Key Takeaways

  • A Delaware C corp offers strong legal protections, prestige with investors, and favorable tax treatment.
  • Forming one involves selecting a business name, appointing a registered agent, and filing a Certificate of Incorporation.
  • Maintaining a C corp requires annual reports, paying franchise tax, and following strict corporate formalities.
  • Delaware’s legal infrastructure—especially the Court of Chancery—is a major draw for businesses.
  • C corps offer flexible ownership options, making them ideal for startups seeking venture capital.
  • However, disadvantages include double taxation and extra administrative responsibilities, especially for out-of-state businesses.

A Delaware C corporation is a corporation formed by filing a Certificate of Incorporation with Delaware's Secretary of State. Maintaining a C corporation in Delaware requires filing annual reports and paying franchise tax. The state legal system has created a conducive environment for the formation and maintenance of C corporations, which has attracted a number of tech startups to incorporate in the state.

How to Form a C Corporation in Delaware

The most important steps taken to form a C corporation in Delaware are summarized below.

Name ReservationYou can find out if a name is available by searching online on the website of the Delaware Division of Corporations. Then, you can reserve the name for up to 120 days. A good name should not be already under use and should not infringe on other entities' trademarks. The name must also be in line with the Delaware company naming guidelines.

Appoint a Registered AgentThe name and address of a Delaware registered agent are required during the filing of the Certificate of Incorporation. The agent is tasked with receiving and forwarding legal papers to the corporation.

File a Certificate of IncorporationTo register the corporation, the Delaware Secretary of State requires companies to file a one-page Certificate of Incorporation. The Certificate of Incorporation mentions the following details:

  • The corporation's name and address
  • The corporation's registered agent's name and address
  • The corporation's purpose
  • The number of shares the corporation has
  • The value of each share the corporation has
  • The name and address of the incorporator

You can learn more about how to form a C corporation in Delaware in our detailed article.

Ownership and Structure of a Delaware C Corp

A Delaware C corporation is structured as an independent legal entity owned by shareholders. The ownership is represented by shares of stock, which can be freely transferred unless restricted by corporate agreements. This structure allows for:

  • Multiple classes of stock, enabling companies to offer preferred stock to investors and common stock to founders and employees.
  • Unlimited shareholders, which is essential for companies planning to go public or raise capital from institutional investors.
  • No residency requirement for directors, officers, or shareholders, allowing international entrepreneurs to establish U.S. corporations.

This flexibility is particularly advantageous for startups and growth-stage companies that plan to scale quickly and pursue outside funding.

Requirements for Maintaining a C Corporation in Delaware

To maintain a corporation in Delaware, the organization should have a structure with these features:

  • It should have at least one shareholder.
  • It should have at least one director. The director is required to be an individual.
  • It must have a registered agent.
  • The corporation should have an officer secretary responsible for signing legal papers and recording meeting minutes. 

Delaware C Corporation Bylaws

A corporation in Delaware must draft corporate bylaws. These should be in line with Delaware state laws and should regulate all aspects of the corporation's activities including the following:

  • The procedures for appointment of directors and officers.
  • Voting rights.
  • Bookkeeping procedures.
  • Meeting frequency.
  • The relative authority of the corporation's managers.
  • The level of liability protection for directors.
  • Procedures for transfer of shares

Why Tech Startups and Other Companies Incorporate in Delaware

Delaware state has attracted a number C corporations, including tech startups. There are a number of reasons why companies prefer to incorporate in Delaware as opposed to California or other states.

The State of Choice for Foreign CorporationsBusinesses from outside the US that want to get investors in the US find it advantageous to incorporate in Delaware because many investors prefer investing in Delaware companies. In addition, foreign businesses are normally drawn to Delaware because of its favorable laws towards foreigners. 

Favorable Legal SystemThe state of Delaware has a unique pro-corporation legal system. The state's dedicated corporate court, the Delaware Court of Chancery has, over the years, set precedents in specific matters concerning corporations. Corporation owners are naturally attracted to the state because they want efficiency and predictability in case of lawsuits. The Court of Chancery and Delaware laws tend to favor corporations compared to courts and laws of other states. This attracts many corporate managers.

Non-Restrictive Board of Director PolicyDelaware allows a single-member board of directors, whereas California law favors more members on the board.

Ease of Getting FundingDelaware state does not review corporation funding campaigns after each round of funding. This makes getting funding relatively easy as compared to some states whose laws require the state to review the corporation's funding activities.

Ease of FilingBecause of steep competition for corporate clients in Delaware, some Delaware law firms avail founders documents free of charge on their websites. This accelerates the process of filing for startups.

Taxation of Delaware C Corporations

One key distinction of a Delaware C corp is its separate tax status from its owners. This means:

  • The corporation files its own tax return (IRS Form 1120) and pays corporate income taxes on its profits.
  • Shareholders are taxed again when profits are distributed as dividends—commonly known as double taxation.
  • Delaware C corps may also be subject to Delaware’s franchise tax, which is based either on the number of shares authorized or the assumed par value capital method.

Despite the double taxation issue, C corporations may benefit from deducting business expenses such as employee salaries, health benefits, and operating costs, which can help lower taxable income. Additionally, the flat federal corporate tax rate of 21% may be favorable compared to individual income tax rates, especially for profitable companies that plan to reinvest earnings.

Corporate Governance and Compliance

To remain in good standing and protect the liability shield, a Delaware C corp must maintain strict corporate governance practices:

  • Hold annual shareholder and board meetings with recorded minutes.
  • Maintain accurate and up-to-date corporate records such as bylaws, stock ledgers, and resolutions.
  • File an annual report with the Delaware Secretary of State and pay franchise taxes.
  • Issue stock certificates or digital equivalents and maintain a stock ledger.
  • Appoint officers, such as a president, secretary, and treasurer—even if the same individual serves in multiple roles.

Failure to observe these formalities can lead to piercing the corporate veil, exposing shareholders to personal liability.

Disadvantages of Filing a C Corporation in Delaware

Although incorporating in Delaware is generally a good idea for some startups, it might come with some disadvantages if the corporation is not based in Delaware. Some of the cons of filing in Delaware include:

  • Having to incur extra filing fees
  • Being subjected to annual filing fees and the Delaware Franchise Tax
  • Incurring registered agent fees
  • The occasional need to hire a Delaware corporate lawyer

Common Uses of a Delaware C Corp

A Delaware C corp is often the entity of choice for:

  • Tech startups seeking venture capital or preparing for an IPO
  • Foreign founders establishing a U.S. presence
  • Companies issuing equity to employees through stock option plans (e.g., via an Employee Stock Option Plan or ESOP)
  • Businesses planning multiple funding rounds with complex ownership structures

Investors, especially venture capitalists and angel investors, often require companies to be structured as Delaware C corporations due to their familiarity with Delaware law and the predictability it offers.

Frequently Asked Questions

1. Why do so many startups choose to incorporate as a Delaware C corp? Startups prefer Delaware C corps for access to venture capital, favorable corporate laws, and flexibility in issuing stock.

2. Do I have to live in Delaware to form a Delaware C corporation? No, neither the shareholders nor directors are required to live in Delaware.

3. What are the tax obligations of a Delaware C corp? Delaware C corps pay federal corporate taxes and Delaware franchise taxes. Profits distributed as dividends are taxed again at the shareholder level.

4. Can a foreign national own a Delaware C corporation? Yes, foreign individuals and entities can fully own a Delaware C corporation without U.S. residency or citizenship.

5. Is a Delaware C corp suitable for a small business? While beneficial for growth and investment, the added complexity and cost of a C corp may not be ideal for all small businesses. Many opt for LLCs instead unless they plan to scale rapidly.

If you need help with Delaware C corporations, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.