Delaware is a top choice for businesses of all sizes, and for good reason. The state’s business-friendly legal framework and established corporate laws make it an attractive hub for companies looking to incorporate. In fact, Delaware is home to 79% of all U.S. initial public offerings (IPOs) in 2022, 67.6% of the Fortune 500, and thousands of subsidiaries of international companies.
In this guide, we’ll walk you through the step-by-step process of forming a C Corp in Delaware, ensuring that you’re equipped to take advantage of the opportunities the state offers.
What Is a Delaware C-Corp?
A C-corporation (C-corp) is a legal business entity in the United States that is taxed separately from its owners. It is the most common type of corporation and is designed to provide limited liability protection to its shareholders, meaning the owners are not personally responsible for the corporation’s debts or liabilities.
By extension, a Delaware C-corp is incorporated under the laws of the state of Delaware and is taxed under Subchapter C of the Internal Revenue Code. Delaware has become a popular choice for incorporation due to its limited liability for shareholders, favorable tax laws, robust business infrastructure, and an experienced court system.
How to Form a C Corp in Delaware
1. Consult Experts and Define Your Governance Structure
Though not legally required, consulting a legal or financial expert is highly recommended. Decisions about your board’s composition, capital structure, share issuance, and allocation of powers should be made at the outset. Failing to address these foundational elements can lead to costly disputes later.
2. Choose a Unique Name for Your Corporation
To be sure you are selecting the right name for your Delaware corporation, the name you choose must include one of the following terms (or their abbreviations): “Association,” “Company,” “Corporation,” “Club,” “Foundation,” “Fund,” “Incorporated,” “Institute,” “Society,” “Union,” “Syndicate,” or “Limited.” Alternatively, you can use a word or abbreviation with a similar meaning in another language, provided it is written in Roman characters or letters.
Be unique and not deceptively similar to any business entity names already on file with the Delaware Secretary of State (SOS). Use the Delaware Division of Corporations website and reserve it before filing.
To ensure the name is available, search for your desired business name using the SOS’s business name database. If your chosen name is available, you can reserve it through the Delaware Division of Corporations for a $75 fee, holding it for 120 days. Having a memorable, easy-to-pronounce, and representative name for your business is essential, so consider drafting one or two alternatives in case your first choice is unavailable.
3. Select a Registered Agent
Every Delaware corporation must appoint a registered agent—a person or business with a physical address in Delaware—responsible for receiving legal documents and official communications on behalf of the business. This is a critical role, as the agent serves as the state’s primary point of contact with your corporation. While businesses physically located in Delaware can act as their own registered agent, many owners prefer hiring third-party services for privacy and convenience.
A registered agent’s address cannot be a P.O. Box and is public information, which can raise privacy concerns for business owners. Using a professional registered agent service can help protect personal information and ensure sensitive legal documents are handled discreetly, avoiding potential disruptions or embarrassment, such as receiving lawsuits in front of customers. When selecting an agent, businesses should choose a reliable provider experienced in Delaware’s business laws and requirements, ensuring compliance across all jurisdictions where the business operates. For a list of registered agents, visit the Delaware Division of Corporations.
4. File a Certificate of Incorporation
To officially form a Delaware corporation, especially one issuing stock, you must prepare and file a Certificate of Incorporation with the Delaware Division of Corporations. This document formally establishes your corporation and must include the following details:
- Corporation Name: Ensure it complies with Delaware naming conventions and includes designators like “Corporation,” “Company,” or “Limited,” or their abbreviations.
- Registered Agent Information: The name and physical address of your Delaware registered agent.
- General Purpose Clause: A statement summarizing the corporation’s general purpose.
- Authorized Shares and Par Value: The total number of shares the corporation is authorized to issue and the par value of each share.
- Incorporator Details: The name, mailing address, and signature of the incorporator filing the certificate.
You can use a Certificate of Incorporation template provided by the Delaware Division of Corporations as a guide to correctly complete this document. Submissions can be made online through Delaware’s Document Upload Service or by printing and mailing the forms. Once filed and approved by the Delaware Secretary of State, this certificate confirms the legal existence of your corporation.
5. Create the Corporate Bylaws
Once your Delaware corporation is formed, you must create and adopt corporate bylaws. These bylaws are not filed with the state but are crucial internal documents that establish the operating framework of your corporation. They outline rules for electing directors, organizing meetings, setting officer roles and responsibilities, and handling ownership rights. Bylaws also cover critical details such as annual meetings and the process for adding or removing directors or officers.
While drafting bylaws, you might consider consulting a business attorney or using a template provided in corporate kits. Properly maintained bylaws demonstrate your corporation’s legitimacy to banks, creditors, and the IRS. These documents, along with meeting minutes and other essential records, should be stored securely in a corporate records book at your principal office.
6. Appoint Directors and Hold the Initial Board Meeting
The next step involves appointing the initial board of directors who will oversee the corporation’s operations until the first shareholders’ meeting. The incorporator (the person who filed the Certificate of Incorporation) must complete an “Incorporator’s Statement” that lists the names and addresses of the initial directors. This document is not filed with the state but should be stored in your corporate records.
At the first board meeting, the directors will adopt the corporate bylaws, set the fiscal year, appoint corporate officers, and authorize the issuance of shares. They may also approve the corporation’s bank account, select a corporate seal, and adopt an official stock certificate form. Minutes from this meeting must be recorded and stored with your corporate records, as maintaining these records is a legal requirement in Delaware.
7. Issue Corporate Stock
Issuing stock is a critical step in establishing ownership in your corporation. Shares represent ownership, and they can be exchanged for capital contributions such as cash, property, or services. While not legally required, many corporations issue paper stock certificates to shareholders and maintain a stock transfer ledger.
Delaware corporations can issue shares with or without par value. Par value is the minimum price at which shares can be sold and must be noted on stock certificates if applicable. Be mindful of state and federal securities laws when issuing shares. Delaware provides exemptions for private offerings and unadvertised sales to accredited investors, but certain filings may still be required with the state’s Investor Protection Unit for specific transactions.
8. Obtain Business Licenses and Permits
Nearly all businesses operating in Delaware must register and obtain the necessary licenses through the Delaware One Stop licensing portal. This platform allows businesses to manage tasks such as registering for a business license, adding or changing licenses, and registering as a withholding agent for employees.
Depending on your industry and location, you may also need additional local or county permits. Annual fees for business licenses vary, starting at $75 for the first location. Ensure you remain compliant by researching and fulfilling all licensing requirements relevant to your business activities.
9. Apply for an EIN
An Employer Identification Number (EIN) is essential for tax purposes and serves as a unique identifier for your corporation. You will need an EIN to open business bank accounts, file taxes, hire employees, and establish business credit.
You can apply for an EIN online through the IRS website or by completing IRS Form SS-4. Be sure to wait until your corporation is officially registered with the state before applying. Obtaining an EIN is free and straightforward, but you can also seek assistance from third-party services if needed.
10. File Annual Reports and Pay Franchise Tax
Delaware corporations must file an annual report and pay a franchise tax by March 1 of each year. The annual report filing fee is $50, and the minimum franchise tax is $175, with a maximum of $200,000. Corporations owing $5,000 or more in franchise tax must make estimated payments throughout the year.
Failure to file the annual report on time results in a $200 penalty, with additional interest of 1.5% per month on unpaid taxes. Foreign corporations face a $125 penalty for late filings. Use Delaware’s Franchise Tax Calculator to estimate your tax obligations and stay compliant to avoid penalties.
Conclusion
While the steps to form a Delaware C Corp are designed to be simple, the decisions made during this process have lasting implications. Investing time and resources upfront to consult experts, carefully plan your governance and capital structure, and comply with legal requirements ensures your corporation is built on a solid foundation.
FAQs
Delaware C Corp vs LLC
C Corporations (C-Corps) and Limited Liability Companies (LLCs) differ primarily in structure and functionality. C-Corps are structured to issue shares and are designed for scalability, often appealing to investors. LLCs, on the other hand, are more flexible, combining elements of corporations and partnerships, and typically focus on simpler management.
In Delaware specifically, C-Corps must file an annual report listing one officer and the board of directors, which becomes public record, though owners/shareholders are not named. Delaware LLCs, by contrast, do not file annual reports. For raising capital, Delaware C-Corps can sell private shares or go public on a stock exchange (following securities regulations), while LLCs can only sell shares privately and cannot be publicly traded.
How Long Does It Take To Form a Delaware C Corp?
The time to form a Delaware C Corporation depends on the filing method and processing option chosen. Standard online filings take a few business days, while mail filings can take one to two weeks. If you’re in a hurry, Delaware offers expedited services for an additional fee: 24-hour processing for $50, same-day processing for $100 (if submitted by noon), two-hour processing for $500, and one-hour processing for $1,000. Once approved, Delaware will send you a certificate of incorporation, which may take a few additional days to arrive. Ensure all documents are accurately completed to avoid delays.
Can a Foreigner Open a Company in Delaware?
Yes, a foreigner can open a company in Delaware. You don’t need U.S. citizenship or residency to form an LLC or a corporation in the state. This allows individuals from anywhere in the world to start a business in Delaware, and many current business owners in Delaware are non-residents of the U.S.
