Delaware is internationally regarded as the preferred U.S. legal domicile for the majority of public corporations, for multinational enterprises that engage in merger and acquisition activity, and for complex alternative entities. For these entities, Incorporation in Delaware provides comprehensive and flexible laws and regulations to investors which are valuable and justifiable to the cost of maintaining a Delaware entity even if these entities have no operations in Delaware.
DOING BUSINESS IN DELAWARE
Delaware is one of the tax havens for business globally. A company that chooses to incorporate in Delaware is choosing to have its internal affairs that is, issues like the interpretation of its certificate of incorporation, or the relationships between its stockholders and directors governed by Delaware law. Incorporating in Delaware means that Delaware’s corporate law will apply, it does not necessarily mean that other Delaware laws or regulations will apply, thereby protecting such business.
WHY ARE COMPANIES LOCATED IN DELAWARE?
Delaware has a long history of corporation friendly laws that provide sufficient protection to business entities operating within its jurisdiction.
Delaware’s tax laws allow corporations to be taxed at a low rate in Delaware and avoid higher taxes in their home states.
Delaware has also been called a tax haven. It does not collect corporate taxes from Delaware corporations that do not do business in the state.
Forming a company is very easy and fast to conclude as it does not have stringent requirements or registration procedures.
Venture capitalists and other outside investors often prefer to invest in a Delaware corporation due to its properly regulated business environment.
FORMS OF BUSINESS ENTITIES IN DELAWARE
A corporation is set up under the law and is legally a separate entity from the owners. As a separate legal entity, only assets of the corporation are subject to corporate debts. Although there are some exceptions, a shareholder is not personally liable for corporate debts, and assets of the shareholder are protected from business creditors. Corporations could either be domestic, exempt of foreign.
Limited Partnerships (LP):
A Delaware LP is formed by two or more persons, at least one general partner charged with the management of the LP and at least one limited partner, who benefits from a limitation on liability.
Limited Liability Company (LLC):
LLCs are similar to LPs, except that LLCs may be managed either by the members themselves or by a manager.
Statutory trusts are created by a governing instrument under which property is managed or business is conducted by one or more trustees for the benefit of owners who have a beneficial interest in the trust property.
Delaware non-stock corporations are ideal for nonprofit entities, which do not make profit or pay dividends to their members. Many prominent charitable entities are formed as Delaware nonprofit non-stock corporations, which reap the benefits that Delaware offers to all corporations while enjoying a flexible statutory foundation that exempts them from many of the administrative burdens on for-profit stock corporations.
INCORPORATION IN DELAWARE
Foreign Corporation in Delaware is a form of corporation registered in Delaware suitable for applicants who have a company incorporated elsewhere but intends to carry on business in Delaware. Upon incorporation, such applicant will be issued a Delaware Qualification certificate of a foreign corporation, having submitted relevant paperwork to the Delaware Corporations Division. A foreign Delaware corporation is different from an out-of-country owner that simply wants to form a Delaware corporation. Any corporation not actually formed in the State of Delaware is considered to be a foreign corporation.
DELAWARE DIVISION OF CORPORATION
The Delaware Division of Corporation is the agency responsible for the registration of business entities in Delaware, the filing process to form a Delaware corporation is not itself difficult and the documents required are available online at the Division of Corporation website.
DELAWARE INCORPORATION PROCESS
Forming a Delaware corporation is a formal and streamlined process; choose a company name, an entity type and obtain a certificate of incorporation. Although it is not a legal requirement to hire a lawyer to assist in the process of incorporation in Delaware, it is however advisable to get advice upfront. Key decisions about the composition of the board, the issuance of shares and capital structure of the firm, and the allocation of powers must be made early in a corporation’s life.
The following are the step by step process involved in the registration of a business entity in Delaware:
Decide the business entity type: the first and most important step is to decide the most suitable business entity type that fits into the proposed objectives. It is recommended that when choosing a business entity type, the applicants contact an Attorney or Certified Public Accountant familiar with Delaware law to obtain advice on the business entity type that will best fit his needs. The different types of entities require different requirements, timeline, registration cost etc. hence the need to choose the most suitable.
Obtain Registered Agent: Delaware law requires that every business entity have and maintain a Registered Agent in the State of Delaware who may be either an individual resident or business entity that is authorized to do business in the State of Delaware. The registered agent must have a physical street address in Delaware, if the business is physically located in Delaware, then the business may act as its own registered agent.
Name Reservation: This is not a requirement in order to form an entity but it will guarantee that the desired name is held for a period of 120 days. Name reservation can be done online or can be submitted as a physical application. The fee is $75.00.
Certificate of Incorporation/Formation Forms: Formation forms are available on the registration website with instructions on how and what to fill. The entity forms are PDF fillable and can be submitted using the Document Upload Service or by mail. Filled copies may be sent via mail, a cover sheet with your name or entity name, return address and phone number is required. The certificate must include the name of the entity, the name and address of the registered agent, and the name, address and signature of the person authorized to file the certificate, i.e. the incorporator.
Submit Certificate for Filing: Applicants may either use the Document Upload Service or mail in the completed request to our office. The mailing address is Division of Corporations -John G. Townsend Building – 401 Federal Street – Suite 4 – Dover, DE 19901. All filing fees must be paid upon submission of the request. All requests are returned regular First Class mail unless a Federal Express or UPS account number is provided to the office.
Certified Copies and Certificate of Status/Good Standing: Some Financial Institutions will require a good standing certificate or a certified copy of the new entity filing. Business owners are expected to check with Financial Institution to determine whether additional information is required to establish a business account with them. Applicants may order a Certificate of Status or Certificate of Good Standing at the time of filing the new entity by indicating this request in the comment section of the Document Filing Sheet. The fee is $50.00 per certificate for a Short Form Certificate of Status (states name and status of entity) or $175.00 for a Long Form Certificate of Status (states status and all documents ever filed on entity).
Annual Taxes, Corporate Annual Report and Franchise Tax Payments: All corporations incorporated in the State of Delaware are required to file an Annual Report and to pay a franchise tax. Exempt domestic corporations do not pay a tax but must file an Annual Report. Although Limited Partnerships, Limited Liability Companies and General Partnerships formed in the State of Delaware do not file an annual report, they are required to pay an annual tax of $300.00. Taxes for these entities are to be received no later than June 1st of each year.
DELAWARE CERTIFICATE OF INCORPORATION
Upon submission of the formation documents, the Delaware Secretary of States, Division of Corporations approves same and sends confirmation of the corporation’s existence. These include Delaware certificate of Incorporation, Employment Identification Number and other appropriate documentation. Once formed, Delaware corporations must fulfill certain ongoing requirements to maintain their good standing with the State, including filing an annual report and paying franchise taxes.
COST OF COMPANY REGISTRATION
The registration cost for the business entities in Delaware depends on the type of entities.
CORPORATE FORMATION AND BUSINESS LICENSING
It is important to note that the act of incorporating is not a license to conduct business in Delaware or elsewhere. Before conducting business, a corporation is responsible for securing the appropriate licenses and regulatory approvals needed in the jurisdictions in which it conducts business.
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