Delaware Corporation Guide

A corporation, or “corp”, is a traditional type of business that provides predictable legal protections for business owners.

Stockholders’ personal assets are separate from the debts and liabilities of the corporation. A corporation owns assets, enters into contracts, and can sue or be sued.

Delaware is known globally as the premier legal home for corporations. Entrepreneurs, investors and legal experts from all over the world acknowledge Delaware’s corporate laws as being the best-in-class for limited liability protection. The state you incorporate in govern the internal affairs of the corporation. This includes the liability shield known as a “corporate veil.” By incorporating in Delaware, you are more likely to be struck by lightning than have your corporate veil pierced by a creditor. That is not true when incorporating in the 49 other state, territories, and internationally. In other states, many theories exist to pierce the corporate veil, such as “alter-ego” and insufficient capitalization. 

Investors heavily favor Delaware corporations because of the predictability this environment offers. Delaware’s sophisticated corporate laws and efficient legal system minimize the risks of costly legal uncertainties. This predictability is crucial to companies looking to expand especially when raising funds from outside investors.

Delaware state laws set the trends when it comes to corporate case law. The state has been developing and refining its corporate statutes for over 200 years, anchored by the Court of Chancery, which was established in 1792. Today, Delaware corporate law is the national benchmark, studied in law schools across the country and respected in boardrooms around the world. That is why 80% of initial public offerings and two-thirds of the S&P 500 are incorporated in Delaware.

Incorporating in Delaware provides many key legal benefits for businesses, including a business-friendly legal system featuring a specialized court dedicated to corporate disputes.

Delaware corporations also offer predictability in structuring and governance, including the ability to issue different classes of stock. Delaware corporations are rigid in protecting shareholder rights and fiduciary duties. Generally, Delaware is seen as a balanced approach when considering shareholders on one hand and director on the other hand.

The world’s most successful companies make Delaware their legal home specifically for the stability, predictability, and flexibility its corporate laws provide. These benefits aren’t reserved for just the Fortune 500 however. Anyone can incorporate their business in Delaware and achieve the same legal protections and structural advantages.

Here are the steps you need to follow to incorporate in Delaware.

You can give your Delaware corporation any name that you want. However, your business name has to be unique. Your business name cannot be identical to any company already registered in Delaware. Some words are disregarded for purposes of determining a name conflict, such as “the”, “a”, and a few other words, including the corporate ending. A corporation cannot include the words “bank” or “trust” without approval from the Delaware Bank Commissioner. 

The name of your Delaware corporation also needs to include one of the following corporate endings:

• Inc. – or “Incorporated”
• Co. – or “Company”
• Corp. – or “Corporation”

Delaware allows a few other corporate endings, such as Limited, Association, Club, Institute, Fund, Foundation, Society, Union, or Syndicate.

IncNow‘s Incorporation Specialists can check if your preferred business name is available in Delaware before you incorporate.

Delaware law requires you to appoint a Delaware Registered Agent for your corporation. If you are not located in Delaware, you need to appoint a company, like IncNow, to be your Registered Agent.

A Delaware Registered Agent needs to meet the following requirements:

• Maintain a physical street address (not a P.O. Box) within the State of Delaware.
• Be available during business hours.

The main purpose of a Delaware Registered Agent is to receive and forward “Service of Process” on behalf of the corporation. This includes official court filings, such as lawsuits and subpoenas, as well as Delaware Annual Report notifications. The Delaware Registered Agent does not forward business mail. Your Delaware corporation does not need a separate office address or virtual office, other thanks its Registered Agent address.

To officially establish your Delaware corporation, you need to file a Certificate of Incorporation with the Delaware Secretary of State. This document creates the public record of the company’s existence.

The Certificate of Incorporation must include:

• The name of the corporation.
• The name and address of the Registered Agent.
• The total number of authorized shares.
• The signature of an authorized incorporator.

Delaware does not require the names of shareholders, directors, or officers to appear on the Certificate of Incorporation.

A few other optional provisions must be in the Certificate of Incorporation for it to be available to the corporation. Examples include director amended bylaws and limitations on duty of care liability. These are part of standard Certificate of Incorporation provided by IncNow, but not most other incorporation services. Examples of other optional provisions include indemnification of officers and directors and advancement of expenses to defend lawsuits.

Beyond the public filing, Delaware corporations need to prepare specific internal documents to preserve its legal standing. These documents include:

• Corporate Bylaws: The internal rulebook for governance and operations of elections of officers and directors.
• Stock Certificates: Physical evidence of share ownership.
• Stockholder Agreement: An optional contract outlining the rights and obligations of shareholders, including rights of first refusal on sale of stock.
• Corporate Minute Book: A centralized record of meeting minutes and major decisions.
• Organizational Resolutions: The initial “Action of Directors” required to officially appoint officers and issue stock.

IncNow’s Now and Complete Corporation packages are designed to ensure compliance by including all of these necessary documents, professionally prepared for your Delaware corporation.

After your Delaware corporation is officially formed, it must obtain an Employer Identification Number (EIN) from the IRS. This unique federal identifier is mandatory for paying taxes, hiring employees, and opening corporate bank accounts.

Business owners can apply for an EIN directly through the IRS website or by mail. The application process requires completing and submitting IRS Form SS-4.

The cost to form a Delaware corporation depends on the level of service and processing speed you need. The mandatory base filing fee paid to the Delaware Division of Corporations is $109. For 24-hour expedited filing, the state charges an additional $50.

IncNow offers three distinct packages for Delaware corporations:

• Basic Corporation Package ($199): The Basic Corporation Package covers the filing of your Delaware corporation and includes the remainder of the calendar year of Delaware Registered Agent Service. This excludes the action of directors to issue stock and stock certificates. It is designed for lawyers who prepare their own stock certificates. This packages includes “regular approval” filing speed, usually 3 to 15 days, but is dependent on the State’s processing speed. 
• Complete Corporation Package ($298): The Complete Corporation Package includes the filing of your Delaware corporation, the remainder of the calendar year of Delaware Registered Agent Service, and internal company documents, such as stock certificates. This packages includes “regular approval” filing speed, usually 3 to 4 days, but is dependent on the State’s processing speed. 
• Now Corporation Package ($398): The Now Corporation Package is our most popular option. The Now Corporation package includes every document in the Complete Corporation Package plus the $50 expedited filing fee for 1-business day turnaround.

Exclusive Offer: Use the discount code Save50 at checkout to receive $50 off the Complete Corporation or Now Corporation package.

LLCs and corporations are two types of business entities that provide limited liability protection for their owners and managers. However, they have key fundamental differences.

A corporation is made up of shareholders who have ownership in the company, directors who make general business decisions, and officers who oversee the day-to-day operations.

LLCs, or Limited Liability Companies, consist of Members who have ownership in the company and may also manage the business. LLC Members can appoint separate Managers and assign them specific responsibilities in the company.

Corporations have a strict structure that they are required to maintain by law. Corporations also need to meet certain annual requirements, like filing an Annual Report of directors and officers. LLCs are far more flexible in terms of their structure. LLC Members can agree to own and manage the business with flexibility in waiving fiduciary duties and limiting minority owner rights. The Members outline these terms in the company’s private Operating Agreement, and this agreement is enforceable by law.

Corporations can choose to be treated as either a C-Corporation or S-Corporation for federal tax purposes. Here are the key details about these two tax elections: 

• S-Corporation (S-Corp): By electing this status on IRS Form 2553, a corporation functions as a “pass-through” entity. Corporate income, losses, deductions, and credits pass directly through to the shareholders, who report them on their personal tax returns. This avoids taxation at the corporate level. S-Corps do have certain restrictions. An S-Corp must not be owned by non-U.S. citizens, other entities, or trusts. To be eligible for the s-election, the corporation must not have more than 100 individual shareholders, all of which must be U.S. citizens or green-card holders.
• C-Corporation (C-Corp): This is the default tax status for a corporation. C-Corps are subject to corporate income tax on their profits. If those profits are distributed to shareholders as dividends, the money is taxed again at the individual shareholder level. This is known as “double taxation.”
  

Read more about corporation tax tips.

Delaware Corporations have two requirements they need to complete each year in Delaware: filing a Delaware Annual Report and paying the Annual Franchise Tax. 

• • The Annual Report: This filing updates the state regarding the company’s current directors and officers.
  • The Annual Franchise Tax: This is a maintenance fee paid for the to keep the corporation in Good Standing to avoid losing the right to conduct business and liability shield.

Both the Annual Report and the Franchise Tax payment must be submitted to the Delaware Division of Corporations on or before March 1st of each year. Failure to meet this deadline can result in penalties and losing good standing status.

The Delaware Annual Franchise Tax for corporations is calculated based on the number of Authorized Shares listed in the company’s Certificate of Incorporation. The minimum fee for the Delaware Annual Franchise Tax is $175 plus a $50 state filing fee.

Delaware corporations can calculate their tax using one of two methods and are legally permitted to pay the lower resulting amount.

The Authorized Shares Method is the default calculation method for the Delaware Annual Franchise Tax. It is based solely on the number of shares the company is authorized to issue:

• Up to 5,000 shares: Flat fee of $175 (Minimum).
• 5,001 to 10,000 shares: Flat fee of $250.
• Over 10,000 shares: $250 base fee plus $85 for each additional 10,000 shares (or portion thereof).

The Assumed Par Value Method is the alternative method for calculating the Delaware Annual Franchise Tax. This method is based on the company’s actual financial status and often results in a significantly lower tax for startups with large numbers of authorized shares. The minimum tax under this method is $400.

To calculate the Delaware Annual Franchise Tax using the Assumed Par Value Method:

1. Divide the company’s Total Gross Assets by its Total Issued Shares to determine the “Assumed Par Value.”
2. Multiply this Assumed Par Value by the Total Authorized Shares to get the “Assumed Par Value Capital.”

The tax is then calculated at a rate of $400 for every $1,000,000 (or portion thereof) of that capital.

Corporations formed by IncNow are filed with 1500 shares by default to be a minimum stock corporation. If you require more authorized shares, the stock can either be requested at the time of incorporation or later by amending its Certificate of Incorporation.

There are several different types of corporations that can be formed in Delaware. Each one is designed to meet specific business goals.

The General Corporation is the most common corporate structure. It operates under a traditional three-tier hierarchy:

• Stockholders: The owners of the company.
• Directors: The governing body responsible for high-level decision-making.
• Officers: The executives appointed to manage daily operations.

Nonprofit Corporations are also called Nonstock Corporations. Nonstock Corporations do not have capital stock and cannot distribute profits to members as dividends. Most Nonstock Corporations are formed with the specific intent of obtaining 501(c)(3) tax-exempt status from the IRS. The IRS requires three paragraphs be added to its Certificate of Incorporation. IncNow includes these three paragraphs by default when a non-profit corporation is ordered. 

A corporation that obtains a 501(c)(3) tax status from the IRS by submitting Form 1023 to the IRS and obtaining a tax determination letter. A public charity has the ability to receive financial contributions and have the donors treat their contributions as charitable deductions. Donors can deduct 100% of their contributions to the corporation on their personal tax return, provided the total donations do not exceed 50% of the donor’s adjusted gross income.

 

The Delaware Public Benefit Corporation (PBC) is a variation of the General Corporation that explicitly authorizes company leadership to pursue public benefit purposes alongside profit. PBCs have public benefit statements written into the Certificate of Incorporation.

These statements detail the artistic, charitable, cultural, economic, educational, environmental, or other positive causes the company commits to supporting. This PBC avoids lawsuits by shareholders that the company is committing waste or breaking fiduciary duties. However, the PBC may help attract investors interested in doing good plus doing well. 

In a traditional General Corporation, directors are generally obligated to prioritize the maximization of profits. A Public Benefit Corporation legally mandates that the Board of Directors balance three competing interests:

• The financial interests of stockholders,
• The interests of stakeholders affected by the corporation’s conduct, and
• The specific public benefits identified in its Certificate of Incorporation.