For more than 125 years, businesses around the world have chosen to incorporate in Delaware due to the State’s advanced and flexible corporate statutes, the expertise and efficiency of our judiciary, and our business-friendly state government.
Forming a Delaware corporation is a formal, streamlined process and the following sections provide a practical overview.
You are not legally required to hire a lawyer to incorporate in Delaware. But if it is important to you to form a Delaware corporation or other entity because our laws are helpful to your business, it is penny-wise and pound foolish not to get advice up front. 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. Failure to address these issues up front is often a cause of later litigation and economic loss.
The reason to come to Delaware is not because we are the low-cost provider. We are not. The reason to form an entity in Delaware is the durable value of our law’s predictability and efficiency. Unless you invest in prudent planning from the start, these benefits will be lost. In that regard, remember that Delaware’s corporate laws are designed to provide corporations and their stockholders with the maximum flexibility in ordering their affairs. Businesses may wish to take advantage of a variety of optional provisions of Delaware corporate law in their Certificate of Incorporation. Also, businesses may select from several other entity types in Delaware, including partnerships and limited liability companies, in addition to corporations. Each has its advantages and limitations for specific situations and therefore you should seek the advice of competent advisors to select the entity type that best fits your needs and business objectives.
Your Delaware corporation needs a name. Corporate names must meet certain standards. Each corporate name must be unique and may not match the name of any other corporation on file with the State. You can easily determine whether the name you prefer is available by searching online, and you can reserve your name before you finish the incorporation process through the Delaware Division of Corporations website.
Your corporation’s name must end with a corporate designator such as “Corporation,” “Incorporated,” “Limited,” or an abbreviation thereof. Designators in common use outside the United States are also acceptable such as “GmbH” or “S.A.” The Delaware Division of Corporations may reject any name that is misleading or harmful. For example, the name cannot contain words such as “Bank” or “Trust” without regulatory review. Nor will the Division accept names that contain offensive words.
Delaware law requires every legal entity to maintain a registered agent—a person or business available during regular Delaware business hours to receive legal documents on the entity’s behalf, such as court summons and any communications from the State. The registered agent must have a street address in Delaware where documents can be delivered, and this information is a public record. Delaware also requires corporations to provide and maintain the name, business address and business telephone number of a “communications contact”—a partner, officer, employee or agent of the company who is authorized to receive communications from the registered agent. This information is held by the agent, and although it is not public it can be acquired by subpoena. Delaware does not charter “secret corporations” with no human faces accountable for their operations.
Businesses that are physically located in Delaware may serve as their own registered agent. But most businesses prefer to hire a third-party registered agent service to do the job for them. Either way, it is critical to decide who your registered agent will be in advance of filing your formation documents and to contact them directly. When choosing a registered agent, businesses should conduct due diligence and select an agent with expertise in the requirements of Delaware business formation law and the ability to assist the business in meeting any additional licensing or registration requirements in other jurisdictions where the business may have operations.
The next step is to prepare a Delaware Certificate of Incorporation and file it with the Division of Corporations. The certificate forms vary by entity type, and examples are available online.
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 (the “incorporator”). Again, this is public information. Stock corporations must include the number of authorized shares and their par value. Once the Division of Corporations approves your documents, you will be sent confirmation of your corporation’s existence.
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. This annual process can also be completed online.
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. For more information on the differences between corporate formation and business licensing, please see After Incorporation or Formation, What’s Next? (What’s the Difference between Incorporation and Licensing?).
As described, the filing process to form a Delaware corporation is not itself difficult and the documents you need are available online at the Division of Corporations website. The process is designed to be straightforward, while allowing you maximum flexibility to choose the business entity best suited to your company’s needs. But this does not mean that you do not need to think carefully before doing the easy part of actual filing. You do. Please heed our suggestion to plan upfront carefully, think through the key governance and capital structure issues, document those decisions with the advice of competent legal advisors so that they are accurately and clearly reflected in the entity’s governing instruments, and do not take shortcuts that could cost you dearly in the long run.
For information on the law firms and corporate service providers that authored these articles, please visit our acknowledgements page. The State of Delaware is grateful for their assistance.
Legal Disclaimer: The materials contained herein are intended to provide information in regard to the subject matter covered. The Delaware Department of State is not engaged in rendering legal, accounting, or other professional services. If legal advice or other professional assistance is required, the services of a qualified professional should be sought.
Related Topics: business, businesses, Corplaw, corporate, corporations, Delaware, Delaware Corporate Law, incorporation, State of Delaware
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