Delaware Corporation Guide

A corporation, or “corp”, is a type of business entity that provides legal protections for owners, directors and officers of a company. Unlike an LLC, a corporation is owned by shareholders who hold stock in the company.

Legally, a corporation is an independent entity, completely separate from its owners and managers. This legal separation protects owners’ personal assets from the debts and liabilities of the company. A corporation has the ability to own assets, enter contracts and sue or be sued in its own name.

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 gold standard for limited liability protection.

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 by taking on outside investment.

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.

Forming a corporation 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 flexibility in structuring and governance, including the ability to issue different classes of stock. This allows businesses to tailor their legal structure to specific needs, with the confidence that Delaware courts will respect and enforce these arrangements so long as they are established in good faith.

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 similar to any company already registered in Delaware.

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”

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 standard business hours (9:00 A.M. to 5:00 P.M., Monday through Friday).

The main purpose of a Delaware Registered Agent is to receive “Service of Process” on behalf of the corporation. This includes official court filings, such as lawsuits and subpoenas, as well as state tax notifications.

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.

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.
• Stock Certificates: Physical evidence of share ownership.
• Stockholder Agreement: A contract outlining the rights and obligations of shareholders.
• 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 expedited filing, the state charges an additional $50.

IncNow offers three distinct formation packages for Delaware corporations:

• Basic Corporation Package ($199): The Basic Corporation Package covers the filing of your Delaware corporation and includes one full calendar year of Delaware Registered Agent Service.
• Complete Corporation Package ($298): The Complete Corporation Package includes the filing of your Delaware corporation, one full calendar year of Delaware Registered Agent Service, and all necessary internal company documents to ensure compliance. It includes standard filing 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 faster 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 anyway they please. 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, 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 can only have 100 individual shareholders, all of which must be U.S. citizens or residents.
• 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 privilege of incorporating in Delaware.

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.

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.

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.

A corporation that obtains a 501(c)(3) tax status from the IRS 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 causes 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.

In a traditional General Corporation, directors are generally obligated to prioritize the maximization of stockholder value. 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.