How to Register a Business in Delaware

by Jennifer Kiesewetter in

person writing on paper leaning on brown table
TLDR

  • Delaware treats its incorporation of businesses with the highest regard, serving as the gold standard of business registration across the country.
  • Before you register your new business in Delaware, you first need to determine your organization's legal entity structure, such as a limited liability corporation (LLC) or a corporation, such as an S-corporation or C-corporation.
  • In addition to choosing your entity's structure, you'll also have to choose your business's name and registered agent.
  • After you complete the above steps, it's time to submit your formation forms to the Delaware Secretary of State. The documents you file depend upon your chosen business's entity structure.
  • The cost to register a business in the State of Delaware depends upon your business’s entity structure. For example, if you choose to register your business as a limited liability company, the filing fee is $90, and a certified copy of the filing is $50.
  • If you are operating your Delaware-registered business in California, you must qualify your organization through a process called foreign qualification. By meeting the requirement for foreign qualification, you can legally transact business in California, even if registered in Delaware.

When founders register their startups, Delaware is a popular choice. According to the Delaware Secretary of State's office, 67.8 percent of all Fortune 500 companies are registered in Delaware, with 1.5 million business entities registered as of 2019. Furthermore, 89 percent of all U.S.-based initial public offerings in 2019 alone chose Delaware as the state to register their businesses.

A large number of founders choose to register their startups in the small state of Delaware primarily because of the following reasons:

  • Delaware law is kept up-to-date, keeping it modern and easy to understand, making it appealing to startups.
  • Delaware supports a specialized, dedicated court called the Court of Chancery specifically for interpreting and applying corporate law without juries, allowing judges to issue decisions promptly.

Delaware treats its incorporation of businesses with the highest regard, serving as the gold standard of business registration across the country. In this article, we're going to explore how and when to register your startup in Delaware while addressing the implications of living in California when registering a Delaware business. 

Before we start, if you want to understand the basics of registering your business and why you need it, check out our comprehensive guide.

When Do You Need to Register your Startup in Delaware?

To successfully register your startup in Delaware, you'll need to satisfy several requirements so you'll be in compliance.  Below, we've broken these requirements into a step-by-step process.

Step 1: Determine Your Startup's Structure

Before you register your new business in Delaware, you first need to determine its legal entity structure, such as a limited liability corporation (LLC), a general partnership (GP), a limited partnership (LP), or a corporation, such as an S-corporation or C-corporation. Your chosen business entity determines the next steps in registering your startup.

For example, according to the U.S. Small Business Administration, a sole proprietorship is "the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner." However, under Delaware law, you do not have to register with Delaware's Division of Corporations as a sole proprietor.

However, if you choose to organize as an LLC or a corporation, you must file specific steps to register your startup. Also, if you choose to conduct business in Delaware as an employer, you need to take some additional steps. You can see these steps at Delaware One Stop.

Step 2: Choose Your Startup's Name

In addition to choosing your startup's structure, you'll also have to choose its name. For example, according to Delaware law and depending on your structure, you'll need to include the applicable following words: company, corporation, association, foundation, fund, or incorporated, to name a few.

Your business's name must not be similar to any other organizations on file with Delaware's Secretary of State. As you are naming your startup, you can check your options against Delaware's business name database.

If you are not ready to register your business, but you don't want to lose its chosen name, Delaware law permits you to reserve your corporate name. Although not required to register your business, you may reserve its name for up to 120 days for $75.

Step 3: Identify Your Registered Agent

Next, you need to identify and obtain a registered agent. According to SCORE, a registered agent is, "simply a person or entity appointed to accept service of process (i.e., notification of a lawsuit) and official mail on your business's behalf."

Like most states, Delaware requires you to identify and maintain a registered agent who may be an individual or an entity with a physical address and authorized to conduct business in the state of Delaware. Additionally, like in other states, you may act as your own registered agent if your startup is physically located in Delaware, or you may hire an entity in the state of Delaware to serve as your registered agent. If you choose to hire a registered agent, you can consult a list of Delaware Registered Agents.

Step 4: Submit Your Forms

Finally, after you complete the above steps, it's time to submit your forms to the Delaware Secretary of State. For new entities, the State of Delaware provides sample forms for your use or review. For example, if you chose a limited liability, a limited partnership, or corporation structure, you can use the state's official forms. These forms are pdf-fillable and can be filed online or via U.S. Mail with hard copies of the documents.

Let's look at a specific example. If you choose a corporation structure for your new business, you would file a Certificate of Incorporation – Stock Corporation with the Delaware Secretary of State to create your company. You may file this certificate online, or you may send a hard copy through the U.S. Mail, along with a Filing Cover Memo. Your filing fee depends on how much stock you'll issue and the value of such stock, as further discussed in the next section.

In this same example, your Certificate of Incorporation must contain your startup's name, the name and street address of your registered agent, the number of shares of stock your corporation is authorized to issue, the business's purpose, and the incorporator's name and mailing address.

How Much Does It Cost to Register a Business in Delaware?

The cost to register a business in Delaware depends upon your startup's entity structure. For example, if you choose to register your startup as a limited liability company, the filing fee is $90, and a certified copy of the filing is $50. If you'd like your LLC registered on the same day you submit your filing, then add a $100 fee. If you'd like your LLC registered within twenty-four hours after you submit your filing, then add a $50 fee. 

If you choose to register as a corporation, then your filing fee will vary depending on the amount of stock you wish to offer. Your filing fee will average $300, with the same fees applied to certified copies, same day, and twenty-four-hour filings as stated above.

To determine precisely how much you'll owe when you register your business in the State of Delaware, you can check the Division of Corporations Fee Schedule or call 302.739.3073.

What Comes After You Register Your Business?

After you register your startup with the state of Delaware, you still have organizational requirements that you must meet, depending on your business's structure. For example, if you are a corporation, you'll need to appoint directors, issue stock, draft bylaws, and hold your first board meeting.

If your entity is a limited liability company, you will need to draft an operating agreement. For any entity, you'll need to obtain a federal Employer Identification Number (EIN) from the IRS and obtain a business license, depending on the services you offer.

Finally, depending on your startup's structure and purpose, you may need to file an annual report, along with a filing fee, and pay state and/or federal franchise and excise taxes annually. For example, the annual report filing fee is $50, and the minimum Delaware franchise tax is $175 with a maximum tax of $200,000.

All annual reports and franchise tax amounts (under $5,000) must be filed and/or paid no later than March 1 of each year. For any franchise tax amounts of $5,000 or more, you may pay on quarterly installments, with 40 percent owed due on June 1, 20 percent by September 1, 20 percent by December 1, and the balance due no later than March 1. The penalty for not filing and/or paying timely is $200 plus 1.5 percent monthly interest applied to any unpaid franchise tax balance.

How to Register a Startup in Delaware While Living in California?

Suppose your startup is registered in Delaware but you are operating it in California. In that case, your organization is considered a domestic entity in Delaware and is a foreign entity in California.  It does not take much to be considered operating a business in California. For example, if you hire employees, use a bank account, or hold an asset in California, you are running your business in that state.  

If you are operating your Delaware-registered business in California, you must qualify your organization through a process called foreign qualification. By meeting the requirements for foreign qualification, you can legally transact business in California, even if registered in Delaware.

To satisfy the foreign qualification requirements, you will need to complete and file the Statement and Designation by Foreign Association form. This form includes the name of your startup, the state in which your company was registered (e.g., Delaware), the street address of your principal office, and your agent of process in California, among other information.

The filing fee for this statement is $100. Until this form is filed, with the appropriate filing fee paid, you may not operate your business in California. Thus, it is critical to time your filings and your business operations, such as hiring employees in California, accordingly, so you are not out of compliance with California law.

Benefits of Registering a Startup in Delaware

As previously stated, many benefits exist for registering a business in Delaware, such as modern and easy-to-understand laws and a specialized court for corporate issues. Additionally, registering a company in Delaware offers the following benefits:

  • Corporate filings, such as registrations, are processed quickly.
  • Your privacy is protected, as you do not have to disclose the names of your directors and/or officers, as you may in other states.
  • You are not required to reside in Delaware.
  • Tax benefits exist when registering your startup in Delaware, such as no imposition of income tax on registered corporations that conduct business in another state.
  • Investors often prefer Delaware registrations.

Limitations with Registering a Startup in Delaware

When you are making any business decision, it is best to weigh both the pros and cons before committing to a course of action, such as registering your startup in Delaware. Here are some limitations of registering your startup in Delaware:

  • Other than the tax benefits mentioned above, no significant tax savings exist.
  • Filing fees are often more costly than in other states.
  • You must pay a state franchise tax when you file your annual report.
  • You must have a Delaware registered agent, in addition to another registered agent if you are operating in another state, such as California.
  • You may have additional requirements to meet if you operate your Delaware-registered startup in another state.

We Can Help! 

At AbstractOps, we help early-stage founders streamline and automate regulatory and legal ops, HR, and finance so you can focus on what matters most — your business.

If you're looking for help on registering your business in Delaware, we can get your documentation ready and shepherd this process to ensure it's done right. Drop us a note at hello@abstractops.com

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