an S-Corporation is treated like a partnership for tax purposes, allowing the company's income to flow through to the shareholders. It's important to look into both types and decide which is a fit for your business.
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Step 3: Choose a registered agent
A registered agent is a person or entity that is designated to receive legal and tax documents on your corporation's behalf, including important mail and legal notices. Delaware law requires all incorporated businesses to appoint a registered agent. You can hire a third-party agent or serve as your own registered agent.
Step 4: File the Certificate of Incorporation
You'll need to file the Certificate of Incorporation with the Delaware Division of Corporations along with a filing fee. The certificate should include your corporation's name, formation date, registered agent details, and authorized shares of stock.
Step 5: Obtain necessary licenses and permits
Depending on your industry and business, you may need to obtain specific licenses and permits to operate legally in Delaware. Check with the Delaware Business First Step portal and your local government agency, as well as the state Department of Taxation and revenue, to determine what licenses and permits you will need to obtain.
Step 6: Draft corporate bylaws
Bylaws are written rules and regulations that govern how the corporation will operate. They typically outline shareholder rights, director powers, meeting processes, and other legal matters. While bylaws are optional in Delaware, we strongly advise drafting and adopting bylaws so that all decision-making processes are legally codified and easy-to-follow.
Step 7: Obtain an EIN
Your Employer Identification Number (EIN) is issued by the Internal Revenue Service (IRS) and acts as your corporation's identifying number for federal tax purposes. Your EIN will be required when filing tax returns, and to manage payroll operations in the U.S. You can obtain an EIN directly from the IRS online.
Step 8: Issue Stock
Stock issuance is a fundamental step within the incorporation process, it sets the distribution of ownership and determines how much control each shareholder is entitled to. Delaware grants larger legal flexibility compared to other states in the division of stock ownership, so pay particular attention when drafting these agreements. Making these share arrangements clear now is important but leaving a lot of wiggle room is also advisable so that stock ownership can adjust when new team members join in the future.
Wrapping up
Running your business as a Delaware corporation provides several tax-friendly benefits, all while maintaining legal authority. With less bookkeeping and overall complexity doing business is smoother than ever before. It's vital you determine the best avenue for your Delaware corporation before getting caught up with administration details, because once underway if you switch this status it can be overly complicated and lead to organizational chaos. Happy founding!
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