Incorporating In Delaware

Because of the various benefits of incorporating in Delaware, the practice is very common—according to the Delaware Division of Corporations in Dover, there are over 850,000 domestic Delaware corporations and LLCs, including the majority of Fortune 500 companies and other publicly traded US businesses.

Why Should I Form A Delaware Corporation?

This prevalence of companies in the state is due in large part to the idea that incorporating in Delaware is, supposedly, more beneficial than incorporating in most other states. But, as with so many other things in business, it’s dangerous to rely on such a blanket statement when it comes to deciding on a Delaware corporation; all of your business decisions should be made based on your specific circumstances, priorities, and future goals.

Some of the alleged benefits of incorporating in Delaware are as follows:

Low annual franchise tax
No requirement that the board of directors and corporate officers consist of more than one individual
Friendly business environment
Meetings of corporate officers are not required to be held in Delaware
Business-friendly climate due to well-established corporate laws
No corporate tax, if the corporation is not doing business in Delaware

Is It Always Best to Incorporate In Delaware?

All of the above points sound great, but let’s take a closer look.

The filing fee for a Delaware corporation is $90—not the lowest incorporation fee around, but definitely not one of the highest. Certainly, a low franchise tax is desirable, and the Delaware Court of Chancery is indeed one of the most comprehensive business statutes in the country. But, if you’re planning to take advantage of the benefits of incorporation in Delaware, and your business isn’t located in that state, there’s one thing you’ll need to be aware of: if you’re doing business in a state other than Delaware (to take advantage of owing Delaware no corporate tax), you’re required by the state in which you are doing business to file as a foreign corporation.

Here’s an example of how this affects your bottom line. If you live in South Dakota, and you’re trying to determine whether to register your business in South Dakota or Delaware, consider this: South Dakota charges $125 to register a domestic corporation. Hmm, Delaware is a little cheaper, you might think. I should set up my corporation in Delaware for $90 and save a few bucks!

But, when you realize (as you inevitably will) that in order to do business in South Dakota, you need to register as a foreign corporation in that state, you’ll end up paying a $550 filing fee to the South Dakota Secretary of State in order to do so. Add to that the extra paperwork and the requirement that your Delaware registered agent must have a physical address in Delaware (which costs around $135 annually, if you must outsource your registered agent), and suddenly those financial benefits you took advantage of by incorporating in Delaware don’t seem so beneficial anymore.

There are benefits to incorporating in Delaware, to be sure. But the fact is, there are pros and cons to doing business in any state. If your company has the ability to move to Delaware and do business there, you may enjoy some of those benefits. But if you’re stuck with the foreign corporation requirement (and if you’re not doing business in Delaware, by definition you’re either doing business in another state and therefore required to file, or you’re not doing business at all), you might want to talk to a corporate attorney or legal advisor to determine if forming a domestic Delaware corporation is really going to end up being a benefit.

Articles of Incorporation for Your Delaware C Corporation

If you do decide to open your corporation in Delaware, you’ll need to draft and file Delaware Articles of Incorporation. These Articles typically list the following:

Corporate name, which must be available for use
Registered office address, which must be a physical address
Registered agent, which can be either an individual or an already-existing (not the one you’re currently forming) Delaware corporation or LLC
Total amount of stock, which must be greater than 1
Par value per share of stock
Name and address of the incorporator, which is the person who drafts the articles and causes them to be filed
Signature of the incorporate to acknowledge that the Delaware corporation is being formed under the laws of the state and to certify that the facts stated in the Articles are true and correct.

The incorporator will sign the Articles of Incorporation; the Statutory or Registered Agent will sign his or her acknowledgement of their acceptance of the role.

There are several factors to keep in mind that should influence how to name your business, such as your future growth as far as products and services, potential expansion into other geographic location, potential trademark issues, and many others. Make sure you’re doing your research and thinking things through.

Additional Information about a Delaware C Corporation

Your C Corporation:

Can sell stock in order to raise capital
May deduct the cost of benefits provided to employers (such as parking permits, health insurance, and so on)
Has a board of directors, which oversees the policies of the corporation
Issues limited liability for owners
Can be owned by either non-US citizens or non-resident aliens alike
Can own or be owned by other business entities
Is taxed separately from the owners’ income

Shareholders of a Delaware C Corporation cannot be held liable in a judgment against the corporation for an amount greater than the amount of stock they hold. (This does not include any personal liabilities, such as fraud, failure to pay taxes, and so on.)

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Other Types of Businesses in Delaware

For information on forming specific types of businesses in Delaware, please explore the links below.