Incorporating Business In Delaware

Why Do Companies Incorporate In Delaware?

The cost of forming an LLC (limited liability company) or incorporation in Delaware is one of the most affordable in the United States. Since this state accounts for no income tax in both the LLCs and corporations and no tax on capital stock for small business entities, business owners are interested in Delaware and its pro-business and pro-privacy policies.

• General corporation law. This law is always the benchmark for how other types are compared. It is simple and easy to understand while including adequate provisions to deal with most situations that corporations have to encounter.
• Legislature with business focus. Delaware relies on experts in corporate law to examine business statutes and propose yearly amendments to accommodate the needs of contemporary business forms.
• Legal system. Delaware has a Chancery Court that handles equity cases of assessing and dealing with issues to company entities and does not allow punitive damages, has no juries and has specialized judges to handle their cases as quickly as possible.
• Case law. Delaware case law offers corporate officials and their legal counsel a wealth of precedents since it is the nation’s largest, most thorough, and most comprehensive collection of corporate case law.
• Corporations Division. If you want to file any corporate papers in Delaware with the Division of Corporations, it is a very smooth process and they do have options for expediting the fill in 24 hours or, exceptionally, in one or two hours depending on the nature and degree of urgency of a particular task or request.

Legal Procedure To Incorporate Business In Delaware

1. Choose Your Business Name 

Choosing a name that fits the message you want to convey to your business, the product and service offered is somewhat challenging. You also require the name of the product to be people friendly and one that your customers will easily recall.

It becomes very relevant to carry out state name availability and check to inform the owner whether the desired state is already in use in the state of incorporation. Also, the laws of the state of Delaware present certain restrictions based on the type of business as to what name you can choose, especially if it is a corporation or LLC, and what words are obligatory.

For example, a LLC name should be : 

• the words “Limited Liability Company,” or the abbreviation “LLC” or “L. L. C. ”
• be able to be identified from the names of other domestic or foreign business entities on the Secretary of State’s records.

The state can reject any name that they consider as misleading or one that could be detrimental to society. Any company name with certain words like “Bank” may need permission to be incorporated from the regulating authority. 

2. Select and/or nominate directors/members/managers (LLCs) or directors (corporations)

Limited Liability Company (LLC) can be managed by its owners which are called members or appointed managers. It is a legal entity in which, a corporation, directors function collectively as a board of directors, which is the corporation’s governing body. 

 Corporation requirements are as follow. 

• The state of Delaware mandates that a corporation must have at least one director but can have more. 
• There are no particular guidelines for age requirements enumerated by the Delaware. 
• Delaware does not have any requirement as to where directors need to be based. 
• Delaware laws for corporations did not mandate the names and addresses of a director to be incorporated in the Certificate of Incorporation. 

LLC requirements are as follow. 

• The state of Delaware has certain rules that an LLC must have one or more members/ managers. 
• Delaware law also does not have the age requirement for members / managers. 
• Delaware do not state any requirement about the place of residence for the members/managers.
• The formation of the Delaware limited liability company does not require that the names and the addresses of the member/manager to be contained in the Certificate of Formation. 

3. Get a registered agent  

A registered agent is an individual or a company that you appoint to act on your business’s behalf to accept legal notices, lawsuits, legal and tax documents and other such notices. Delaware requires every corporation as well as LLC to have a registered agent with the physical address in Delaware and P. O. boxes are not allowed. 

4. Submit the incorporation documents 

 It is necessary to go to the Department of State and submit the Certificate of Incorporation for corporations and Certificate of Formation for LLCs. 

5. Check the requirements for franchise taxes and annual reports

Delaware’s corporations are obliged to submit Annual Franchise Tax Report. The due date for corporations to file the returns is March 1 of every year. Non-exempt domestic corporations’ annual report fee is $50, while for exempt domestic corporations is $25. The franchise tax is computed according to the number of authorised shares and par value of the organisation. In addition, where the number of shares is more than 5000 then the annual fee may also rise. 

Unlike some other states the formation of LLCs in Delaware does not entail an annual filing, however, an annual tax of $300 is to be paid by June 1 of the year. 

6. Get the necessary licenses and/or permits for your business

Nearly every form of business, whether sole proprietorship or partnership, or a corporation require compliance permits and or business licenses. Depending on the state in which the business is to be established, getting a license at the municipal level as well as at the state as well as the federal level might be necessary. 

7. Fulfilling the other legal requirements and licenses 

The other areas of tax compliance and regulatory issues that you should identify in your corporation or LLC are procuring a Federal tax identification number, which is an identification number that the IRS issues to business entities. 

It is not only wise for your business but legal as well to maintain a different account for the finance of your business from your own to prove that your business’s assets are not your own assets. You can deposit the money which you received for your formation of LLC or Corporation into a bank account to apply this early.

Furthermore, a beneficial ownership information (BOI) report may also need to be sent by an LLC or corporation to FinCEN, the Financial Crimes Enforcement Network of the United States Department of Treasury, unless they are exempt from this requirement. For further details, refer to the Fin CEN’s Frequently Asked Questions on the Information Regarding Beneficial Ownership. 

8. Additional start-up considerations  

According to the structure and the decision made by the owners/management of the business, incorporating a business in Delaware may also include these variables: 

• Legal provisions of ownership for real estate
• Requirements for loan and capitalization 
• Vendor contracts 
• Professional licensing 

Corporation Shall Register In Other States Where It Is Transacting Business

If you form your business in Delaware but doing business in other states, it may be necessary for you to foreign qualify in those states. The LLCs and corporations are to be considered domestic only to the state or Incorporation and they are classified as international entities in the other states. Businesses operating in the United States are obliged to register especially if they are foreigners and this is known as foreign qualification. 

Foreign qualification is quite similar to the process of incorporating an organization. An application has to be filed with the state and respective state filing fees have to be paid. There are also constant demands that foreign-qualified companies make to states, for instance, the filing of annual reports and fees. Thus, when you register the company in Delaware, and foreign qualify it in another state or other states, you will have to make the subsequent filings and pay the fees in both Delaware and the state(s) of foreign qualification. 

What is regarded as transacting business may be different from state to state and some criteria are : 

• Physical presence. Does that company have an office in one of those states? 
• Employees: Does the company have employees in that state?  
• Bank account. Do you have the bank account of your business in that state? 
• Transactions orders. Do you serve customers or receive orders from that state? 

If you’re unsure whether your business is operating in a state or set of states that would qualify as foreign, it’s best to get expert assistance like FastLane. Contact us and our team of experts can help you find the best solution for you.