How To Create a New Business in Delaware
Did you know that over half of Fortune 500 companies in the U.S. are incorporated in Delaware? The state is known for its comprehensive corporate law that spans over 100 years and takes into consideration matters such mergers and acquisition, management, and shareholder issues.
For anybody who wants to start a business in Delaware, neither residency nor US citizenship are required to form a recognized Corporation or LLC in Delaware.
Aside from the renowned tax benefits, there are a number of factors to consider before starting a business in Delaware. For instance, Franchise Tax is still applicable and can range from $250 per year to $180,000 per year for corporations.
Another thing worth mentioning is the issue of nexus - while a large number of businesses registered in the state don't have their physical offices in Delaware, business owners are still required to take the necessary steps to "foreign qualify" the company.
You have three choices when starting a business physically located in Delaware:
1. Sole Proprietorship
Although a sole proprietorship is considered an easy-to-manage type of business organization, it is not highly recommended mainly due to the liability that the owner assumes after starting the business. Secretary of State registration is not mandatory for sole proprietorships in Delaware; however you are required to register a DBA name for your business, and obtain the requisite EIN where necessary.
2. Single Member LLC
A Limited Liability Company allows the business owners to limit liability to the company and to shield the owners' assets. For a small business owner, this form of business structure is ideal.
It is possible to establish a corporation and register as the sole shareholder with 100% controlling interest; however these forms of business require a more rigorous registration process. This form of entity is best suited for larger organizations that intend to make large investments.
In the case of partnerships, you have a number of options:
General Partnership: requires no registration with Secretary of State, but fails to protect against business liability.
Multiple Member LLC: this type of business organization functions like a regular LLC and is recommended for smaller businesses.
Limited Partnership: there are different types of limited partnerships and each state has its own standard regulation for operating this type of business.
Out of State or Foreign Corporations: companies that are registered in Delaware without being physically located in the state are called "foreign corporations" and are required to complete the foreign qualify process in order to be recognized.
The Delaware Secretary of State provides several services for business entities in the state including dissolution, reinstatement, amendment, apostilles, certificate of good standing, and relevant certification.
For an individual hoping to start a business in Delaware, follow this outline:
i. Determine your business entity type (consult an attorney for advice on this).
ii. Hire a registered agent. This can be a resident of Delaware or an organization that is allowed to conduct business on your behalf.
iii. Reserve an entity name for your business. This can be done online for a fee of $75 or by submitting the files in writing at the Delaware Division of Corporations.
iv. Submit your documents by mailing or faxing them to the Division of Corporations at Townsend Building in Dover, Delaware. Remember your tax ID and file an annual report in order to maintain business operations in the state.
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