Form a Corporation in Delaware - Step by Step Guide
27 April, 2019
Thinking of making Delaware you business home? Well, you are on the right path as the state of Delaware is the corporate home for more than 1 million companies. Out of these, there are about a thousand more companies that are added each year. In fact, for a state that has such a small population, the numbers of companies are a lot. And if you are wondering why are so many companies a fan of incorporating in Delaware just like you want to, the next section would help you understand why.
Why incorporate in Delaware?
Not just the small businesses, but many Fortune 500 firms prefer to have their company incorporated in Delaware over any of the other states in the USA. As a matter of fact, Delaware is not a tax haven, so why are people so eager to incorporate their business here? Here are the reasons why:
- Clear and consistent legal system
- Favorable laws for corporate governance
- Best state to incorporate a startup
- State tax laws favor the companies that are not doing any business in the state
- For any non-resident company that wants to expand in the US market, Delaware is the best place to start from
Now that you know why Delaware is one of the best states to incorporate your company, you need to know about the right steps to help you in the process. Keep reading to know about them.
Steps to form a corporation in Delaware
To form a corporation in Delaware, you need to take the steps set forth below.
Step 1 - Choose a Corporate Name
The very step that you need to take is to choose the name of your company. Moreover, your corporation name should include the words like:
These words or their abbreviations should be used without any punctuation. Moreover, it can also hold a word or abbreviation of a word in another language that has a similar meeting. Just that it should be written in Roman letters or characters.
Basically, the name of your corporation should not be similar to any of the other available business entities that have already filed with the Delaware Secretary of State. In fact, you can check if your business name is available to use or not by looking for it in the Delaware Secretary of State business name database. And if the name is available, you can easily reserve it for 120 days by paying a $75 fee. Even though the reservations are made through the Delaware Division of Corporations website, you can also take the help of an agent like IncParadise.
Step 2 - File Certificate of Incorporation
As soon as you have selected your company name, the next step is to file for the Certificate of Incorporation with the Delaware Secretary of State. To be clear, your corporation is legally created after you have filed for the Certificate of Incorporation with the Delaware Secretary of State. In this, you would have to include:
- Corporation address;
- Corporation name:
- What is the purpose of the corporation;
- The address and name of the agent of service of process;
- Address of the incorporator;
- Name of the incorporator; and
- The total number of shares that the corporation is allowed to issue.
The filing fee for the certificate that would be just one page is $89. And for any additional page, an extra $9 fee has to be paid. Moreover, the articles has to be filed through fax or postal fax.
Step 3 - Appoint a Registered Agent
Each Delaware corporation has to have an agent for service of process within the state. This registered agent can be a corporation or an individual that is registered with the government and agrees to accept any legal paper of the corporation that they offering services to on their behalf in case the corporation is sued. Moreover, the registered agent needs to accept the service of process on behalf of your corporation prior to designation.
Moreover, this agent has to be a resident of Delaware, or a company that has been authorized to conduct business in Delaware. In fact, the registered agent has to have a physical street address in Delaware. Nevertheless, in case your company is physically located in Delaware, it can act as its own registered agent. IncParadise is one of these registered agents that can easily assist you with your needs.
Step 4 - Prepare a Corporate Records Book
After this, you would need to prepare the corporate records book that would hold all the information for your corporation. In short, you would need to keep all the important papers of your corporation. These papers include the stock certificates, stock certificate stubs, and the minutes of shareholder and director meetings.
Once you have prepared this, it is important to keep these corporate records at your corporation's main office. To keep these documents, you can use a special corporate records kit or a ring binder to keep all the records.
Step 5 - Set Up the Corporate Bylaws
The bylaws are the main corporate document that holds all the basic ground rules for how the corporation would be operated. This document does not need to be filed with the state and your corporation is not legally obligated to have the corporate bylaws. But even though it is not a legal requirement, you should adopt them since it helps to:
- Establish the operating rules of your corporation; and
- Give proof to the bank, IRS, creditors and others that you corporation is legitimate.
Step 6 - Appoint the Initial Corporate Directors
The next step to start your corporation in Delaware is to appoint the initial corporate directors. This has to be done by the person who signed the articles of incorporation and is the incorporator. These corporate directors, when appointed, would serve as the board on the first annual meeting of the shareholders. And the board members that would serve for the next term would then be elected by the shareholders of the company.
Further, the incorporator would have to fill an "Incorporator's Statement" that would display all the addresses and names of the initial directors. And this statement has to be signed by the incorporator and a copy has to be placed in the corporate records book. In short, you should have this document in your records, but this statement does not have to be filed with the state. It basically acts as a proof that your corporation is legitimate and credible.
Step 7 - Hold Your First Board of Directors Meeting and Issue Shares
It is important for every corporation to have their first board of directors meeting that is held to appoint the corporate officers, authorize issuance of shares, adopt an official stock certificate form and corporate seal, set the fiscal year of the corporation, select a corporate bank and adopt bylaws. All the actions of the director would also have to be recorded in the corporate minutes that would be prepared by the incorporator or any other director.
In the meeting, the stocks too have to be issued to the shareholders of the company. Even though it is not legally important in many states to issue a paper stock certificate for each issuance, it is usually good to do so. Or you can also issue the shares electronically through an application such as Eqvista that would also help you to track and manage all the shares in your company. Moreover, each shareholder's name and address would have to be added on the certificate and the stock ledger (also called cap table, and there are cap table applications like Eqvista).
In addition to this, in case the corporation is an S corporation, the directors would have to approve the election of the S corporation status. When the meeting is done, the minutes have to be prepared in a week or two and then signed by all the directors before it is kept in the records of the corporation.
Step 8 - File the Delaware Annual Report and comply with Franchise Tax Requirements
Every corporation in Delaware has to file an annual report and pay a franchise tax with it. These have to be give to the Delaware Division of Corporations no later than March 1st of each year. But if the corporation is a foreign one, they are required to file the annual report by 30th June of every year. For a domestic corporation, the filing fee is $50 along with the franchise taxes once the report has been filed. On the other hand, the filing fee for the foreign corporations is $125.
The minimum amount of franchise tax that is paid is $75 and the maximum can reach to $180,000. Moreover, the penalty for not filing the annual report before 1st March is $100 with an interest of 1.5% per month that is applied on the unpaid balance. And the foreign corporations have to pay a penalty of $125 if the annual report is not filed. Anyone can file the annual report online. Also, all the Delaware registered agents get a notification of the Franchise tax and the annual report on December every year.
Step 9 - Obey Other Tax and Regulatory Requirements
Other than the compliances mentioned above, there are some additional tax and regulatory requirements that applied to your corporation. These include:
- S Corporation Filing: In case the corporation needs to elect the S corporation state for the tax purposes, you would have to submit the form 2553 Election. Moreover, this form would have to be signed by all the shareholders. Also, this election has to be filed within 2 months after the beginning of the corporation's first tax year. Contact your registered agent or the IRS for more details.
- EIN: Another thing that you corporation would need to do is get the federal employer identification number (EIN). There is no filing fee for this and you can apply for it on the IRS website online easily.
- Business Licenses: Based on the kind of business that you are running and the place it is located in, your corporation might need to get many other local state and local business licenses. Connect with your local government agency to know more.
Step 10 - Foreign Corporations Doing Business in Delaware
Every corporation that is organized out of Delaware has to register with the Delaware Secretary of State in case they want to do any kind of business in Delaware. Moreover, they would also have to appoint a registered agent that is physically located in Delaware for service of process. To register for this, you would have to file the State of Delaware Qualification Certificate of a Foreign Corporation.
Once you complete the certificate, you would also have to give the Certificate of Existence that should be dated within 6 months before the filing of the certificate and should be from the home state of the foreign corporation.
How can IncParadise help you?
Now that you are aware of all the steps that you need to take to incorporate your company in Delaware, it is time to begin working on your plan. If you have all your plan ready and are looking for a way to register your business in Delaware, IncParadise can help you with it. From incorporation to assistance in setting up your company, IncParadise is here for you. Visit to find out more!
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