The state of Delaware is a magnet for businesses and entrepreneurs, attracting more than 1.9 million incorporated entities, including Fortune 500 enterprises. 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 corp in Delaware, the process is manageable if you break it down into smaller steps. The process includes tasks such as choosing a unique company name, appointing a registered agent, issuing stocks, and complying with regulatory requirements. Each step is important and needs to be completed with due diligence. Below is a step-by-step guide to help you set up your C corporation in Delaware.

What’s in this article?

• What is a Delaware C corp?
  
• Benefits of forming a C corp in Delaware
  
• How to form a C corp in Delaware
  

What is a Delaware C corp?

A C corporation—often called a C corp—is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. C corps can have an unlimited number of shareholders, and these corporations are taxed on their earnings. In addition, 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 is incorporated in the state of Delaware. Such companies 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. The company may or may not have a physical presence in Delaware, or conduct 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:

• Favorable 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 specializes 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 does not 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 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 for 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 with a legal or business expert before deciding where to incorporate your business.

How to form a C corp in Delaware

Establishing a C corporation 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:

• 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 must be distinguishable from any name on record with the Delaware Secretary of State. You can conduct a name search on the Delaware Division of Corporations website to ensure your desired name isn’t already taken.

• 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 authorized 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 of legal action and state correspondence such as annual report notices.

• 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 authorized shares, and the incorporator’s information. This certificate establishes the existence of your corporation.

• 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 do not submit their bylaws to the state, they are still legally binding documents. It’s often beneficial to hire a legal professional to draft the bylaws and ensure all legal bases are covered.

• Appoint directors and officers: Typically the incorporator of the corporation 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.

• 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 a corporate banking, and set the corporation’s fiscal year. Keep detailed minutes of this meeting and all future board meetings.

• 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.

• Get an EIN: The Employer Identification Number is a unique number the 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.

• Comply with other tax and regulatory requirements: Depending on the nature of your business, you may need to comply with other tax and regulatory requirements. This 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.

• 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.

Consider seeking the counsel of a legal expert or a professional incorporation service when forming a Delaware C corporation to avoid any delays or legal complications that could affect your business operations. They can guide you through each step of the process, ensure you comply with all legal requirements, and give you personalized advice based on the nature of your business. They can also help you maximize the benefits of incorporating in Delaware—from the state’s business-friendly laws to its tax advantages. A seasoned professional can help you turn Delaware incorporation into a strategic asset for your business.