Starting a business is a manageable process when broken down into sequential steps. Navigating the path from concept to an operational enterprise involves careful planning, understanding legal requirements, and fulfilling administrative duties. By approaching each stage with diligence, you can establish a solid foundation for your company’s future. This structured approach helps demystify the process, making entrepreneurship an attainable goal.
Plan Your Delaware Business
Before you can officially form a company, you must develop a clear plan and select a name for it. A comprehensive business plan is a roadmap that outlines your company’s objectives and strategies, which is often necessary for securing loans or attracting investors. A central part of this initial phase is choosing a name that reflects your brand and is distinct from other businesses.
The name you select must be unique within the state. You can verify the availability of your desired business name by searching the database on the Delaware Division of Corporations’ website. If you have settled on a name but are not yet prepared to file your formation documents, you can reserve it. By filing a name reservation application with the Division of Corporations and paying a $75 fee, you can secure your chosen name for 120 days.
Choose Your Business Structure
Selecting the right legal structure is a foundational decision with long-term implications for liability, taxation, and administrative effort. A Sole Proprietorship is the simplest structure, where the business is owned by one person and there is no legal distinction between the owner and the company, making the owner personally responsible for all business debts. Similarly, a General Partnership involves two or more owners and also lacks liability protection, making each partner personally liable.
A Limited Liability Company (LLC) is a popular choice because it offers a blend of protection and flexibility. An LLC legally separates the owner’s personal assets from the business’s debts. LLCs also provide flexibility in management and are subject to “pass-through” taxation, where profits are passed directly to the owners and taxed on their personal income tax returns. This structure is governed by an operating agreement, a contract that outlines the operational rules and ownership details.
Corporations represent a more formal business structure with a hierarchy of shareholders, directors, and officers. This entity type provides strong liability protection for its owners but comes with more rigorous administrative requirements, such as holding annual meetings and maintaining corporate records. C Corporations are taxed on their profits, and shareholders are also taxed on dividends they receive, a system sometimes referred to as “double taxation.” Both LLCs and corporations are favored structures in Delaware due to the state’s business-friendly legal framework.
Register Your Business with the State
Once you have chosen a business structure, the next step is to officially register your company with the State of Delaware by filing formation documents with the Delaware Division of Corporations. The specific document required depends on your chosen entity type. For a Limited Liability Company (LLC), you must file a “Certificate of Formation,” while for a corporation, the document is called a “Certificate of Incorporation.” These forms can be submitted online or by mail and require a filing fee, which is $90 for an LLC and starts at a minimum of $109 for a corporation.
A mandatory requirement for forming a business in Delaware is the appointment of a Registered Agent. Every business entity must maintain a Registered Agent who has a physical street address in Delaware. This agent can be an individual resident of the state or a company authorized to do business there. If your business has a physical location in Delaware, it can serve as its own Registered Agent.
The primary role of the Registered Agent is to serve as the official point of contact for receiving legal documents, such as lawsuit notifications, and official state correspondence. The agent must be available during normal business hours to accept these documents, and their name and address must be included in your formation documents.
Fulfill Federal and State Tax Obligations
After legally establishing your business entity, you must address your tax responsibilities at both the federal and state levels. A primary step is to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is a unique nine-digit number that functions like a Social Security number for a business and is required for any business that hires employees, operates as a corporation or partnership, or files certain tax returns. You can apply for an EIN for free directly through the IRS website.
You must also register your business with the Delaware Division of Revenue for state-specific taxes. Nearly all businesses operating in the state are subject to Delaware’s gross receipts tax, which is a tax on the total gross revenues of a business, regardless of its profitability. If you hire employees, you will also need to set up a withholding account to remit state income taxes. The state’s One Stop Business Registration and Licensing System allows you to register with the Division of Revenue, the Division of Unemployment Insurance, and the Office of Workers’ Compensation simultaneously.
Obtain Necessary Licenses and Permits
You must secure the appropriate licenses and permits to operate legally. Nearly every business conducting activities in Delaware is required to obtain a state business license from the Division of Revenue. This applies even to businesses physically located in Delaware but conducting operations outside of the state. The general business license fee is $75, though costs can vary based on the specific industry.
When you complete the application through the state’s One Stop portal, you will receive a temporary license valid for 60 days, with the official license arriving within ten business days. In addition to the statewide license, your business may be subject to further licensing requirements. Many cities and counties in Delaware have their own local business license or permit requirements. Furthermore, certain professions, such as those in healthcare or cosmetology, require specific occupational licenses from the Delaware Division of Professional Regulation. Check with your local municipal office and relevant professional boards to ensure full compliance.
Maintain Business Compliance
You must fulfill ongoing obligations to keep your business in good standing with the state. These responsibilities involve an annual filing and the payment of a yearly tax. For corporations, this means filing an Annual Report and paying the Delaware Franchise Tax. The report, which must be filed electronically by March 1st each year, updates the state on the company’s address and the names of its directors and officers.
The amount of the Franchise Tax for corporations can be calculated using one of two methods: the Authorized Shares method or the Assumed Par Value Capital method. The minimum tax is $175, and failure to file the report and pay the tax by the deadline results in a $200 penalty plus interest. Limited Liability Companies (LLCs) and Partnerships have a simpler requirement. They do not file an annual report but must pay an annual tax of $300 by June 1st. Missing this deadline also incurs a $200 penalty.
Failure to file reports or pay taxes can lead to your business falling out of good standing, which can prevent you from obtaining the certificates needed for loans or other business transactions.