The state of Delaware attracts many businesses and entrepreneurs: more than 2.1 million entities are incorporated there, including Fortune 500 enterprises. About 81% of all US-based initial public offerings in 2024 were registered in Delaware. Its reputation as a corporate haven comes from its business-friendly laws, court system and tax advantages.

While there are some legal considerations to forming a C corporation (C corp) in Delaware, the process is manageable if you break it down into smaller steps. The process includes important tasks such as choosing a unique company name, appointing a registered agent, issuing stocks and complying with regulatory requirements. You'll have to complete each one with due diligence. Below is a step-by-step guide to setting up your C corp in Delaware.

What's in this article?

• What is a Delaware C corp?
  
• Benefits of forming a C corp in Delaware
  
• How to set up a C corp in Delaware
  
• How Stripe Atlas can help
  

What is a Delaware C corp?

A C corp is a legal structure for a corporation where the owners, or shareholders, are taxed separately from the entity. C corps can have an unlimited number of shareholders and are taxed on their earnings. The shareholders are also taxed on the earnings they receive, such as dividends, which results in "double taxation."

A Delaware C corp is a C corp that's incorporated in the state of Delaware. In 2024, over 20% of all business entities formed in Delaware were corporations. They must abide by Delaware's laws regarding corporations and are also subject to the tax benefits and obligations that come with being a Delaware corporation. That's true whether or not the company has a physical presence in Delaware or conducts business operations there.

Benefits of forming a C corp in Delaware

Incorporating a business in Delaware has become increasingly popular. Many large US companies choose to incorporate in Delaware, even if they don't do business there. Here are some of the key benefits of forming a C corp in Delaware:

• Favourable business laws: Delaware's business laws are among the most flexible in the US. The state's General Corporation Law is very supportive of businesses, making it easier to manage and operate a corporation.

• Experienced business court system: The Delaware Court of Chancery specialises in business law and uses judges, not juries. This means that business disputes are decided by experienced business law experts.

• Privacy: Delaware doesn't require director or officer names to be disclosed in the formation documents. This provides a level of anonymity not found in all US states.

• No out-of-state tax: Delaware doesn't tax out-of-state income. This can be beneficial for companies that are incorporated in Delaware but do their business elsewhere.

• Investor attractiveness: Many investors and venture capitalists prefer Delaware corporations due to the predictability of Delaware's business laws and court system. This can make it easier for corporations to attract investments.

• Ease of setup and management: Incorporating in Delaware is a straightforward process. Delaware also allows one person to be the sole director, shareholder and officer of a corporation.

While these benefits can be attractive, consider the specifics of your situation and consult a legal or business expert before you decide where to incorporate your business.

How to set up a C corp in Delaware

Establishing a C corp in Delaware provides businesses with benefits, including supportive business laws, a respected court system and certain tax advantages. But to access these benefits, you need to understand and carefully follow the procedures required by the Delaware Division of Corporations.

Here's an overview of the process:

1. Choose a company name: The name of your corporation should reflect your business and be easy for your customers to remember. Delaware law requires that the name of a corporation be distinguishable from any name on record with the Delaware secretary of state. You can conduct a name search on the website of the Delaware Division of Corporations to ensure your desired name isn't already taken.

2. Appoint a registered agent: In Delaware, you're required to appoint a registered agent who has a physical street address in the state. The agent can be an individual resident or a company that's authorised to do business in Delaware. The registered agent is responsible for receiving important legal and tax documents on behalf of the corporation, including service of process (e.g. lawsuits, legal notices) and state correspondence (e.g. annual report notices).

3. Prepare and file the certificate of incorporation: You must file a certificate of incorporation with the Delaware secretary of state. This document includes important information about your corporation such as its name, the name and address of its registered agent in Delaware, the number and type of authorised shares and the incorporator's information. This certificate establishes the existence of your corporation.

4. Create corporate bylaws: Corporate bylaws are the "rules" for your corporation. They set the corporate structure and detail the duties and responsibilities of the directors, officers and shareholders. Although corporations don't submit their bylaws to the state, they're still legally binding documents. It's often beneficial to hire a legal professional to draft the bylaws and ensure all legal bases are covered.

5. Appoint directors and officers: Typically, the incorporator will appoint the initial board of directors. After the initial appointment, shareholders will usually elect the directors. Directors make major policy and financial decisions for the corporation. The board of directors also elects the corporation's officers – such as the CEO, CFO and secretary – who manage the corporation's daily operations.

6. Hold an initial board meeting: The initial board meeting is typically where the directors adopt the corporation's bylaws, elect officers, approve the issuance of shares of stock, decide on corporate banking and set the corporation's fiscal year. Keep detailed minutes of this meeting and all future board meetings.

7. Issue stock: Corporations issue stock to their shareholders. Stock represents ownership in the corporation, and shareholders have the right to vote on important corporate matters. The amount and type of stock that can be issued by the corporation is stated in the certificate of incorporation.

8. Get an EIN: The Employer Identification Number (EIN) is a unique number the Internal Revenue Service (IRS) assigns to your corporation for tax purposes. You can apply for an EIN on the IRS website. You'll need this number for tax filings, to open a bank account in the corporation's name and for many other business needs.

9. Comply with other tax and regulatory requirements: Depending on the nature of your business, you might need to comply with other tax and regulatory requirements. These might include obtaining local business licenses, registering with the state's sales tax department if you're selling goods and collecting sales tax or registering with the state's employer tax department if you have employees.

10. File an annual report: Each year, Delaware corporations are required to file an annual report with the Delaware secretary of state and pay a franchise tax. The annual report provides updated information about the business, including its address, officers' names and details of stock issuance.

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.