By Heather Huston, Assistant Service Manager, BizFilings
The cost to form an LLC (limited liability company) or incorporate a business in Delaware is consistently among the lowest in America. And because Delaware imposes no income tax on either LLCs or corporations, and imposes no tax on capital stock for small companies, business owners are continuously drawn to Delaware for its pro-business and pro-privacy laws. Learn more about incorporating in Delaware by reading on:
Steps to take when incorporating your business in Delaware
- Choose a name for your business. Selecting a name that aligns with your business message, product and service isn't always easy. You also want your customers to locate your business easily. Don't forget, you should include an identifier, such as Inc. or LLC to let the world know your business is a corporation or LLC. Additionally, it is very important to conduct a state name check, which lets you know if your desired name is already taken in the preferred state of incorporation. Consult our Delaware State Guide to find out more about naming requirements for LLCs and corporations.
- Recruit and/or appoint members/managers (LLCs) or directors (corporations).
- Delaware requires a corporation to have one or more directors.
- Delaware does not specify age requirements.
- Delaware does not specify where directors must reside.
- Delaware does not require director names and addresses to be listed in the Certificate of Incorporation.
- Delaware requires LLCs to have one or more members/managers.
- Delaware does not specify age requirements of members/managers.
- Delaware does not specify where members/managers must reside.
- Delaware does not require member/manager names and addresses to be listed in the Certificate of Formation.
- File the incorporation paperwork. A Certificate of Incorporation for corporations or Certificate of Formation for LLCs needs to be filed with the Department of State.
- Annual report and franchise tax. Delaware requires corporations to file and Annual Franchise Tax Report. The due date for corporations is March 1. The annual report fee is $50. The franchise tax is calculated based on the corporation's number of authorized shares and par value. If the number of shares exceeds 5,000, the annual fee may increase. Delaware requires LLCs to file an Annual Franchise Tax Statement by June 1. The fee is $250.
- Obtain any required business licenses/permits. Permits and/or business licenses are necessary for most types of businesses, including sole proprietorships. To operate legally and meet government standards, you may be required to obtain licensing at the municipal level as well as the state and federal levels.
- Determine other regulatory obligations and registrations. Other tax and regulatory obligations you should consider for your corporation or LLC include obtaining a Federal tax identification number (EIN).
- Open a bank account for your business. Keeping your business' finances separate from your personal accounts is not only a practical idea but required to show that you are keeping the assets of your business separate from your personal assets. To apply this practice early on, open a bank account for your LLC or corporation. You will most likely need an EIN and your incorporation paperwork.
- Additional start-up considerations. Depending on the structure of your business and the decisions made by the owners and/or management, incorporating your business in Delaware may also include these variables:
- Real estate and zoning requirements
- Loan and capitalization requirements
- Vendor contracts
- Professional licensing
Register in other states where you are transacting business
If you incorporate your business in Delaware, but are conducting business in other states, you may need to foreign qualify in those states. LLCs and corporations are considered domestic only in the state of incorporation. In all other states, they are considered foreign companies. States require foreign companies that are transacting business there to register. This process is called foreign qualification.
The foreign qualification process is very similar to that of incorporation. A state filing must be made and applicable state fees paid. States also impose ongoing requirements on foreign-qualified companies, such as annual report filings and fees. So when you incorporate in Delaware and foreign qualify in another state or states, you will be responsible for the ongoing filings and fees in Delaware and the state(s) of qualification.
What constitutes transacting business can vary by state, but common criteria include:
- Physical presence. Does your company have an office in that state?
- Employees. Does your company have employees in that state?
- Bank account. Does your company have a bank account in that state?
- Transactions orders. Does your company service customers or take orders in that state?
It is best to contact an attorney if you have questions on whether your company is transacting business in a particular state or group of states and would foreign qualify.