Delaware is known for its business-friendly environment, with more than 68% of Fortune 500 companies incorporated within its jurisdiction. However, incorporating in Delaware requires a specific set of financial commitments that businesses should know about.

Whether you’re establishing a new entity or contemplating a move, it’s important to understand the costs and fees associated with joining Delaware’s business community. This guide will discuss what corporations and LLCs need to know about the financial implications of incorporating in Delaware, including initial filing fees, annual maintenance costs, potential tax advantages, and additional expenses that could impact their budget.

What’s in this article?

• How much does it cost to incorporate in Delaware?
  
• Ongoing taxes and fees for Delaware corporations
  
• Ongoing taxes and fees for Delaware LLCs
  
• How to save money and time when incorporating in Delaware
  

How much does it cost to incorporate in Delaware?

There are two main types of costs to consider when incorporating in Delaware: state fees and ongoing fees. Additional expenses can include the cost of hiring a registered agent or service to receive legal documents on your behalf, which is a requirement for businesses incorporated in Delaware but conducting operations out of state. To accurately estimate the total cost to incorporate in Delaware, consider the specific structure of your corporation and any additional services you might choose such as expedited processing.

This chart summarises the state fees associated with incorporating in Delaware.

Ongoing taxes and fees for Delaware corporations

In addition to the initial incorporation costs, there are also ongoing taxes and fees to consider. Here’s an overview.

Annual report fee

• Amount: $50–$125

• Due date: March 1 of each year

• Details: All Delaware corporations must file an annual report with the Division of Corporations. This report provides basic information about the corporation, including its officers, directors, and registered agent. The filing fee is $50 for domestic corporations and $125 for foreign corporations. There is a penalty of $200 for filing an incomplete annual report after the due date.

Franchise tax

• Amount: $175–$200,000

• Due date: March 1 of each year

• Details: Delaware uses a franchise tax system instead of a state corporate income tax. Late payments of franchise tax incur interest at 1.5% per month. The franchise tax is calculated using one of these two methods:

  • Authorised shares method: This method bases the tax on the number of shares a corporation is authorised to issue, as stated in its certificate of incorporation. There are tiers for the tax amount, with a minimum of $175 for corporations with up to 5,000 shares and a maximum of $200,000 for corporations with millions of authorised shares.
    
  • Assumed par value capital method: This method bases the tax on the total par value of its outstanding capital stock. The total par value is based on issued shares, outstanding shares, and the company’s gross assets. This method has a higher minimum tax of $400.
    

Ongoing taxes and fees for Delaware LLCs

Delaware LLCs have fewer ongoing fees than Delaware corporations do, since they don’t file an annual report or pay franchise tax.

Annual tax

• Amount: $300

• Due date: June 1 of each year

• Details: All Delaware LLCs, regardless of size or activity level, must pay an annual tax of $300 to maintain good standing with the state. This fee is due on June 1 of each year. The state imposes a penalty of $200 plus interest for late payments.

How to save money and time when incorporating in Delaware

Through careful planning, it’s possible to save time and money when incorporating. Here’s how to do it.

• Do your research: Understand the fees associated with incorporating in Delaware, such as the filing fee and annual report filing fee. Being aware of these fees can help you budget accordingly and avoid surprises.

• Choose the right package: Service providers offer various packages for incorporation, with different services included. Decide what your business needs and select a package that meets your requirements without including unnecessary extras.

• Use online services: Filing online can save time and save money on postage. The Delaware Division of Corporations offers online filing, which is faster and can reduce the likelihood of errors that might occur with paper filing.

• Strategically authorise stock: The filing fee can increase based on the amount of authorised stock your corporation plans to issue. Only authorise the amount of stock you realistically need to avoid higher fees.

• Maintain annual compliance: Stay on top of annual requirements such as filing the annual report and paying the franchise tax to avoid late fees and penalties. Understanding these obligations can prevent costly mistakes and ensure your corporation remains in good standing.

• Seek professional advice: While there’s a cost to hiring an attorney or accountant, their expertise can save you money in the long run by ensuring that you’re making informed decisions and avoiding costly errors. Delaware also provides various free resources that can help you understand the incorporation process and ongoing compliance requirements.

• Plan ahead: Delayed decisions or last-minute filings can incur expedited service fees. Plan your incorporation process and related tasks well in advance to avoid the need for rush services.

Angel investors vs. other types of investors

Before pursuing funding from angel investors, familiarise yourself with other types of startup investors. Here's an overview of investment options:

• Venture capitalists: Venture capitalists (VCs) are firms or individuals that invest in startups showing strong potential for growth, usually in exchange for equity. Unlike angel investors, they typically invest during the later stages of a startup's development, after the business has shown some market traction. VCs invest larger sums of money than angel investors and are usually more involved in the direction of the company. They seek substantial returns and typically have a more aggressive view toward scaling the business and achieving an exit within a specific timeframe.

• Seed funds: Seed funds are specialised VC funds that focus on early-stage investments, often before angel investment and larger VC rounds. They invest in startups that have moved past the conceptual stage and have a minimum viable product (MVP) or some initial traction.

• Incubators and accelerators: These programs support early-stage companies through education, mentorship and financing. Incubators focus most often on the initial development phase, helping entrepreneurs turn ideas into a viable business. Accelerators, on the other hand, look to scale up the growth of existing companies over a short period of time.

• Corporate investors: Some corporations invest in startups to access innovative technologies, enter new markets, or nurture strategic partnerships. These investors can offer ample resources, but they might seek more than just financial returns, such as an ownership stake in the technology or control over the company's direction.

• Crowdfunding: This involves raising small amounts of money from a large number of people, typically through online platforms. Crowdfunding can be a good option for startups that want to validate their product with a broad audience, interact with potential customers and raise funds without giving up equity or incurring debt.

• Government grants and subsidies: In some sectors – particularly those involving scientific research, clean technology, or social impact – government grants and subsidies can provide funding without diluting equity.

• Peer-to-peer lending and debt financing: Debt financing includes loans from financial institutions or peer-to-peer lending platforms. This type of financing is typically more challenging for early-stage startups to secure and it obligates a startup to repay the loan, with interest, but it doesn't dilute ownership.

• Family offices: High net-worth families often have private wealth management advisory firms, known as family offices, that directly invest in startups. These investors can provide substantial funding and might be interested in longer-term investments compared to traditional VCs.

• Angel groups and syndicates: Unlike individual angel investors, angel groups or syndicates pool resources to invest in startups. These groups can provide larger sums of capital and combine the expertise and networks of multiple investors.

Each type of investor offers different advantages, expectations and levels of involvement. Startups should carefully consider their stage of development, industry, funding needs and the kind of strategic relationships they want to grow before deciding which type of investor to work with.