How To Form A Delaware Corporation: An 8-Step Guide

Forming a corporation is a preferable option in Delaware

According to the Delaware Division of Corporations’ Annual Report Statistic 2021, corporations account for the second largest proportion of all business entities in Delaware, after LLCs.

Delaware is home to more than half of the publicly traded corporations in the US. As a business-friendly state, Delaware has become “home” to many well-known corporations, including Google, Amazon, Walmart, Tesla, Ford, and many more.

A corporation is the common business form in Delaware because of the following factors:

• Business-friendly policies in terms of tax
• Efficient corporate legal process with a large body of Delaware case law
• Attractive environment for venture capital funding
• High level of business privacy protection in the US

In contrast to other company entities, Delaware corporations have a distinct legal corporate structure where ownership is divided among shareholders, and their obligations are based on how many shares they own. The corporation is subject to corporate income tax, but its profit is distributed to shareholders and taxed at a personal income tax rate.

Different types of Delaware corporation

Delaware corporations are divided into four main groups which are General Corporations, Close Corporations, Public Benefit Corporations, and Non-Profit Corporations.

General corporations are the most common type in Delaware including C corporation (C-Corp) and S corporation (S-Corp). S-Corp is a special tax status of corporations initially formed as a general corporation, a close corporation, or a public benefit corporation.

All corporations in Delaware are entitled to a C-Corp by default unless the corporations file Form 2553 with the IRS for S corporation or Form 1023 for non-taxable status. An S-Corp is beneficial to the business by passing all profits and losses to the owners for federal income tax purposes.

The greatest advantage of a Delaware C-Corp is that it allows corporations to have two or more classes of stock, while an S-Corp is limited to 1 class of stock and only 100 shareholders. An S-Corp shareholder must be a natural person, not a venture capital company.

How to form a Delaware corporation

Forming a corporation in Delaware is a complicated process requiring business founders to follow some specific rules by the State. There are various types of corporations in Delaware, so it’s important to determine which type meets your business needs in the first place.

Although you can choose to complete the registration process on your own, it could be troublesome and time-consuming. Choosing a 3rd-party agent for Delaware company formation to get everything done for you is a wise choice to relieve you from arising problems. Below is a summary of the process to register a Delaware corporation.

Step 1: Selecting your corporate name

Naming your corporation is the initial step in complying with The Delaware General Corporation Law. Below are several criteria for a Delaware corporation name:

• Including the following words “association,” “company,” “corporation,” “club,” “foundation,” “fund,” “incorporated,” “institute,” “society,” “union,” “syndicate’’, “limited,” or their foreign translations written in roman characters or letters; or abbreviations thereof, with or without punctuation
• Dissociating your corporate name from “trust” and “bank’’ (or any of its variations) if your company doesn’t offer banking services
• Avoiding naming the corporation that leads to misleading the company’s services
• Avoiding copyright infringement by checking the availability online via The State’s search tool
• Ensuring the copyright of your corporate name by reserving it online via the State of Delaware website or by mail post. The reservation will validate within 120 days from the reserved date with only $75 and can be renewed after 120 days

Step 2: Securing domain name (URL) for your corporate website

This step is an optional but advisable step for business founders who want to create a professional website for their own company. A professional domain name gives your business instant credibility and helps your customers easily access your business.

It is important to check the availability of your desired domain name. You can create your web address or buy it for copyright protection from other businesses.

Step 3: Choosing your Registered Agent

According to Delaware Code tit. 8, c. 3 § 13, every corporation in the state requires a registered agent to receive notices and legal papers on behalf of the corporation during or after the process of formation. An individual Delaware resident or a business entity authorized to do business in Delaware is qualified as a registered agent if it is physically located in the state.

A company headquartered in Delaware can act as its registered agent instead of choosing a third-party agent. However, in this case, the company gives up its right to maintain corporate privacy, one big benefit offered by Delaware to all corporations in the state.

Step 4: Filing certificate of incorporation

The Delaware certificate of incorporation is considered the birth certificate, proving the formation and registration of your Delaware corporation. The document can be filed online or by post via the Secretary of Delaware including some required information as follows:

• The company’s name and its entity type
• The registered agent’s name and address
• The number of authorized shares and the number of shares issued
• The corporate purpose
• The company’s street and mailing address
• Incorporator’s name, street, and mailing address

The incorporator is the one who is responsible for filing and signing paperwork and incorporation certificates.

The cover memo must be filed together with the certificate of incorporation. It is created automatically after the online completion of filing, or it can be downloaded from the State of Delaware website.

It is not required for the company to disclose Par Value, the initial selling price of shares, in Delaware.

The minimum fee to register a Delaware corporation is $89, plus $9 for each additional page, for up to 1500 stocks of no par value or up to $75000 for par value stock, and will increase depending on the number of shares of no par value stock and the value of par value stock.

Step 5: Adopting corporate bylaws

Bylaws are a set of corporate rules supporting most of the internal activities of a corporation to ensure its smooth daily operation.

The adoption of bylaws is advised for all Delaware corporations and should be created by competent lawyers.

Bylaws include detailed corporate information such as:

• the company’s name and address
• corporate meetings and agreements
• Board of Directors, Officer
• stockholder-related information
• voting procedures and rules governing business actions, etc.

There is no need to file corporate bylaws with the state of Delaware.

Step 6: Selecting the Board of Directors and holding the first corporate meeting

There must be at least one director’s name provided to fill in the Incorporator’s statement to register Delaware corporation. The incorporator needs to appoint the initial directors who will serve on the board until the first annual shareholder meeting.

The first corporate meeting needs to be held for the Board of Directors to appoint officers, set the fiscal year, open a corporate bank account, and adopt bylaws, corporate seal, and stock certificate. All actions in the meeting must be recorded in meeting minutes – a book containing all corporate information and actions.

Step 7: Determining stock information

This step requires the corporation to decide on the following figures:

• The amount of stock
• Par value for each stock
• The number of shares planned to be authorized and how many of them planned to be issued

The purpose of issuing stock to shareholders is to receive their contributions in return such as cash, capital, services, etc.

Step 8: Complying with state tax laws and other regulations

Below are some of the key regulations you may need to consider:

• Applying for an Employer Identification Number (EIN)

This number acts as the company’s social security number. An EIN needs to be obtained initially due to its necessity for other procedures such as opening bank accounts, hiring and paying employees, paying taxes, etc. EIN can be applied online for free via the IRS website.

• Filing annual reports and paying franchise tax

All Delaware corporations must file annual reports and pay franchise taxes except for some exemptions. The annual fee is different depending on different types of business entities. For corporations, it is calculated by two methods which are the Authorized Shares Method and the Assumed Par Value Capital Method.

• Obtaining business licenses

It is required for almost every company to apply for and have a business license in Delaware. After the company formation, this step is required to be done online via Delaware One-Stop or by mail post to the Delaware Division of Corporations. The license fee is $75 or more depending on its duration, from one to three years, and its business activity.

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What to do after forming your Delaware corporation?

The steps you take after forming your business are critical to establishing a solid legal foundation that will serve you and your company for many years to come, so think carefully.

Open a business bank account

You’ll need to open a business bank account for two critical reasons – protecting assets and managing finance.

Having a separate bank account for your corporation means you’ll be able to insulate yourself from any potential legal liability that could come from running the business. This way, if something does go wrong (e.g., your company is sued), your personal assets will be protected.

Once you have a business bank account, it will be much easier to keep track of your finances and budget accordingly, which is especially important for startups and small businesses. Without a clear financial picture, it can be very easy to overspend and get into debt.

Build credit score

Building a strong business credit score is essential for a Delaware corporation, because it gives you access to better financing options in the future, and makes it easier to get approved for loans and lines of credit.

There are a few key things you can do to build your business credit score:

• Pay your bills on time
• Use business credit cards wisely
• Keep a low balance on your business credit cards
• Get trade lines from suppliers

Manage business accounting

Keeping on top of your business accounting will help you stay organized and compliant with the law. A well-managed accounting system will help you track business finances (e.g., bills, expenses, and income) and simplify your annual tax filing.

There are a few things to keep in mind when managing your business accounting:

• Understand your business financial statement
• Stay on top of invoicing and accounts receivable
• Understand your tax obligations
• Use accounting software or hire an accountant
• Keep accurate records and reconcile accounts regularly

You can maintain your accounting records on your own or hire an accounting service to help save time. Regardless of which method you choose, be sure to keep accurate records and reconcile your accounts regularly.

Conclusion

Forming a Delaware corporation is a complicated process regarding filing corporate papers and complying with Delaware regulations. This thorough guidance on how to register a Delaware corporation covers all the bases of the formation process. A startup, however, could take plenty of time and face many problems.

Get in touch with us for a smooth formation process, plus additional support in your day-to-day business operations; our team of friendly consultants is always ready to give practical guidance and support for any difficulties you may encounter.

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