To register a company in Delaware, an entity must adhere to certain procedures to incorporate and legally operate its business within the state. It is noticed that more than 60% are registered in Delaware out of all the Fortune 500 companies. Registering a company in Delaware is highly beneficial because of its investor-friendly environment. The process of registering a company in Delaware is seamless. Let us explore more about the topic in the blog below.
Benefits When Opting to Register Company in Delaware
The state of Delaware is appreciated for being a business-friendly state. The regulations in the state turn out to be very beneficial in corporate terms, which makes it more attractive for entrepreneurs and investors. There are several regulatory as well as environmental reasons which benefit entrepreneurs.
- Geographic Convenience: The state of Delaware is located in a location that is near and easily accessible to the market as a major customer base resides in the adjoining region. Apart from that, the transportation channels stand pretty close to the state.
- Cost Efficiency: Delaware does not levy any sales tax or VAT, which makes its Taxation system more advantageous. The state also has a heavily diversified economy, including advanced machinery, clean energy, etc. The cost of living in the state of Delaware is considered favorable.
- Effective Workforce: Delaware holds a highly skilled and educated workforce which helps boost productivity. The state also ranked second amongst all for PhDs per capita. The education system in Delaware has also secured some valuable awards and honors.
- Favorable Judiciary: Delaware has A Court of Chancery; it follows the laws enacted by judges and not by juries, unlike other states in the US. Also, the judges enacting and ruling upon such subject matters are well-versed in business and corporate laws, enhancing the quality of rules and enactments.
Steps to Register Company in Delaware
There is an established procedure that should be followed if an individual or an entity wishes to incorporate or register a company in Delaware.
- Choose a Name. The first and initial step is to pick a name for the company. Remember to verify various parameters before choosing the company's name, such as the name should be distinctive and must not be similar to any existing registered company. Plus, the name should not contain any restricted words and should not be misleading or misrepresenting as a public or a government authority. It is important to pick a name while considering all the requirements mentioned above to avoid conflicts in the future.
- Consult a Registered Agent. Once the name has been chosen according to the set requirements, it’s time to consult a registered agent for your company. According to Section 132 of Delaware’s General Corporation Law, a corporation must have a registered agent in the state for the stated reasons. Even if you register a company from outside Delaware, the registered agent must be an established agent in the state of Delaware.
- File a Certificate of Formation. To establish the company as a legal entity, it is necessary to file a Certification of Formation at Delaware’s Division of Corporations. It is important to have the name of the company, name, and address of the registered agent in the state, and any other relevant information for filing such a certificate, and a 90-dollar state fee is also levied.
- Create an Operating Agreement. Although there isn’t any compulsion for filing an operating agreement, it is considered beneficial to file the same as it contains valuable information such as ownership percentages, voting rights, the procedure for adding new members, etc. Also, it is important to have a mutual agreement to create a contractual relationship among all the members.
- Obtain an Employer Identification Number (EIN). A registered company in Delaware needs to have an Employer Identification Number to hire employees. The EIN is issued by the Internal Revenue Service, which is also a unique federal tax identifier. The EIN is required for some activities, such as filing Tax Returns, Applying for a company credit card, etc. The EIN is also needed while applying for tax accounts, making it mandatory for all companies to have an EIN.
- Set Up Business and Tax Accounts. After following every step when the company is up and running, it is necessary to abide by the taxation requirements of the state as well. Numerous taxes are levied on a business organization depending upon its nature. Hence, setting up federal, state, and local tax accounts is important. If the company hires employees, employer withholding accounts are also necessary.
Different Forms to Register Company in Delaware
Several kinds of companies are recognized and are allowed to be registered in Delaware.
- Single Member Company: A company with more than one registered member as the owner is considered a Multiple Member Company. The filing procedure is the same as a regular company. It might be taxed as a disregarded entity like a sole proprietorship if it does not wish to be considered and identified as an LLC.
- Multiple Member Company: A company that has more than one registered member as the owners is considered to be a Multiple Member Company. To be considered a corporation, the members must fill out the IRS form; otherwise, it can be treated as a partnership.
- Series Company: A type of company incorporation that is exclusively recognized by the state of Delaware is the Series Company. This type of company often has a parent company, an individual, or a separate entity altogether. Such a parent company holds several other series of companies under them, which act as separate entities. Hence, a lawsuit against one of the series companies of the parent company does not affect the liability or any assets of the other series company.
Key Terms for Registering Company in Delaware
- Court of Chancery: The United States judiciary follows the Jury system. Unlike that, the state of Delaware holds the Court of Chancery, which means only the judges with expertise in the field of corporate law deal with such conflicts.
- Internal Revenue Services (IRS): IRS is a statutory authority established as per Section 7801 of the Internal Revenue Code. The authority ensures proper awareness and compliance of the revenue and taxation laws in the state of Delaware.
- Tax Requirements: Although Delaware is the only state that does not charge Sales tax, the gross receipts tax is necessary to sell goods and services in the state.
- Annual Report: A registered company in Delaware is not mandated to file its annual report, making the state of Delaware a bit more attractive to entrepreneurs.
Final Thoughts on Registering Company in Delaware
Registering a company in Delaware is beneficial and an easy and flexible process with minimum difficulties or complications. Delaware’s favorable regulations, corporate-friendly environment, and geographical benefits make the state more appealing for a startup or a company. Despite being surrounded by states with rigid regulations, the state of Delaware stands out, making it attractive for investors and all entrepreneurs. The results are also reflected in the Fortune 500, proving that the state of Delaware is no less than a dream come true for many entrepreneurs and investors.
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