Easy, Fast & Professional
A Delaware corporation is a legal entity that is typically composed of people who hold stock in the corporation. There are many benefits to forming a corporation in Delaware, including a business-friendly court system as well as favorable case law and statutes. But what is a Delaware corporation, exactly, and how do business owners form one? This information will help you determine if the Delaware corporation meets your business needs, plus how to get started.
Delaware Incorporation Services
Incorporate a Delaware Corporation in only a few minutes with IncNow!
• Enjoy the predictable and fair legal environment afforded to businesses incorporated in the State of Delaware
• Protect the assets of stockholders against claims of the business’s creditors
• Rely on IncNow’s 40+ years of experience
• Start a Delaware Corporation today with our NOW Incorporation package for our 1-business day turnaround service
How to Start a Delaware Corporation
- 1. Choose a Name
Choose a unique corporate name that is not registered with the Delaware Secretary of State. The name must include a corporate ending or abbreviation thereof (ex. “Inc.”, “Incorporated”, “Company”, “Co..”, “Corporation”, “Corp.”, “Association”, etc.) You can always file a name amendment in the future. For example, when we incorporated “Pinterest,” the original name was “Cold Brew Labs.”
- 2. Find a Registered Agent
Every Delaware corporation is required to have a registered agent in Delaware. The registered agent will forward lawsuits and correspondence from the Delaware Secretary of State to you.
You do not need to visit or have an office or any other connection to Delaware to incorporate a corporation in Delaware. Select Agents and Corporations, Inc. (IncNow) to act as your registered agent.
- 3. Draft a Certificate of Incorporation
The Certificate of Incorporation officially brings the corporation into existence in the public record. IncNow will prepare a Certificate of Incorporation that includes:
- Name of the corporation
- Name and address of the Registered Agent of the corporation
- Statement of the type of business that the corporation will engage in
- Number of shares of authorized stock that the corporation will issue
- Par value of each share
- Name and signature of the incorporator
- Indemnification clause for breaches of Duty of Care
- Allowance for Director Amended Bylaws
The standard form from the Secretary of State leaves off recommended provisions, such as the director amended bylaws and relaxed director liability. These provisions must be included in the Certificate of Incorporation and cannot be enforced if included only in the bylaws or elsewhere.
- 4. Annual Taxes and Fees
Similar to most states, Delaware corporations pay a “franchise tax”, or annual fee. This fee is based either on the shares authorized by the corporation on its Certificate of Incorporation, or any Amendments to the Certificate of Incorporation that change the number of shares of stock the corporation is allowed to issue.
We recommend incorporating with 1500 shares of voting stock to minimize both filing and annual fees. If additional shares of restricted or non-voting stock are desired or required in the future, the authorized number of shares can be amended.
- 5. Stockholder Agreement
If your corporation has more than one stockholder, it should have a Stockholder Agreement.
- Stockholder agreements are optional, but recommended.
- They set out the powers and rights of stockholders, as well as their relationship with the corporation and must be executed by all stockholders.
- A stockholder agreement can place restrictions on transferring stock.
- Delaware law specifically allows certain restrictions on the rights of stockholders to sell their shares.
- In closely held corporations with very few stockholders, these agreements are especially important because they will govern the relationship between the stockholders.
- Notice of the stockholder agreement must also be on the stock certificates to provide notice to possible assignees of the restrictions.
Any corporation with more than one stockholder should have a Stockholder Agreement to minimize future problems of valuation, buyback, and unwanted third parties owning stock as transfers or assignees.
- 6. Stockholder Agreement Service
To the surprise of many business owners, bylaws do not include provisions for rights of first refusal or buy-out provisions for stockholders. Corporation stockholders should consider a Stockholder Agreement — an important additional service to protect their stockholders’ expectations.
We offer a standard Delaware Stockholder Agreement for $199.
- A Delaware attorney developed this Stockholder Agreement in the course of practice.
- It has been modified for our customers to provide extra rights and protection for stockholders to prevent outsiders from becoming unwanted stockholders in their company in the event of a sale of stock or death of a shareholder.
- This document gives you a running start to future planning for your Corporation.
What is a Corporation, and what does Incorporating mean?
A Corporation is a legal entity or legal “person” that exists completely separate from natural persons, and is typically composed of natural persons that hold stock in the corporation.
Incorporating is the act of filing a new corporation.
When incorporating, you have the ability to select the state of incorporation, which is the state where the initial paperwork is filed and the state that will govern the internal affairs of your business (relationship between decision makers and owners).
Delaware General Corporation Law will protect your corporation only if you select to incorporate in the State of Delaware.
Delaware has the most desirable legislature, statutes, case law and court system for corporate governance. Starting in Delaware is an easy choice that some business owners overlook in the haste to get started, but may regret later. Rarely is the state in which you reside as favorable as where the owners reside. After comparing all 50 states, business owners frequently decide to incorporate in Delaware.
Why Should I Incorporate in Delaware?
Delaware has a reputation as the forerunner in corporate law in the United States. Industry leading companies, from credit cards (Discover, Bank of America) to technology (Google, Apple) to restaurants (McDonald’s, Chipotle) are incorporated in Delaware. So why should you join them and incorporate your business in Delaware?
- 1. Delaware has the strongest Corporate Shield of any State
The main reason to incorporate in Delaware is to protect personal assets from your business’s liability. This protection is referred to as the “corporate veil” or “shield”, and is especially strong in Delaware.
- 2. Business-Friendly Government Services
Many of the businesses that chose to organize in Delaware have done so because of the business-friendly government in Delaware. Delaware’s Court of Chancery is a specialized business court. With its established body of case law, the Delaware courts are experts at resolving business conflicts. The U.S. Chamber of Commerce has ranked Delaware’s litigation system the best in the country for fairness every year.
- 3. Ability to Operate a Delaware Corporation in every State or almost any Country
With a Delaware corporation, you have the ability to conduct business in every state and almost every country. Delaware corporations do not need a bank account or business address in Delaware, they need only a Registered Agent to forward Delaware annual notices and legal notices.
- 4. Predictability in Ownership and Management Structure
Delaware’s predictable laws on ownership and management allow you to structure your business with confidence. You can even have the protection of a corporation for a one-person business. For example, one individual can be sole Director, President, Secretary, and Treasurer, as well as the sole shareholder.
- 5. Directors and Officers are protected from lawsuits
Business officers and Directors have the ability to take risks and make routine business decisions without fear of having those decisions second guessed by stockholders. Even if losses result, as long as the decisions were not self-dealing, the officers and directors should be protected from personal liability.
- 6. No Delaware income tax returns for Corporations operating outside of Delaware
Delaware corporations do not have to file Delaware tax returns if they do not conduct business in Delaware.
- 7. Tax Advantages
A corporation is taxed as a C-Corporation unless it elects to be taxed as an S-Corporation. If the stockholders are eligible and timely elect to be taxed as an S-Corporation with the IRS, it can save the stockholders thousands of dollars in self-employment taxes by splitting income 50/50 between self-employment income and an “S-Dividend”.
- 8. Delaware offers speedy document approval and filings
The Secretary of State’s office in Delaware maintains extended hours for filing and can approve documents in as little as one hour for additional fees.
- 9. A Delaware Corporation can be used to manage almost anything
Corporations can range from a one personal consulting company to a multi-million dollar technology business. Corporations are not recommended for holding passive assets, like real estate.
- 10. Delaware has the fairest courts and laws of any state
The United States Chamber of Commerce has recognized Delaware’s business dispute and incorporation climate by ranking Delaware’s litigation system #1 over the past 9 years. The advantage of having so many business disputes resolved in Delaware is that previous conflicts have established an extensive body of case law.
C-Corporations vs. S-Corporations
The “C” vs. “S” discussion should not impact your pre-incorporation decision. While corporations are C-Corporations by default when they are incorporated, it is very easy to change classifications between C-Corporations and S-Corporations.
There is no distinction between the Certificate of Incorporation for a C-Corporation and that for an S-Corporation. Every Corporation filed with any of the 50 US States starts out simply as a general Corporation.
Start Your Delaware Corporation
IncNow, the Delaware corporation experts, can help you incorporate your business the right way.
We have had the pleasure of incorporating tens of thousands of successful businesses. Founded by the first tax lawyer in Delaware, we have a high degree of expertise in the creation and maintenance of your new business. What makes IncNow unique is that industry-leading attorneys manage and train the experienced team of incorporation specialists with a high degree of accuracy.
As your Corporation experts, IncNow will:
1. Prepare and file your Certificate of Incorporation
2. Execute the Minutes of Incorporation to elect one or more directors
3. Prepare Bylaws to govern your corporation
4. Prepare the Unanimous Action of Directors to elect officers and direct stock to be issued to one or more stockholders
5. Prepare stock certificates for one or more stockholders
Ordering our attorney-developed shareholder agreement will help keep the stock from being transferred to unwanted third parties. This is recommended for all corporations with more than one stockholder.