Delaware is a great place to start a business. Although it’s the second smallest state in the U.S., a combination of a great location, lots of travel hubs, a business-friendly environment, zero sales tax and plenty of people make it an excellent choice.
Delaware businesses are leaders in many sectors including banking, pharmaceuticals, technology, healthcare, farming, retail and more. In fact, more than half of all U.S. publicly traded companies and 63% of the Fortune 500 are incorporated in Delaware. The state has long been a favored place for large businesses to incorporate because case law in Delaware provides strong legal protection.
Although these advantages may protect large national corporations, they don't necessarily extend to small businesses who do not operate in Delaware — these entities must still qualify and be able to do business in their home state to be officially recognized. Under most circumstances, we recommend that small businesses that operate in a single state incorporate in that state. Of course, if you already live in Delaware, that makes it an ideal choice.
When it comes to starting a business in Delaware, you have a few options for the type of business you want to create. This is known as your “legal business entity,” and it defines how your business will be treated by the state, the law, the IRS and other official bodies.
Most new entrepreneurs have a choice of several business types — sole proprietorship, partnership, Limited Liability Company (LLC), S Corporation or C Corporation.
Here’s a quick overview of each.
There are several reasons an entrepreneur might choose to form a corporation instead of an LLC in Delaware.
Here’s a side-by-side comparison between the various business types. This table focuses on the areas apart from company stock and shareholders.
|General Comparison Between Business Entity Types in Delaware|
|Area||Sole Proprietorship/ Partnership||LLC||S Corp||C Corp|
|Fee for creating business entity?||No||Yes||Yes||Yes|
|Ongoing fee for maintaining business entity?||No||Yes||Yes||Yes|
|Limited liability?||No||Yes||Yes||Yes - strong|
|How ownership of business is determined||You are the business||By defined members||Private investors who own stock||Public investors who own stock|
|Management structure||N/A||As per operating agreement||Elected by shareholders||Elected by shareholders|
|Must be domestic business entity?||N/A||Yes||Yes||No|
|Have shareholders, directors and officers?||N/A||No - members only||Yes||Yes|
|Raising capital||Loans and financing||Loans and financing||Loans, financing and selling private stock||Loans, financing and selling public stock|
|File annual report?||No||Yes||Yes||Yes|
|Compliance and regulations||Very light||Light||Moderate||Heavy|
|Owner’s taxation type||Individual tax||Individual tax (pass through)||Distribution and individual tax (pass through)||Corporation tax and individual tax|
This table shows the differences between Delaware business entities when it comes to issuing, buying and selling stock.
|Stocks and Shares Comparison Between Business Entity Types in Delaware|
|Area||Sole Proprietorship / Partnership||LLC||S Corp||C Corp|
|Ownership/stock freely transferrable?||No||No||Yes||Yes|
|Shareholder nationality||N/A||N/A||U.S. citizen or resident||Any|
|Public buying and selling of stock?||N/A||N/A||No||Yes, after IPO|
|No. of classes of stock||N/A||N/A||One||Many|
When a corporation is initially created, it is automatically assumed to be a C Corporation and only becomes an S Corporation (and will be taxed as such) if you file the IRS Small Business Tax Election form 2553.
In most cases when we discuss “corporations” in this guide, we’re talking about both C Corporations and S Corporations. If anything is relevant to just one or the other, we’ll declare that.
Delaware corporations have several benefits for business owners.
Advantages of Forming an S Corporation in Delaware
In addition to the general benefits above, Delaware S Corporations provide several other advantages.
In addition to the general benefits above, Delaware C Corporations provide several other advantages.
Here are some areas to be aware of when you’re creating a corporation in Delaware.
Now that you’ve decided a corporation is right for you, here’s how to form one. At Incfile, we make the corporation formation process easy — and with prices starting at just $49 plus the Delaware filing fee, you get an excellent value too.
A Delaware corporation must have a designated address. That could be your home address (if you’re running the company from your residence), where your office is located or any physical address of your preference — even outside of Delaware. Unlike many other states, you can use a P.O. Box as your designated address.
Every Delaware corporation must have a “Registered Agent” who receives official legal and tax correspondence and has responsibility for filing reports with the Delaware Secretary of State. Your Registered Agent must have a physical street address in Delaware.
A Registered Agent could be you, a director or an officer of the corporation. Here at Incfile we always recommend using a Registered Agent service since they provide several benefits:
At Incfile, all of our packages include a Registered Agent service that is free for the first year and $99 per year thereafter. We also have a dashboard where you can log in and easily view any document your Registered Agent has received on your behalf.
The legal document required to create your new corporation is called the Certificate of Incorporation. You will need to gather various details for your Delaware filing including:
Once your articles are drafted, you can file them with the Delaware Secretary of State. Filing your Certificate of Incorporation creates your Delaware corporation. You can do this online, mail in a form or have Incfile do it on your behalf.
Once your corporation has been created, you will need to get certain legal requirements in place. These include:
Incfile provides a cost-effective service to help you create your corporation. We guide you through the process and handle most of the administrative steps on your behalf, such as filing the Articles of Incorporation or Certificate of Formation. Our basic package also provides a free Registered Agent service for the first year. If you're looking for help starting a corporation, our comprehensive services provide outstanding value.
Clear Pricing. No Contracts. No Surprise.
|State Fee||State Filing Time||Expedited Filing Time|
|$89||15 Business Days||5 Business Days|
This report is mandatory and must be filed within the specified time frame in order for the entity to remain in good standing with the state. Failure to file this report can lead to the company being revoked or administratively dissolved.
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