Despite being the second-smallest state in the county, Delaware is among the most populated and home to numerous multibillion-dollar corporations. In Delaware, over a million business entities have been incorporated, according to the Delaware Secretary of State. The state’s corporate law is business-friendly, which has earned it a reputation as an entrepreneurial tax haven.
HOW TO START A BUSINESS IN DELAWARE 2024
CHOOSE A BUSINESS IDEA
Spend some time brainstorming and researching potential business ventures. Whatever kind of business you want to launch in Delaware, you must decide what special service or value you will provide. Consider your personal interests, abilities, resources, availability, and the reasons behind your desire to start a business at this point. Once you’ve decided on an idea, you should think about creating a business plan to assess your likelihood of being profitable.
You will have a clearer understanding of your competitors, starting costs, and revenue-generating tactics when you develop a plan. Before giving you funds, lenders and investors will usually want to see the business plan.
Contact us for Delaware company registration service.
SELECT A LEGAL STRUCTURE
The following legal structures are common for small businesses:
- Sole proprietorship
- Corporation and
- Limited liability company (LLC).
Limited partnerships and S corporations are two examples of specific variations of these organizational forms. You should think about which business entity structure will benefit you and your company the most financially, tax-wise, and in terms of financing, as well as providing the liability protection you need.
SELECT A NAME FOR YOUR COMPANY
The next thing to do is choose a name for your company. Make sure the name you decide on is catchy and unique, easy to say and understand, and properly describes the goods or services you intend to provide. No two businesses may register “confusingly similar” names in the State of Delaware. Remember to carry out a business name search to determine availability before submitting any paperwork to the Delaware Secretary of State. Write down a choice or two in case the name you ultimately decide on cannot be registered.
You can apply for a business name reservation if your name is available, but you’re not ready to register with the state to stop someone else from using it.
CREATE YOUR BUSINESS IDENTITY
- Sole proprietorship: No organizational paperwork needs to be submitted to the state in order to form a sole proprietorship in Delaware. But you do have to get a business license in Delaware.
- Partnership: No organizational documents need to be filed with the state to establish a general partnership in Delaware. But you do have to get a business license in Delaware. A written partnership agreement is also recommended for all partnerships, even though it is not legally necessary. In case of a disagreement between the partners, the partnership agreement can prove to be highly beneficial.
- LLCs: You must file a Certificate of Formation with the Delaware DOC in order to establish an LLC in Delaware. To receive process service, you have to choose a registered agent in Delaware. Additionally, even though it’s not required by law, you should create an operating agreement outlining the fundamental guidelines for your LLC’s operations. There is no filing of the operating agreement with the state.
- Corporations: A Certificate of Incorporation must be filed with the Delaware DOC in order to establish a corporation in Delaware. In order to receive process service, you must also designate a registered agent in Delaware. You should draft bylaws to set forth the internal operating procedures of your corporation, even though it is not legally necessary. Bylaws are not filed with the state. Additionally, companies need to submit IRS Form 2553, Election by a Small Business Corporation, to the IRS.
FUND THE BUSINESS
- External funding – You can obtain funds from venture capitalists and entrepreneurs, usually in return for a share of your company. It is advisable to think about forming a corporation if this is how you want to raise money.
- Small business loans – To help you in getting started, a lot of banks and lenders will offer small business loans. Naturally, interest will need to be paid back on this loan, so make sure to include those expenses in your budget. Give your business plan plenty of thought before attempting to obtain a loan, as you will probably need to present it to the lender in order for one to be approved.
- Family and friends – Getting loans from friends and family can be a great way to fund your business while saving money in general. These loans could take the place of or be added to conventional bank loans. Remember that you should always obtain written repayment terms before taking out a loan, and you should never take out more than you can afford to repay within a fair amount of time.
- Bootstrapping – The process of bootstrapping involves using only your own savings to cover your company’s initial expenses and reinvest early profits. Self-funding is a fantastic option for businesses with lower startup costs because it allows you to maintain complete control and ownership over your company. The drawback of this funding strategy is that it may result in initial financial strain.
APPLY FOR LICENSES AND PERMITS
- Tax Registration – You must register with the Division of Revenue (DOR) and, if applicable, pay the state’s gross receipts tax if you plan to sell goods in Delaware. You must register with the Division of Revenue (DOR) for employer withholding taxes if your business will employ people. The One Stop Business Registration and Licensing System in Delaware allows you to register online for both types of taxes. Form CRA, the Combined Registration Application can be used for paper registration as well.
- EIN – You are required to obtain a federal Employer Identification Number (EIN) from the IRS if your business employs people or is subject to separate taxes from you. Although it’s not necessary, getting an EIN is frequently beneficial for business purposes. To open an account in the name of the company, banks frequently need an EIN; additionally, other businesses you deal with might also need one to process payments. Filling out an online application will grant you an EIN. There isn’t a filing charge.
- State business license – State-issued commercial license. Delaware requires all businesses to obtain an annual state business license. The Division of Revenue is the one who issues the license. At the One Stop Business Licensing and Registration Service, you can apply for the license online. You might also require additional licenses or permits from particular state agencies, like Delaware Health and Social Services Division of Public Health, depending on the nature of your particular business. Also, keep in mind that certain licenses are granted locally, so make sure to visit the websites of any counties or cities where you plan to conduct business.
- Professional and occupational licenses – These cover people who work in various fields. The numerous professional regulatory boards in the state are governed by the Division of Professional Regulation (DPR). Nearly all of the regulated professions are listed on the DPR website’s homepage.
FIND A COMPANY LOCATION AND VERIFY ZONING
You must choose a location for your company and confirm that it complies with zoning laws. Take some time to determine how much it will cost to operate your business in the chosen location, including rent and utilities, before deciding on a location. In the initial months of your business, you can review your business plan to determine whether you can afford the location you have in mind.
Make sure the location is zoned for the kind of business you operate. By looking through your local ordinances and getting in touch with your town’s planning or zoning department, you may be able to find the zoning regulations for your town or city.
Operating your company out of your home is one option as an alternative to relocating it. Verify your local zoning laws once more if you choose to operate a home-based business. Furthermore, examine your homeowner’s association rules (if applicable) and lease (if you rent your home), as they may prohibit certain types of home businesses.
FILE AND REPORT TAXES
Delaware levies taxes on all types of businesses. This includes a unique state tax that most partnerships and LLCs must pay.
- Sole proprietorships: As part of their personal state income tax returns, individuals must pay state taxes on their business income (Form 200-01).
- Partnerships: On their personal tax returns, partners must pay state taxes on partnership income. Delaware partnerships additionally need to submit Form 300, Partnership Return.
- LLCs: Members’ shares of LLC income are subject to state taxes on their individual tax returns. Additionally, LLCs themselves must file a separate state tax return, which can be either a corporation return or a partnership return. The particular form utilized will vary based on how the LLC is categorized for federal taxation. Delaware does not require LLCs to file annual reports, as compared to most other states. The state does, however, require that LLCs pay an annual tax.
- Corporations: State taxes are due by shareholders on their corporate dividends. Paying state income tax on their individual state tax return is another requirement for shareholder-employees with salaries. Delaware corporation taxes also apply to the corporation itself. To pay the state’s franchise tax, corporations are required to submit an annual report to the Delaware DOC.
Business insurance may protect your organization from unanticipated calamities, like natural disasters or personal injury lawsuits, as well as your personal assets. To safeguard your company from lawsuits involving property damage or bodily injury, an insurance agent can assist you in examining your options for coverage, such as general liability insurance.
OPEN A BUSINESS BANK ACCOUNT IN DELAWARE
To make it simpler to track your income and expenses, regardless of the kind of business you form, you should think about opening a separate business account. A separate bank account is required for certain business structures, such as corporations and LLCs, in order to preserve liability protection.
Reach out to us at Relin Consultants – Leading Global Business Set Up Partners for further assistance with your Delaware business registration.
What is a Delaware non-profit?
Your organization might be eligible to become a nonprofit corporation in Delaware if it will provide services to a specific community or, in some other way benefit the public. You must submit a nonprofit Certificate of Incorporation to the Delaware Division of Corporations in order to establish a nonprofit in Delaware.
Is it possible to reserve a Delaware business name?
Yes. If you have your mind set on a specific name for your company but aren’t quite ready to submit the necessary paperwork to the state, reserving your name might be helpful. Submit a Name Reservation Application (worth $75) to the Delaware Division of Corporations to do this. This will allow you to reserve a specific business name for 120 days. You can even submit a Name Re-Reservation Application to extend for an additional 120 days if necessary.
What is a DBA?
A DBA serves as your company’s nickname. It’s not your legal name, but you can use it on signs, websites, and other business-related materials.
The name that appears on the formation documents for your corporation or LLC is your company’s legal name. Alternatively, if you’re a sole proprietor, your legal name is also your business name. Registering a DBA is the only way to use a different name for your company.
DBAs are referred to as “fictitious names” or “trade names” in Delaware. You must submit Delaware’s Registration of Trade, Business & Fictitious Name Certificate to your county clerk’s office in order to obtain a trade name.
How can I prevent my information from being seen by the public?
Delaware promotes a high level of privacy for businesses. Personal information is not required in LLC filings, and corporate filings only require the name and address of a “incorporator.” You can use Northwest’s name in place of your own if you work with a registered agent service!
What is the cost of obtaining a business license from the state of Delaware?
The price of a business license in Delaware varies based on the type of the business. A single-location business, however, will typically have to pay $75 for a state license.
How can I obtain a business license in Delaware?
Delaware One Stop, the state’s licensing portal, makes it simple to get a business license in the state. The online application process requires the completion of basic details such as your business name, entity type, and address.