DOING BUSINESS IN DELAWARE
Delaware is best-known for its extremely business-friendly corporate laws.
Delaware’s courts, tax system, laws, and policies have made it an attractive state for businesses to incorporate in since at least the early 1900s
Delaware is known by neighboring states as the “Home of tax-free shopping.”
Delaware’s economic growth is closely tied to the DuPont family, founders of one of the largest chemical companies in the world.
Delaware’s state tree is the American Holly, and its state bird is the Blue Hen.
Small Business and Startup Environment
Incorporating in Delaware is the gold standard for startups looking to attract outside investment from angels and venture capitalists. A majority of Fortune 500 companies are incorporated in Delaware. Delaware is known for being a business friendly state, their laws are flexible for founders and shareholders. There’s a body of law in DE where many court cases have already been tried, so businesses have more certainty about how different legal disputes will turn out. Venture capital firms and angel investors typically require companies to be structured as a Delaware corporation as a condition of funding the company.
Step 1: Decide on a Business Structure
There are 3 basic options: a DBA, a Corporation or an LLC.
- A DBA or “Doing Business As” (also known as a “Fictitious Business Name” or FBN) is not really a separate structure, but just a different name that an individual or partners use as their business name.
- A Corporation is a separate entity (provides liability protection to the owners) that has a structure that includes shareholders, directors and officers. More complex than a DBA but the entity of choice for large companies and startups that intend to raise funding.
- An LLC or “Limited Liability Company” is a newer type of business that is both a separate entity but provides very easy management (doesn’t require directors or officers) and taxation. Has largely replaced the DBA and Corporation in popularity recently as it provides liability protection but with much less complexity (and taxation) than a Corporation.
Step 2: Choose a Business Name
Many legal and business problems can be avoided by choosing the right business name. Here are important tips before you search the Delaware business database:
- Choose a unique, easy to understand and a name that with potential for branding.
- Search the web for your proposed name. Search Google and see if someone else has the same name, see if it can be confusing for your customers or if you may be able to be found easier than other names.
- Do a trademark search with the US Patent and Trademark Office (USPTO). This will be a very good indicator if you’re name will have any conflicts. Search also misspellings, plurals, variations of spelling, sound-alikes and other versions of your chosen name to be sure it’s not already registered.
- Make sure your company name choice is available by searching Delaware’s Department of State: Division of Corporations business name database. Note: Make sure to search variations of spelling, plurals and misspellings as the state may reject a name that is too similar (then you have to start all over again, wasting valuable time).
Step 3: Register the Business
How to form an LLC in Delaware
- File the Corporate Forms And Certificates For A Limited Liability Company with the Delaware Department of State Division of Corporations
- Hire a professional Registered Agent
- Hold an Organizational Meeting
How to Incorporate in Delaware
- File the Corporate Forms And Certificates For A Corporation (Articles of Incorporation) with the Delaware Department of State Division of Corporations
- Hire a professional Registered Agent
- Hold an Organizational Meeting
- Corporations can elect S-Corporation status with the IRS by filing IRS Form 2553. Click here to learn more about S-Corporations.
- The Division of Corporations could take anywhere from 2-3 business days for e-filing to 3 to 5 days for mail filings to process the paperwork. This may increase during peak periods.
- A professional Registered Agent is a requirement for every Delaware Corporations and LLC. The chosen registered agent must have a physical street address in Delaware. They will provide their address and forward any important documents to you. This is convenient if you have to move, since you won’t have to file forms or pay fees, (just update your address with your agent).
- “Organizational Meeting” which takes contributions from the members, issues Member Certificates, adopts the company Operating Agreement and more. Many people simply do steps 1 and 2 above but this leaves your company unorganized and possibly exposed to legal, tax and compliance issues. Save time and money now by properly organizing the company.
How to File a DBA in Delaware
DBAs are filed with the county. You’ll want to contact your local County Recorder to find out exactly what forms to submit and what they’re submission process is. You can find the local county recorder’s office by searching “YOURCOUNTY county recorder”.
Step 4: Obtain your Federal Employer Identification Number (FEIN or “EIN”)
Your EIN is like your Social Security Number for your company. It’s required for Corporations and LLC’s and optional for DBA’s (if you don’t have any employees, then it’s required). However, if you are a DBA and don’t obtain an EIN you will be forced to use your Social Security Number on many documents so it’s typically recommended you obtain the EIN to prevent identity theft.
Step 5: Open Company Accounts: Bank and Credit Cards
To keep business and personal expenses separate, you should open a separate account for your business. In addition, getting business credit cards is how you begin to build a company credit profile (corporation or LLC required) and can later qualify for larger funding and lines of credit. To open the account simply call your chosen bank and inquire on the steps to open a business bank account.
Step 6: Obtain Business Licenses and Permits
Business insurance helps you manage risks and focus on growing your business. The most common types of business insurance you should consider are:
Now that you’ve registered your business name you need to obtain a business license for your company – this authorizes your company to do business in your city or county. Typically this also involves registering for state taxes and permits (the city may require them as part of the business licensing process).
The State of Delaware has a One Stop Business Registration and Licensing System where you can register your business with the Division of Revenue, the Division of Unemployment Insurance and the Office of Workers Compensation.
Step 7: Renew All Permits and Registrations
DBA: Your Fictitious Business Name should be valid for 5 years (unless you change company name or other information listed on the FBN) at which point you’ll need to renew it with the county.
LLC: Delaware LLCs are required to pay an annual tax of $300 on, or before June 1 each year. There is no requirement to file an annual report.
Corporation: All businesses incorporated in Delaware must file an annual report and a franchise tax. Even if your corporation is tax exempt, you must still file an annual report before March 1 each year. The annual filing fee is $49, and the minimum tax is $225. Annual reports can be filed online through the Delaware Corporations Information System.
Franchise Taxes: Delaware corporations are required to file a Franchise Tax of $300 annually, due on June 1. This is standard protocol for an LLC, regardless of age, sales, activity, or inactivity. A late penalty of $200 is levied against business that fail to pay on time.