Delaware C Corporation: Everything You Need to Know
A Delaware C corporation is a corporation formed by filing a Certificate of Incorporation with Delaware's Secretary of State. 3 min read
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.
You 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 Agent
The 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 Incorporation
To 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.
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 Corporations
Businesses 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 System
The 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 Policy
Delaware allows a single-member board of directors, whereas California law favors more members on the board.
Ease of Getting Funding
Delaware 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 Filing
Because 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.
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
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.