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What is Delaware Corporation?

Delaware Corporation is those companies that are registered in the state of Delaware, however, they have the flexibility to operate their business from anywhere in the world. This is beneficial for the newly set up organization because it is easy to register in the state of Delaware as compared to other states. In addition,  there are various tax advantages and also provides privacy and flexibility to the company its directors, shareholders, and members.

Delaware Corporation

Types of Delaware Corporation

#1 – General Corporation

This is the most attractive type of corporation. In this corporation company owners are selling their shares to the public and raising funds from the public. In this structure, shareholders are the owner of the company by owning the shares, whereas directors will handle day to day operations of the company. It is just like a public limited company.

#2 – Close Corporation

Close corporation structure is similar to a general corporation structure but in a very restricted manner. In a general corporation, the company can sell their shares publically, but in close corporation shares can be sold to within specified no. of shareholders. If anyone wants to sell his shares to an outsider, then there should be the refusal of the entire existing shareholder, then the only outsiders can buy these shares.

#3 – Public Benefit Corporation

Public benefit corporations are legally registered in the state of Delaware and certificates of incorporation of these companies are clearly marked as these are operated only for the benefit of Public, society, environment & other social benefits, not the maximize the profit of shareholders. These companies will act morally, ethically, and responsibility towards the society and the public at large.

#4 – Non-Profit Corporation

The non-profit corporation does not have the shareholders like the other three types of Delaware corporation; rather, this will have a member with voting rights. These members will appoint the directors by casting his vote. Generally, activities of this type of corporation are non-profitable. Therefore, they don’t require to pay any income tax, but it is required to file the return with all the required information.

Steps for Formation of Delaware Corporation

  1. Decide the corporation’s name, and it should be unique and not familiar with the other company already operating in the state of Delaware.
  2. File certificate of incorporation with all the details like name of the company, address, authorized capital, and other required details.
  3. Need to appoint an agent who is registered in Delaware who will act on behalf of the corporation.
  4. Prepare corporate books in which all the important papers like share certificates, minutes of the meeting will be kept.
  5. Prepare company internal policies that need to follow during business operations.
  6. Appoint initial corporate directors who will sign all the incorporations paper and serve on the board till the directors are elected in the first annual meeting of shareholders.
  7. The first board of directors meeting will be held in which the directors will take corporate officers, corporate banks, policies, authorization of issue of shares, and the necessary decision.
  8. Shares will be issued to the public and raise funds.
  9. Comply with the Delaware annual report requirement, franchisee tax requirement and other regulatory requirements.

Advantages

  1. Delaware corporation is beneficial for start-up and venture capital firms because it helps in raising funds.
  2. Law of state of Delaware is very much transparent, and there are so many cases already decided in Delaware. Therefore, it is easy to settle any future dispute and outcome of those cases more predictable.
  3. Delaware corporation law/statute provides flexibility in the organization and rights and duties of directors and shareholders. E.g. in Delaware only one person can act as a director, shareholder, and member of the company it is not required to other directors and members of the company resides in Delaware as well.
  4. There are greater privacy and anonymity in Delaware corporation; there is no need to disclose the name of the directors and members of the company publically like others.
  5. Delaware is a tax haven for the company that is registered in the state of Delaware because it provides various tax advantages to those companies. For example, corporate tax is not applicable if a company registered in Delaware but doing business in another state, no royalty is chargeable on intangible assets or many others such types of advantages are available.
  6. The value of the companies which are registered in the state of Delaware is generally higher than the companies which are registered in other states.

Disadvantages

  1. Registration in Delaware corporation is usually higher than the registration cost of other states.
  2. If the company is operating his business in other states then companies have to pay double franchise tax, first is the Delaware franchise tax and second is the franchise tax in the state where the company is operating the business.
  3. It has more paperwork as compared to others for compliance with regulations.
  4. Legal cost is high in the state of Delaware because companies need to higher only registered the agent to receive legal advice and for court cases also need to higher Delaware corporate lawyer.

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This has been a guide to What is Delaware Corporation & its Definition. Here we discuss its types, formation, along with advantages and disadvantages. You can learn more about from the following articles –

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