Forming a new company in Delaware comes with a number of requirements for aspiring business owners. A variety of paperwork and information must be submitted to the State of Delaware before any business can begin. Furthermore, business owners must satisfy certain conditions to operate legally within the state. While Delaware’s low corporate tax rate makes it attractive, there are still some hurdles to the formation process. The following are the steps to fulfill Delaware company formation requirements.
Pick The Type Of Business Entity
Before forming a new business in Delaware, decide what type of business entity will be incorporated. Each type of business entity corporation structure has different filing requirements and advantages depending on the tax classification. For example, a “C” Corporation can issue shares and is subject to no corporate tax, instead shareholders’ dividends are directly taxed as income. A Sole Proprietorship has no filing fees or corporate tax, but is personally liable for all business debts. A Limited Liability Corporation pays corporate taxes, but owners are not personally liable for any debt the business accrues. Carefully consider each business entity type before proceeding with the incorporation process.
Contract With A Registered Agent
The state of Delaware requires a registered agent for every company formation. The registered agent is a permanent fixture of the business within the state. It must be retained as long as the business operates and has responsibilities related to taxes. A valid registered agent must have permission to practice business in Delaware, as well as a physical address in the state. A business may be its own registered agent, as long as it is physically located in Delaware itself. This means the business must be open and available to receive notices during business hours. Business owners wishing to form a company in Delaware must contract with a registered agent before registering with the state.
Submit Incorporation Forms
A valid corporation in Delaware has to be incorporated with a unique name and a completed certificate of incorporation. The unique name is what the business will be called for legal purposes and does not have to be what the business uses in day-to-day operations. The Delaware Division of Corporations will then hold this name for 120 days while the incorporation is in process. This name is used on the certificate of incorporation. This formation document includes the business type, any owners or shareholders, and the registered agent. Business owners who wish to incorporate in Delaware should gather this information promptly to avoid any mistakes when forming their new company.
Obtain Certificate Of Status
A certificate of status is a critical step for any new business looking to open in Delaware. A certificate of status or good standing is required for many businesses to enter into agreements with financial institutions. For example, if a business owner wishes to take a business loan from a bank to expand their business, they will need to present this document to get the loan approved. Depending on the specific institution they want to contract with, financial institutions may require a Short Form Certificate or a Long Form Certificate. Having a certificate of status ensures new business owners can easily transact with all Delaware financial institutions.
File Annual Corporate Tax Forms
All corporations formed in Delaware are required to submit an annual corporate tax report. While some corporations, such as non-profit organizations’ bank accounts, are exempt from taxes they still have to file an annual report. The annual report consists of all transactions that the business has engaged in since the beginning of the fiscal year. Taxes and the report are due no later than March 1st, with penalties and interest applied to outstanding taxes due. New business owners should keep their annual reports current to avoid paying unnecessary fines.
For many new business owners, forming their new company in Delaware requires a number of responsibilities. First, business owners must choose what type of company they wish to be. Next, they must choose whether to contract with an external registered agent or become their own. Then they have to choose a name for their business and gather the other relevant information to complete the incorporation forms. New business owners must also obtain a certificate of status to work with Delaware-based financial institutions. Finally, businesses are required to fill out an annual tax report, even if they are exempt from taxation. New business owners must satisfy all of these requirements before they can form their company in Delaware.