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.

17. Consider business loans

Using business loans as a part of your financial strategy can be a powerful step to expedite your business growth. Here's how to approach this step:

• Determine your need for a loan: Before jumping into the loan application process, assess whether you have a genuine need for a loan. Maybe you need funds for expanding your operations, buying equipment, increasing inventory, hiring staff or smoothing out cash flow. Getting clear about your business's financial needs can help you make a more informed decision about applying for a loan.

• Research different types of loans: There are different types of loans available for businesses, from traditional bank loans and Small Business Administration (SBA) loans to alternative online loans and lines of credit. Each type comes with its own terms, interest rates and requirements. The right choice for you will depend on your specific needs, financial situation and the stage of your business.

• Consider eligibility requirements: Lenders have varying criteria for approving loans. These can include factors such as your credit score, business revenue, the profitability of your business and how long you've been in operation. Before applying for a loan, carefully check these criteria to see if you qualify.

• Prepare your loan application: Once you've chosen a type of loan and confirmed that you meet the lender's criteria, the next step is to prepare your loan application. This involves compiling financial documents such as your business plan, financial statements, tax returns and details of your collateral. You may also need to present a plan outlining how you intend to use the loan and how you will repay it.

• Compare loan offers: If your loan application is approved, you may receive offers from different lenders. Consider each offer's terms carefully, including the interest rate, loan amount, loan term and any additional fees. Be sure you understand the total cost of the loan and how the repayment terms align with your business's financial projections.

Taking on debt is a serious commitment that demands careful planning and consideration. For additional guidance throughout the process, consult with a financial advisor or mentor.

There's no easy shortcut to starting a business. Cutting corners or skipping steps in the early days can create unnecessary friction, confusion or even legal liability down the road. But while much of the work that goes into starting a new business might seem tedious, it's not overly complicated. If you take a thoughtful and methodical approach to this process, and address each step in the correct order, you'll build a foundation that can support all the goals and dreams you have for your business – exactly what motivated you to begin this journey in the first place.