More than one million businesses are located in Delaware, at least on paper. Delaware is highly sought after for the formation of new businesses. Delaware is home to two-thirds the Fortune 500 companies. Let’s look at Delaware as a state that is popular for starting a company and the steps you can take in order to do so.
Benefits of opening a Delaware business
How is it possible for a state of one million residents to become such a popular location for entrepreneurs to start a business? Two main reasons.
First, Delaware’s corporation laws are among the most up-to-date in the United States. It’s important to keep in mind that as business practices change, so does Delaware’s corporation statutes.
A Delaware court is also home to a special court that only deals with business disputes. The Court of Chancery decides on business legal issues without the use of a jury. Delaware judges who are experts in corporate law can quickly rule on legal issues for businesses.
Many industries are also growing in the First State, such as:
- Services in the food industry
- Health care
Delaware is a great place for funding. Private investments over $10,000 are eligible for refundable tax credits.
Different types of business structures in Delaware
There are many options available in Delaware for forming your business entity. The structure of your business will determine the type of taxes you pay and how your business operates. Certain types of business entities allow you greater flexibility in the way you run your business. Some types offer personal liability protection. These are some of the many business structures that you have in Delaware.
- Delaware Limited Liability Company
- Delaware Professional Corporation
- Delaware Corporation
- Delaware Nonprofit Corporation
How to start a business in Delaware
Over 300 programs have been established in Delaware to assist entrepreneurs and small-business owners. Although the state may offer some assistance, it is important to plan and invest in your Delaware business.
This checklist will help you to refine your business plan, determine the cost of opening your business and what paperwork to file.
1. Create a business plan
A business plan is the foundation of your company. Entrepreneurs can find planning intimidating, but it doesn’t have to be. It is essential to write a business plan.
- Which business do you want to start?
- Your business solves the customer problem
- How you can make your business stand out in the marketplace
- How you will attract your customers and who they are
- How to fund your company until it is profitable
- What are the goals and metrics that you will track?
- Which types of marketing will you invest in?
- Your long-term and short-term visions for the company’s future growth
You won’t be able to convince potential investors and business partners to consider your idea without a business plan.
To attract new businesses, the state government offers tax credits and incentives. New Delaware small businesses can receive up to $50,000 in The Encouragement Development, Growth & Expandement (EDGE) Grants. You may also be eligible for the Delaware Capital Access Program or the State Small Business Credit Initiative Participation Loan if traditional bank loans are not an option. You may also be interested in these other programs:
- Wilmington offers incentives for businesses
- Delaware Manufacturing Extension Partnership
- Brownfield Redevelopment Program
- Blue Collar Job Act
2. Select a business structure
You have the option to choose whether your Delaware business is a corporation, sole proprietorship or general partnership (GP), or a limited liability company (LLC)
Delaware Sole Proprietorship
The easiest type of business to start up is a sole proprietorship or a general practitioner. However, if you do not have a legal separation from your business, you could be responsible for any legal or financial problems that your business may run into. Your personal assets may be at risk.
Types of Delaware Corporations
The cost of establishing a corporation is a bit higher. Despite the favorable regulations, Delaware is home to many corporations. Consider whether an S- or C-corporation is right for you.
Corporations are treated differently to other entities. C Corps pay income tax at the corporate level and a second amount when they are distributed shareholders. An S Corp can help you avoid double taxation. S corporations only report income on the owners’ individual tax returns. S corporations are more difficult to qualify for and come with additional restrictions.
Limited liability companies combine the best of sole proprietorships and corporations. LLCs allow you to legally separate your business assets from your personal property. Problems in the business such as lawsuits don’t pose a risk to your personal property. LLCs, unlike corporations, are not subject to double taxation.
Delaware LLCs can have one or more members (they don’t use the term “owner”).
3. Calculate your business costs
You will be better equipped to budget, finance, and spend if you include more costs in your business plan. These are some of the expenses that your business might need to plan for.
- Costs of entity formation
- Leasing or purchase fees for storefront or office space
- Stock of office supplies and other store supplies
- Payroll, contractor fees and payroll taxes
- Design, development, hosting and updating company websites
- Tech equipment, such as tablets, phones and computers
- Insurance for businesses
Also, you need to think about the taxes that your business will have to pay. The annual taxes that corporations pay include your Corporate Annual Report. This report will depend on whether your company is exempt from the tax. Corporations pay franchise tax payments ranging from $175 to $200,000. These taxes can be paid quarterly if they exceed $5,000.
- 40% of the total amount must be paid by June 1.
- 20% due Sept. 1
- December 1st, 20% due
- Remainder due March 1
Your corporation will be subject to a $200 penalty if it fails to file its annual reports by March 1.
However, Delaware-based LLCs do not need to file an annual report. They pay an annual tax of $300, which is due by June 1.
4. Choose a business name
Miller Metal Fabrication. Decal Girl. Bramble & Brine Middleford Deli. These are all Delaware businesses, and each business name tells an entirely different story.
When naming your company, think about the story that you want to tell.
- Brand messages or brand values
Are you already familiar with a name? Great! However, you need to do some work before you register your domain name and print business cards.
Businesses cannot have the same business name. Customers could be confused if multiple businesses use the same name. This could lead to legal problems. You must be unique in your business name. Do a Delaware Business Name Search before you decide on a name for your company.
Another option? Another option? You will need to apply for a “doingbusiness as” ( DBA ) name. DBA names can be especially helpful for sole proprietors and general partnerships. These entities must operate under the legal name of their owner if they do not have a DBA address.
After you have chosen a name, look for related domain names or social media handles. You’re now ready to put your business name to use.
5. Register your company, get insurance and open financial accounts
Delaware’s Division of Corporations must register business entities such as LLCs and corporations. This step is not required for sole proprietorships or general partnerships. They may have to register their business name at the Prothonotary Office of the county in which they intend to do business.
A registered agent can be hired
Delaware law requires every business entity to have a registered agent in the state. This could be any individual or business that is allowed to do business within Delaware. Your Delaware business can become its own registered agent.
Apply for licenses and pay taxes
Also, you will need to determine which taxes your company will have to pay and which licenses and registrations are required. You may also need to check with your county or city for additional licensing, zoning and tax requirements.
Apply for an Employer Identification Number
As their taxpayer ID number, a sole proprietor can use the social security number of their business. An employer identification number (EIN), however, is another option. Other entity types will need an EIN from the IRS.
Get Business Insurance
Talk to a local agent about your insurance needs. You can also open a business bank account for checking and credit card purchases, to allow you to start earning income and pay expenses.
6. Promote your Delaware business
Marketing your business will make your products and services more visible to customers. This is your chance to convince people why you are better than the rest.
It is vital to have a company website. Your website should be able to showcase your business and tell customers about your company. It should also have contact information.
Online directories like Yelp and Google My Business are great ways to highlight your business. Optimize these listings and your website to increase your chances of being found online by potential customers.
Advertising is also important. Advertising can help spread the word about your company through print media, radio stations and television broadcasters.
Ideas for Delaware Businesses to Start
Delaware is home to many businesses, including many that are traditional and new. This makes it a fertile ground for many trending, as well as established, companies. Here are some ideas:
- Financial services
- Architecture and construction designed-build
- Digital marketing
- Commercial or residential cleaning/janitorial
- CBD dispensary
- Food truck
Your First Choice in Business
Delaware is known for being very business-friendly, from small family-owned businesses to Fortune 500 corporations. You could start your own successful business in Delaware with favorable taxation and a variety of entities available.
Delaware Business Tips
Forming an LLC in Delaware involves several key steps and considerations. To begin, you must complete the necessary paperwork and filings to form an LLC in Delaware.
Conducting a thorough Delaware LLC name search is crucial when starting a business to ensure that your desired business name is available and meets the state’s requirements and get your Delaware entity name registered.
Additionally, drafting a Delaware LLC operating agreement is essential as it outlines the internal management structure and operational guidelines for your LLC.
While you have the option to be your own registered agent in Delaware, many entrepreneurs opt to enlist the services of professional registered agents for their expertise and convenience. The length of time it takes to get an LLC in Delaware can vary depending on various factors such as processing times and the complexity of your application.
Alongside the formation process, you’ll need to obtain a Delaware Employer Identification Number (EIN) from the IRS, which is necessary for tax purposes. To streamline the process and ensure compliance, it is advisable to seek the assistance of the top-rated LLC services in Delaware and the best registered agents in Delaware, who can guide you through the process and handle the necessary documentation.
Lastly, if you ever need to change your Delaware registered agent or dissolve an LLC in Delaware, it’s important to follow the state’s dissolution procedures to conclude your business operations effectively.
Delaware Business FAQs
- What is the cost of starting a Delaware business? Many businesses can be launched for as low as $5,000 and some for less than $25,000 This Small Business Administration guide will help you estimate startup costs.
- Is Delaware a great place to start a new business? Based on factors like tax burden, high speed internet access, per-capita income, average commute time and average commute times, Wilmington was ranked among the top 20 best cities to start a business.
- Are Delaware’s business-friendly laws? Delaware’s tax system, regulatory environment, as well as other factors, consistently ranks high in the friendly category for businesses.
Brian Wilson is the content manager and founder of LLC Radar.
Brian grew up in North Texas, just outside of Dallas, and has a bachelor’s degree in business journalism from Southern Methodist University. Since graduating from SMU, Brian has gained over 10 years of experience in business writing for several online publications.
Brian resides in Plano, Texas and he can be reached by email: firstname.lastname@example.org