7 Tips For Incorporating A Company In Delaware

photograph of an open sign on a shop door placed after business formation
Considering incorporating a company in Delaware soon? Here are some useful pointers you should know about if you want to have a positive experience.

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Size-wise, Delaware is known as the second smallest state in the US. It is also one of the least populated states. It is, however, among the country’s most popular choices for business formation. In fact, it can be a great pick if you’re incorporating a company.

Currently, more than 1 million small and big businesses have chosen Delaware as their legal home. Among these entities are Fortune 500 giants such as Amazon, American Express, AstraZeneca, Disney, Du Pont, Google, Tesla, and Walmart.    

What makes Delaware a business hotspot

For those wondering why companies flock to Delaware, well there are actually several reasons.

For example, the state attracts businesses with its corporate-friendly laws and tax policies. In addition, Delaware has the Court of Chancery, a specialized court that handles corporate cases in a prompt, efficient manner.

If you’re seriously considering incorporating a company in Delaware, we have you covered. Whether you’re based in Delaware or not, here are some useful hacks to keep in mind:

Top 7 tips for business incorporation in Delaware

1. Choose the right business entity type

You need to pick the right entity type  if you’re thinking of forming a company in Delaware. This is vital since different business structures must meet varying requirements and use different forms upon registration. As an example, limited liability companies (LLCs) and limited partnerships file with the Delaware Division of Corporations. Sole proprietorships, on the other hand, do not need to do so.  

To make the best decision, you might want to consult with an expert.

According to Delaware.gov:

“When choosing a business entity type, we recommend that you contact an Attorney or Certified Public Accountant familiar with Delaware law to obtain advice on the business entity type that will best fit your needs.”

2. Reserve your company name

Of course, you also need to reserve a name for your business. For this process, you will need to pay a fee of $75. By doing this, you get to reserve your desired name for 120 days.  

Go visit the Department of State: Division of Corporations site to get started with this. Otherwise, you may also do a simple Name Availability Search with them first.

3. Take advantage of the state’s One Stop Business Service

Delaware offers a One Stop resource, which caters to new and existing businesses operating in the state.

photograph showing screenshot of one stop website for incorporating a company in delaware

So how can this service help you when you’re incorporating a company? Well, their official website tells us this:

“Small businesses, startups, entrepreneurs, expanding businesses and freelancers can all get licenses, report hiring and more.”

Other available services from One Stop include:

  • Register, renew or manage a business license with the Division of Revenue
  • Report hiring, determine employer liability with the Division of Unemployment Insurance and provide proof of insurance to the Office of Workers’ Compensation
  • Open a new location or license with the Division of Revenue
  • Register a Withholding Account with the Division of Revenue
  • Create certain business entity formation or registration documents for submission to the Division of Corporations
  • … and more!

Again, it is worth noting that the One Stop is only for Delaware-based companies – not for Delaware-incorporated businesses that operate elsewhere. If you’re out-of-state, you’ll need the services of a registered business agent – more on this later. 

4. Be familiar with the tax rules that apply to your business

Light taxation is one of the major reasons why over a million companies have incorporated in Delaware. That said, it’s important that you are aware about which rules are applicable to your business and which are not.

Forbes reminds:

“Corporations registered in Delaware that do not do business in the state do not pay corporate income tax.”

photograph of an entrepreneur doing their taxes using documents and a smartphone after incorporating a company
Image source: Unsplash

Moreover, the reputable business outlet likewise notes that Delaware is different compared with many other states in the country. Case in point, Delaware “does not have a sales tax, investment income taxes, inheritance taxes or personal property taxes.”

Meanwhile, all companies incorporated in Delaware need to file an annual report and pay a franchise tax.

5. Open a business bank account

After forming your company, you also want to set up a separate bank account for your business.

This is important so you can avoid mixing your personal and company money. Also, this allows you to simplify taxes and auditing. Equally importantly, you get to build a more professional image with a dedicated business bank account.   

Banks have different requirements for business accounts but generally, you’ll need to submit the following:

  • Certificate of Incorporation
  • Federal Employer Identification Number (EIN)
  • Operating Agreement (for LLCs)
  • Valid ID
  • U.S. street address

6. For business disputes, file a case with the Court of Chancery

Like we mentioned earlier, Delaware has a dedicated court that exclusively deals with business-related cases.

Their official site tells us that the Delaware Court of Chancery is “widely recognized as the nation’s preeminent forum for the determination of disputes involving… Delaware corporations and other business entities.”

Besides, this unique court is composed of judges specializing in corporate law. Business owners who file a lawsuit or need to face one can be assured of a speedy process. With the court’s expertise, cases do not have to take several years to settle between parties.     

Furthermore, we learn that there are three Court of Chancery offices across Delaware, namely in Wilmington, Dover, and Georgetown.

7. Hire a registered agent

Finally, you need to appoint a registered agent when you incorporate a company in Delaware. As the state’s Division of Corporations’ Registered Agent Listing Standard tells us:

“A legal entity incorporated, formed or registered in the State of Delaware must be represented by a registered agent.”

Professional agents can be most helpful in receiving mail and legal documents on your behalf. On top of that, they can guide you in terms of compliance matters. They will keep you updated about deadlines for different requirements so you can remain in good standing and stay legally compliant.   

While it’s possible to serve as your own registered agent, tapping a professional third-party provider is a more practical idea. That way, you can focus your time and attention on your business instead of doing paperwork. 

Featured Image Source: Image by Ann San from Pixabay

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