Filing as a Delaware Corporation has its perks: it’s easy to form, offers a reputable legal system, and provides certain protections for private investors. But as business owners turn more and more to Delaware as a site for their companies’ headquarters, it’s important to understand Delaware Corporation Law— its requirements, its advantages, and potential drawbacks. In this article, we answer a range of frequently asked questions to better understand the incorporation process in the state of Delaware.

What Are the Requirements for Forming a Delaware Corporation?

In Delaware, establishing a Corporation requires registering with the Delaware Division of Corporations. To do this, the business must have an agent for service of process, provide a name for the corporation, and execute documents such as Articles of Incorporation, a Certificate of Authority, and biennial reports.

The company hiring an agent of service must be physically located in Delaware, but they can can be an individual or another company. They must file a certificate of acceptance with the Secretary of State so that they can notify the company of any legal matters. Furthermore, the name for a Delaware Corporation must meet certain requirements. It must be distinguishable from the names of other corporations currently operating in Delaware and end with Corporation, Corp., or Inc., even if the abbreviation isn’t a part of the name on the Articles of Incorporation.

The Articles of Incorporation must include the company’s name and address, the number of shares, the name and address of the registered agent, and the purpose for which the corporation was created. Once the business completes all of these steps and the Division of Corporations confirms that all of the filing documents are satisfactory, the company must pay a filing fee and the process is complete.

What Tax Benefits Do Delaware Corporations Have?

Delaware Corporations may enjoy tax benefits such as no personal income tax, no sales tax, and no franchise tax on income. The state levies no tax on S corporations. Furthermore, Delaware only taxes corporate income derived from its borders, so companies can operate in multiple states and only pay Delaware taxes on their activities within the state.

In addition, business owners may form holding companies in Delaware for their other businesses located in other states. By setting up the holding company in Delaware and filing the holding company’s income on the Delaware tax return, the other companies business owners own in different states are shielded from double taxation.

Are There Any Downsides to Forming a Delaware Corporation?

The demands of the Delaware legislature with regards to incorporation can be expensive. The state imposes certain fees such as an annual franchise tax, which ranges from $75 to $180,000 depending on the size of the corporation. The filing fee for forming a domestic Delaware Corporation is $89 and for qualification of a foreign Delaware Corporation is up to $250. Furthermore, Delaware necessitates its documents be printed on high-quality paper, such as archival paper or acid-free paper, and any changes to the company’s Articles of Incorporation must be approved by the stockholders and signed by officers of the corporation.

Does Los Angeles Law Affect Delaware Corporations?

Los Angeles state regulations do not have a bearing on the formation or maintenance of a Delaware Corporation, although they will always remain subject to local tax obligations. That said, finding counsel to guide the business in understanding and complying with local regulations can be beneficial to the business. Experienced lawyers, such as those who’re part of the UpCounsel community, understand the Delaware Corporate law and local regulations that impact businesses inLos Angeles and leverage their in-depth knowledge to help corporations achieve their desired outcomes.

Topics:

Delaware Corporation,

forming a Delaware Corporation,

Delaware tax benefits