Delaware is a top choice for businesses of all sizes and industries looking to incorporate, and hundreds of thousands of businesses form in the state each year. Delaware’s popularity comes from its business-friendly environment, favorable tax laws, privacy protections, and well-respected Court of Chancery, which handles business-related legal matters and draws from a long history of corporate case law.

Below, we’ll explain how to start a business in Delaware, including choosing which business structure is best for your goals, naming your business, registering your business, and maintaining compliance with Delaware laws.

What’s in this article?

• Choosing a legal structure for your business
  
• Naming and registering your business entity
  
• Acquiring necessary licenses and permits
  
• Choosing a business location
  
• Organizing banking, payroll, and tax management
  
• Drafting internal documents and compliance records
  
• Types of insurance
  
• Registering trademarks and intellectual property
  

Choosing a legal structure for your business

Business structure

Your business structure will affect your legal obligations, tax responsibilities, and more. Options include:

• Sole proprietorship: This business structure is the simplest and involves one individual who owns and operates the enterprise. It offers full control but also comes with full personal liability.

• Partnership: If several people own and operate your business, a partnership structure might be the right choice. This structure provides shared responsibility and also shared liabilities among partners.

• Limited liability company (LLC): An LLC is a popular choice for small to medium businesses. It offers liability protection to its owners, known as members, while providing operational flexibility and pass-through taxation.

• Corporation (C corp or S corp): Corporations are more complex structures that offer liability protection but have more regulatory requirements. An S corp provides pass-through taxation, while a C corp is taxed at the corporate level and then again at the shareholder level.

Business registration

After choosing your structure, the next step is to register your business with the Delaware Division of Corporations.

• Name your business: Check that your business name is available and complies with Delaware naming rules.

• File the necessary paperwork: Depending on the structure you choose, you’ll need to file specific documents such as articles of incorporation for corporations or articles of organization for LLCs.

• Obtain licenses and permits: Depending on the nature of your business, you might need to obtain relevant licenses or permits to operate in Delaware.

Regulatory requirements

• Employer Identification Number (EIN): Every business must obtain an EIN from the IRS to file taxes.

• Business license: Register with the Delaware Division of Revenue by applying for a business license if you plan to have a business location, hire employees, or generate sales in the state.

• Local permits: Check with local government entities to confirm you have the necessary local permits for physical business locations.

Naming and registering your business entity

Choosing a business name and registering your business with the state of Delaware are key to making your business official.

Name your business

• Brainstorm a name: Brainstorm names that reflect your brand identity, values, and services or products. The name should be memorable, easy to pronounce, and convey the nature of your business.

• Check name availability: Once you have a shortlist of potential names, check their availability in Delaware. Your business name must be distinct from other business names registered in the state. Use the Delaware Division of Corporations’ business name search tool to confirm your choice isn’t already in use.

• Comply with naming rules: Delaware has naming guidelines depending on your business structure. For example, LLCs must include “Limited Liability Company” or an abbreviation such as “LLC” in their name. Corporations must contain a word such as “Corporation,” “Incorporated,” “Company,” or abbreviations such as “Corp.,” “Inc.,” or “Co.”

• Reserve your name: If you’re not ready to register but want to secure your chosen name, you can reserve it with the state for up to 120 days.

Register your business entity

• Prepare the necessary documents: Depending on your business structure, you’ll need to prepare and submit different documents to the Delaware Division of Corporations. Typically, for LLCs this document is the articles of organization, and for corporations, it’s the articles of incorporation.

• File with the state: Submit your formation documents to the Delaware Division of Corporations. Usually, you can do this online, by mail, or in person. You’ll need to pay a filing fee, which varies based on the business structure and the level of service (standard or expedited processing).

• Designate a registered agent: Delaware requires every business entity to have a registered agent—a person or another business that agrees to accept legal papers on behalf of your business. The agent must have a physical address in Delaware.

• Obtain a certificate of formation or incorporation: Once your documents are approved, the state will issue a certificate confirming the legal existence of your business. This certificate is required for business activities such as opening bank accounts and applying for licenses.

• Obtain further registrations as needed: Depending on your business type and location, you might need additional registrations such as a city business license or specific permits related to your industry.

Acquiring necessary licenses and permits

Acquiring the necessary licenses and permits allows your business to operate legally and protects it against potential risks. This phase requires learning about the regulatory requirements that apply to your business type and location in Delaware. Here’s how to approach this part of the process:

Licenses and permits

• Federal requirements: Depending on your business activities, you might need federal licenses or permits. For instance, businesses involved in broadcasting, transportation, or firearms must comply with specific federal regulations.

• State requirements: Delaware requires businesses in certain professions or industries to obtain specific licenses or permits. The Delaware government’s website provides resources and information on state business licensing.

• Local requirements: Check with local city or county governments where your business operates to determine whether there are additional local licensing requirements. These might vary depending on the locality.

• Professional and occupational licenses: If your business involves regulated professions, you might need to obtain professional or occupational licenses. This is common in industries such as healthcare, legal services, and construction.

• Special permits: Depending on your business activities or location, you might need special permits. For example, if you’re opening a restaurant, you’ll need health permits, building permits, and signage permits, among others.

Compliance and renewal

• Reporting and compliance: Educate yourself on the reporting and compliance requirements and terms of each license and permit.

• Renewal and updates: Licenses and permits have expiration dates and must be renewed periodically. Keep track of these dates to avoid lapses that could disrupt your business operations.

• Business changes: If your business undergoes major changes (such as expanding services or moving locations), you might need to update your licenses and permits to reflect these changes.

Choosing a business location

• Assess your needs: Consider the needs of your business such as customer access, supply chain logistics, and employee commuting.

• Conduct market research: Analyze the market dynamics in different locations. Consider factors such as customer demographics, competition density, and local economic conditions.

• Evaluate costs: Evaluate the cost implications of different locations, including rent, utilities, taxes, and potential renovation expenses. Choose a location that supports your business goals and fits your budget.

• Determine accessibility and visibility: Easy access to your business location for customers, suppliers, and employees can have a big impact on your success. Visibility is also important, especially for retail businesses that rely on foot traffic.

• Check zoning restrictions: Check local zoning laws to ensure your chosen location is zoned for your type of business. Zoning laws regulate land use and can affect different aspects of your business, including signage, parking, and operational hours. If your business doesn’t align with the current zoning, you might need to apply for a variance or conditional-use permit.

• Consider developments: Be aware of any planned developments or zoning changes in the area that could affect your business.

Organizing banking, payroll, and tax management

Setting up business banking

• Choose a bank: Select a bank that offers business banking services with benefits such as low fees, easy access to credit, and online banking tools. Consider national banks and local Delaware banks.

• Open a business bank account: Open a business bank account to separate your personal and business finances. This is important for legal and tax purposes. You might also consider opening a business savings account to manage surplus funds.

• Set up merchant services: If your business accepts credit card payments, set up merchant services. Compare fees, services, and equipment costs to find the best fit for your business.

Managing payroll

• Set up payroll: Decide whether to manage payroll in house or outsource the responsibility to a payroll service provider. Outsourcing can simplify managing employee paychecks and benefits while helping with tax withholding compliance.

• Collect employee documentation: Collect and maintain the necessary employee documentation for payroll, including W-4 forms for tax withholdings and I-9 forms for employment eligibility verification.

• Set up payroll taxes: Assess the requirements for withholding federal, state, and local taxes from employee wages. Deposit payroll taxes and file required reports with the IRS and the Delaware Division of Revenue by the assigned deadlines.

Tax management

• Understand tax obligations: Be aware of the taxes your business might be subject to, including income tax, sales tax, and employment taxes. Delaware does not impose income tax on businesses that operate outside the state, but it does impose an annual franchise tax on corporations, which is calculated based on the corporation’s shares and their value. Delaware charges LLCs a different annual fee, which is not based on shares or value.

• Create a tax plan: Engage in tax planning to manage your business’s tax liabilities. This might involve strategizing on deductible expenses, asset depreciation, and tax credits.

• Keep records: Maintain meticulous records of all business transactions, receipts, expenses, and income. Good recordkeeping practices are key for accurate tax filing and can be invaluable in the event of an audit.

• Pay quarterly taxes: Sole proprietors, partners, and S corps expected to owe $1,000 or more when they file their tax return should make estimated tax payments to the IRS quarterly. Delaware also requires estimated tax payments for certain business structures.

Drafting internal documents and compliance records

Internal documents

LLC operating agreement

Operating agreements for LLCs should include this information:

• Purpose and duration: The LLC’s business purpose and duration (if it’s not perpetual).

• Members and ownership: All members and their ownership percentages, contributed capital, and responsibilities.

• Management structure: Whether the LLC is member-managed or manager-managed, including the roles and decision-making powers.

• Distributions: How profits and losses will be distributed among members.

• Meeting protocols: When and how meetings will be conducted, detailing voting rules and quorum requirements.

• Buyout and buy-sell rules: Provisions for what happens if a member wants to exit, becomes incapacitated, or dies.

Corporation bylaws

Corporate bylaws should include this information:

• Corporate structure: The corporation’s structure, including the roles of directors and officers.

• Board meetings: The frequency, scheduling, and notice requirements for board meetings, including how decisions are made and documented.

• Shareholder meetings: Procedures for annual shareholder meetings, including notice requirements and voting processes.

• Stock issuance: The process for issuing stock, including any rights or preferences of different classes of shares.

• Recordkeeping: The requirements for maintaining corporate records, including minutes and financial documents.

Partnership agreements

Agreements for partnerships should include this information:

• Contributions: Each partner’s capital contribution and the process for additional contributions.

• Profit and loss distribution: How profits and losses will be allocated among partners.

• Decision-making: The business’s decision-making process, including voting rights and dispute resolution mechanisms.

• Partnership changes: The procedures for admitting new partners, handling withdrawals, or dissolving the partnership.

Compliance records

In addition to state requirements, businesses in Delaware might need to comply with local (city or county) and federal regulations, which could include additional filings, taxes, or compliance measures. Businesses should schedule periodic reviews of compliance records and internal documents to ensure they are up to date with current laws and regulations. Consider working with a Delaware attorney to review your documents and practices for compliance with state and federal laws. Failing to adhere to these requirements can result in penalties, fines, or even the loss of good standing in the state, which can have legal and financial implications.

Businesses in Delaware must create these records and reports to comply with state regulations:

• Annual reports: Corporations in Delaware are required to file an annual report with the Delaware secretary of state. This report typically includes information about the corporation’s officers and directors and the business’s address. LLCs and other noncorporate entities are not required to file annual reports.

• Meeting minutes: Businesses in Delaware must keep meeting minutes detailing decisions and discussions from all official meetings. These records must be securely stored.

• Stock ledger (for corporations): A detailed ledger is required to record all issuances, transfers, and cancellations of stock, including the date, parties involved, and number of shares.

• License and permit records: All operational licenses and permits should be stored in a centralized file with notes on expiration dates and renewal requirements. The exact licenses or permits required will depend on the nature and location of the business.

• Employment records: Comprehensive files are required for each employee detailing their employment agreement, tax withholding information, and any relevant performance or disciplinary records.

• Business changes: Businesses must notify the state promptly about any pertinent changes to business operations, such as a change in registered agent.

Types of insurance

• General liability insurance: This insurance protects businesses against financial loss resulting from bodily injury, property damage, medical expenses, libel, slander, and the costs of defending lawsuits. It provides a safety net for unexpected incidents that could otherwise hurt business operations.

• Professional liability insurance (Errors and Omissions Insurance): This insurance protects businesses that provide professional advice or services from financial loss because of errors, omissions, negligence, and malpractice.

• Property insurance: This insurance covers loss or damage to your business property, including buildings, equipment, inventory, and furniture caused by events such as fire, theft, or natural disasters. It protects your physical assets so you can replace or repair business property.

• Workers’ compensation insurance: This insurance, which is legally required if you have employees in Delaware, provides benefits to employees who suffer work-related injuries or illnesses. It covers medical care, compensation for lost wages, and more. Workers’ compensation insurance safeguards your business from legal complications while providing for your employees’ recovery.

• Business interruption insurance: This insurance compensates businesses for income lost during periods when operations must halt because of direct physical loss or damage (i.e., a fire at a brick-and-mortar store forces the store to close temporarily). It helps maintain your business’s financial stability during unforeseen interruptions and lets you cover ongoing expenses such as rent or payroll.

• Cyber liability insurance: This insurance provides protection against losses resulting from data breaches or other cyber incidents, including costs related to notification, data recovery, and legal fees.

• Industry-specific insurance: Depending on your industry, there might be additional insurance types to consider such as product liability insurance for retail businesses, equipment breakdown insurance for manufacturing firms, or commercial auto insurance for transportation businesses.

Registering trademarks and intellectual property

Trademark registration can be done at the federal and state level. If you’re considering state-level registration, it’s important to familiarize yourself with Delaware’s specific procedures.

Trademark registration in Delaware

Delaware has the option to register a trademark or service mark at the state level. This is done through the Delaware Division of Corporations and provides protection within the state’s boundaries.

• Trademark availability: Before applying to register your trademark, perform a search to ensure your desired mark is not already in use within the state. This helps avoid infringement issues.

• Application process: Submit an application to the Delaware Division of Corporations. This application should include the trademark name, a description of the goods or services with which it will be used, and a specimen showing the trademark as used in commerce.

• Duration and renewal: Once registered, a trademark in Delaware is typically valid for 10 years and can be renewed after that period ends. Make sure to verify the specifics of renewal with the state’s current regulations.

Federal trademark registration

Registering a trademark at the federal level with the US Patent and Trademark Office (USPTO) offers protection across the US and is recognized internationally. Federally registering a trademark requires conducting a comprehensive search to determine whether your trademark is available, filing an application, and potentially responding to any office actions or oppositions. Federal registration is more complex than registering at the state level, but it comes with stronger protections.

Other intellectual property protection

• Patents: If inventions are a part of your business, you might consider filing for a patent with the USPTO. Patents can protect new inventions and substantial improvements on existing products or processes.

• Copyright: For original works of authorship, copyright protection is automatic upon the creation of the work. Registering a copyright with the US Copyright Office can provide additional legal benefits.

• International protection: If you plan to do business or have customers outside the US, consider international trademark and patent protections. This can be more complex and often requires filing in individual countries or using international agreements such as the Madrid Protocol for trademarks.

Legal and professional advice

Given the complexities of intellectual property (IP) law, consider consulting with an attorney or an IP professional for additional guidance. They can assist with searches and application processes and advise you on the best strategies for protecting your business.