Incorporating a business is a big decision, and choosing the right state to incorporate in is crucial. Delaware has established itself as the go-to destination for incorporation for many big companies, with more than 65% of all Fortune 500 companies and more than half of all U.S. publicly-traded companies incorporated in the state. But why do so many businesses choose to incorporate in Delaware?

In this article, we will explore the reasons why businesses incorporate in Delaware, including the legal and liability protection of established corporate laws, the business-friendly environment, and the well-established legal system. We will also discuss some of the advantages and disadvantages of incorporating in Delaware, so you can make an informed decision for your business.

Why Delaware for Business Incorporation

Delaware is a top choice for incorporation due to its business-friendly laws, respected Chancery Court, tax incentives, flexibility, and strong corporate veil protections for shareholders. The state offers a reliable body of corporate law and sought-after legal expertise.

Advantages of a Delaware Corporation

• Renowned Court of Chancery for corporate litigation
• Predictable and well-established business laws
• No state corporate income or franchise taxes
• Shareholder/director liability protections
• Permitted to issue stock for capital
• Recognized and respected nationally
• Quick processing and turnaround times

Disadvantages of a Delaware Corporation

• Annual franchise taxes and fees
• Requirement to have a registered agent
• Less privacy due to public record requirements
• Potential extra taxes/fees if operating outside DE
• Strict corporate governance requirements

Delaware Incorporation Process

• Choose a business name
• Appoint a registered agent in DE
• File a certificate of incorporation
• Draft corporate bylaws
• Issue stock certificates
• Hold organizational meeting
• Obtain business license and permits
• Register for state tax ID
• Register for federal EIN

Delaware Incorporation Fees

• $89 filing fee for certificate of incorporation
• $250 for expedited filing within 1 hour
• $300 for reserved/pre-approved business name
• $125 for rejecting a proposed business name
• $50-$180 annual franchise tax

Annual Delaware Corporation Costs

• $50 – $180 annual franchise tax
• $300 annual registered agent fee (approx.)
• Any licensing, permitting, and regulatory fees
• Accounting and compliance costs
• Taxes if operating in DE (no state tax for out-of-state)

Tax Benefits of a Delaware Corporation

• No corporate income tax for operations outside DE
• No corporate franchise tax for out-of-state businesses
• No sales tax or VAT in DE
• Tax-free dividends from certain subsidiaries
• No tax on intangible assets held in DE

Shareholder/Director Protections

• Directors shielded from liability for good faith decisions
• Shareholders not personally liable for corporate debts
• Directors can consider stakeholder interests
• Shareholders can inspect company records
• Directors can be reimbursed for legal expenses

Resources for Delaware Businesses

• Delaware Division of Corporations
• Delaware Chamber of Commerce
• Small Business Development Center
• Delaware Prosperity Partnership
• Delaware State Bar Association
• Delaware Board of Trade

Risks of a Delaware Corporation

• Annual taxes and paperwork requirements
• Public company has less privacy
• Delaware courts for legal disputes
• Meeting DE corporate governance rules
• Maintaining a registered agent
• Potential taxes if operating in DE

Alternatives to Delaware Incorporation

• Forming in your home state
• Incorporating in another business-friendly state like Nevada or Wyoming
• Using a Delaware statutory trust instead of a corporation

Best Time to Incorporate in Delaware

• When starting a new business
• Prior to seeking investment capital
• Before commencing interstate activities
• When ready to setup corporate structure
• Upon advice of legal/tax professionals

Delaware Incorporation Documents

• Certificate of incorporation
• Bylaws
• Organizational resolutions
• Stock certificates
• Owner/director consents
• DE Fictitious Name Certificate if DBA
• IRS SS-4 EIN Application

Ongoing Delaware Corporation Requirements

• Annual franchise tax report and payment
• Maintaining a registered agent
• Updating lists of directors/officers
• Keeping accurate meeting minutes
• Filing ownership/address changes
• Recording board resolutions

Penalties for Non-Compliance

• Loss of good standing status
• Fines and back taxes
• Revocation of ability to do business
• Personal director/officer liability
• Invalidating corporate veil protections

C vs S Corporation Differences in DE

C corporations have shareholders, can issue stock, and are taxed separately. S corporations are pass-through entities where income/losses flow to owners’ returns.

LLC vs Corporation in Delaware

LLCs offer greater structure flexibility and fewer startup formalities but less credibility for large enterprises. Corporations require more compliance but enable business expansion.

Registered vs Resident Agent in DE

A registered agent accepts official service of process and government notices. A resident agent is physically located in the state unlike some registered agents.

Domestic vs Foreign Corporation in DE

A domestic corporation was formed in Delaware. A foreign corporation was formed in another state/country and registers in Delaware to do business.

Delaware Corporate Law Resources

• Delaware Division of Corporations
• Delaware Registered Agents Association
• Wolters Kluwer Cheetah service
• Harvard Corporate Law research guides
• Delaware Board of Trade

Benefits of a DE Registered Agent

• Handles official communications and legal notices
• Provides Delaware address for legal correspondence
• Manages compliance paperwork
• Offers privacy from public listings
• Provides expertise on DE laws and processes

Drawbacks of a DE Registered Agent

• Annual expense for registered agent fees
• Reliability depends on specific provider
• Changes require official reporting
• Service issues can arise if not diligent
• Extra vendor to manage and communicate with

Choosing a DE Registered Agent

• Review options from DE Registered Agent Association members
• Ensure they have expertise on DE corporate processes
• Check for client reviews and ratings
• Consider size, longevity and reputation
• Evaluate any extra services they provide
• Compare costs for basic registered agent services

Registered Agent Requirements in DE

• Must have a physical street address in Delaware
• Designated by the corporation to accept service of process
• Must be open and available during normal business hours
• Required to forward communications to the corporation
• Subject to the same liabilities as the corporation

Changing a DE Registered Agent

• Select and appoint the new registered agent
• Get written consent from the new agent
• Draft a resolution authorizing the change
• Notify the current registered agent
• File a Change of Registered Agent form in Delaware

Canceling as a DE Registered Agent

• Notify affected corporations in writing
• Indicate resignation date at least 60 days out
• Send copy of notice to DE Secretary of State
• File a Cancellation of Registered Agent form
• Update marketing materials and directories

Consequences of No Registered Agent in DE

• Loss of good standing status and ability to do business
• Voiding of corporate veil protections
• Fines and penalties imposed by the state
• Increased risk of missing important legal notices
• Potential general partner liability for LLCs

Filing the DE Annual Report

• DE requires all corporations to file an annual report
• Reports are due by June 1 each year
• Annual reports are filed with the DE Division of Corporations
• There are fees associated with filing the annual report

Penalties for Not Filing Annual Report in DE

• Loss of good standing status
• Inability to do business in Delaware
• Franchise taxes still accrue even when not in good standing
• Revocation of certificate leading to dissolution

Dissolving a Delaware Corporation

• Obtain board and shareholder approval to dissolve
• File a Certificate of Dissolution with DE Division of Corps
• Notify creditors and settle outstanding debts
• Distribute remaining assets per liquidation preferences
• File final tax returns
• Finalize corporate records and minutes

Penalties for Not Dissolving Properly

• Continued accrual of franchise taxes and fees
• Retention of liabilities and obligations
• Legal issues from lack of closure
• Directors can remain personally liable
• Corporate veil protections invalidated

Types of Registered Agents in Delaware

• Commercial registered agents
• Non-commercial registered agents
• Individuals such as attorneys
• Employees or officers of the company

Benefits of a Commercial Registered Agent

• Expertise on Delaware laws and processes
• Responsiveness for time-sensitive matters
• Privacy protections from public listing
• Reduced risks from proper handling of all matters
• Professional tools and systems

Benefits of a Non-Commercial Registered Agent

• Lower costs potentially
• Personal relationship and access
• Familiarity if an internal employee/officer
• Seamless communication being internally based

Finding a Reliable Delaware Registered Agent

• Check the Delaware Registered Agent Association member directory
• Review online customer ratings and reviews
• Ask trusted attorneys or advisors for referrals
• Evaluate experience, expertise, and responsiveness
• Compare costs for core registered agent services
• Research the company’s reputation and track record

Questions to Ask Potential Registered Agents

• How long have you been providing registered agent services in DE?
• What is your expertise on DE business law?
• What are your service standards and response times?
• What are your registered agent fees? Are there add-on costs?
• How do you ensure reliability, accuracy, and timeliness?
• How do you keep customers updated on important notices?
• Can you provide client references?

Ensuring a Trustworthy Registered Agent

• Review Delaware Registered Agent Association membership
• Check for client reviews and complaints online
• Ask for references from other customers
• Look for longevity and stability in business
• Evaluate their responsiveness to inquiries
• Examine any associated penalties or litigation

Changing a Delaware Registered Agent

• Identify and appoint the successor registered agent
• Obtain their written consent to serve in that capacity
• Draft a board resolution approving the change
• Notify the current registered agent in writing
• File the statement of change form in Delaware

Canceling as a DE Registered Agent

• Notify affected entities in writing 60 days before cancellation
• Provide notice to the DE Secretary of State
• Submit the cancellation form to the Division of Corporations
• Update marketing materials, websites, directories

Resources for Finding a DE Registered Agent

• Delaware Registered Agent Association member directory
• Delaware Division of Corporations approved lists
• Wolters Kluwer Cheetah authorized providers
• Delaware Board of Trade professional directory
• Delaware State Bar Association member directory

Pre-Approving a Business Name in Delaware

• Search the Delaware business entity database
• Ensure name is distinguishable from other registered names
• File an Application for Reservation of Business Name
• Pay $300 fee to Division of Corporations
• Name will be reserved for 120 days once approved

Requirements for Business Names in Delaware

• Must contain the word “corporation”, “company”, “incorporated” etc. if a corporation
• Cannot contain words restricted by Delaware law
• Cannot be identical or deceptively similar to an existing name
• Cannot imply association with government entities
• Must be distinguishable from other registered names

Time to Incorporate in Delaware

• Normal processing time is 1-3 business days
• Expedited filing within 1 hour costs $250
• Can reserve a name up to 120 days before incorporating
• Overall time depends on preparation of documents

Mistakes to Avoid When Choosing DE Business Name

• Selecting a name that is too similar to existing businesses
• Using restricted words like “bank”, “trust” or “insurance” inaccurately
• Choosing a name that is overly complicated or hard to remember
• Picking a name with negative connotations or images
• Failing to check name availability thoroughly beforehand

Changing a Delaware Business Name

• File an Amendment to Certificate of Incorporation
• Pay $194 filing fee to Division of Corporations
• Obtain board and shareholder approval first
• Check name availability and file for new name if desired
• Update all materials and accounts reflecting old name

Successful Business Names Registered in Delaware

• DuPont
• Dogfish Head Craft Brewery
• ING Direct
• Agilent Technologies
• Navient
• Blue Cross Blue Shield of Delaware

Tips for DE Business Name Creation

• Make it easy to remember and spell
• Keep it short and simple
• Use positive, inspiring language
• Ensure it stands out from competition
• Double check availability in DE before filing
• Test it thoroughly with target audience

Trademark Search for DE Business Name

• Search USPTO database for federal trademarks
• Search Delaware database for registered business names
• Google the name and run web searches
• Consult an attorney on trademark risks
• Perform exact match and concept match searches

Popular DE Business Naming Trends

• Using .co and .io domains
• Short, single word names
• Names referencing science, tech, engineering, math
• Geographic references like “Wilmington”
• Combining words from different languages
• Evoking sustainability, community, responsibility

Why Incorporate in Delaware?

Businesses often choose Delaware because of its business-friendly corporate laws, respected Court of Chancery, tax incentives, flexibility, strong corporate veil protections, and legal expertise. Delaware offers a reliable body of case law.

Incorporating in Delaware

• Appoint a registered agent
• Reserve and select a business name
• Prepare and file a certificate of incorporation
• Draft corporate bylaws and resolutions
• Hold an organizational meeting
• Issue stock certificates to owners
• Obtain licenses, permits, EIN

FEES for Incorporating in Delaware

• $89 filing fee for certificate of incorporation
• $250 expedited filing fee within 1 hour
• $300 for reserving an approved business name
• $125 to reject a proposed business name
• $50 to $180 annual franchise tax

Maintaining a DE Corporation

• Pay $50 to $180 annual DE franchise tax
• Appoint and maintain a registered agent
• Hold and document annual shareholder meetings
• Record minutes of board and committee meetings
• File ownership/address changes and stock transfers
• Adhere to corporate formalities and requirements

Penalties for DE Non-Compliance

• Loss of good standing status in Delaware
• Voiding of corporate veil liability protections
• Fines for late filings and back taxes
• Personal liability exposure for directors
• Revocation of ability to do business in DE
• Lawsuits from shareholders and creditors

C vs S Corporation in Delaware

C corporations have shareholders, issue stock, and pay taxes at the entity level. S corporations are pass-through entities where income/losses flow to owners’ personal returns.

LLC vs Corporation in Delaware

LLCs offer greater structural flexibility but less credibility for large enterprises. Corporations require more compliance but better accommodate business growth and expansion.

Registered vs Resident Agent

A registered agent accepts service of process. A resident agent is physically located in Delaware unlike some registered agents who merely receive and forward mail.

I hope these provide helpful information on incorporating and operating a business entity in Delaware!

Conclusion.

In conclusion, incorporating a business in Delaware has numerous benefits that make it an attractive option for entrepreneurs. From tax advantages and easy compliance to flexible management structures and enhanced privacy, Delaware offers a favorable business environment that can help companies grow and succeed.

However, while incorporating in Delaware may be beneficial for some businesses, it is not necessarily the right choice for everyone. Factors such as the nature of the business, its location, and its goals should all be taken into consideration when deciding whether or not to incorporate in Delaware.

Ultimately, businesses should weigh their options carefully and seek advice from legal and financial professionals before making any decisions about incorporation. By doing so, they can ensure that they are choosing the best path forward for their company’s success. Consider reading other articles like >>>>> 20 Ways Businesses Use to Raise the Standards of Living. to learn more.

Sarah Shane

As an author writing and creating business courses and articles, I am responsible for developing and delivering high-quality content that is informative, engaging, and relevant to the target audience.

I monitor and analyzes business trends and topics to create courses and articles that provide value to readers and students here. I am responsible for ensuring that all content is accurate, well-written, and met the needs of the target audience.