Introduction
Want to start an S Corp in Delaware? Then this article is for you, as we’ll be mentioning some of the steps you must take to successfully start one.
It’s important to know that an S corporation is a pass-through entity that offers tax advantages over traditional C corporations, allowing profits and losses to flow through to shareholders’ tax returns.
Starting an S Corp in Delaware is favourable and is popular for its favourable corporate laws that are business-friendly and privacy protections that shield the names of directors and shareholders from public view. Also, many known companies are incorporated in Delaware, leading to a sense of legitimacy and credibility thereby, boosting Delaware’s prestige.
When starting an S corporation in Delaware, it is highly recommended that you consult with a corporate attorney or registered agent service to ensure compliance with all legal requirements. However, we’ll be giving you some steps to starting an S corporation in Delaware; ensure to read to the end!
1. Eligibility criteria for Delaware S Corporations.
Most importantly, before learning the key steps in starting your S Corp in Delaware, you should know the criteria needed to check if you qualify.
To establish an S corporation in Delaware, your business must meet certain criteria, such as being a domestic LLC or corporation, with one stock class allowed, up to 100 shareholders or members, and eligible shareholders or members. Partnerships, other corporations, and non-resident aliens are not permitted.
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2. Choose a business name.
Starting an S corporation in Delaware requires you to select a unique, not already used name. The unique business name is crucial for your S corporation, reflecting your identity, branding, marketing, and legal protection. You should check the Delaware Division of Corporations website to see if your chosen business name is available. Once the availability of your business name is confirmed, you must secure it in order to reserve the name. This ensures that it stays exclusive to you, preventing others from claiming it as you navigate the remaining steps of your business formation.
When choosing your business name, use keywords that describe your business; keep the name short and easy to remember; and consider using acronyms or abbreviations for a memorable name.
Also, ensure to keep to Delaware’s naming standards. You can include “Company,” “Limited,” “Public Benefit,” or “Trust” in your S Corp name.
3. Appoint a registered agent.
A registered agent is a person or entity responsible for receiving legal documents on behalf of a Delaware S corporation, acting as a liaison between the corporation and the state government. When creating your S Corp, you’ll need to choose a registered agent who’s a Delaware resident and a professional with a good reputation who’s always around during business hours.
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4. File the certificate of formation.
The certificate of formation, also known as the certificate of incorporation, is a legal document that establishes an S corporation in Delaware, providing essential information like the corporation’s name, purpose, and registered agent. It also outlines authourized shares and the incorporator’s information.
To become an official limited liability company (LLC), file a certificate of formation with the Delaware Division of Corporations to establish its official status. The filing fees may vary depending on the corporation type and additional services requested, but they mostly cost $90. However, mostly Delaware Division of Corporations offers online submission or fax/mail options. You can download it from the Delaware Secretary of State’s website, complete it, and submit it to the office.
5. Adopt bylaws.
Bylaws are internal rules that govern a corporation’s operations, including meetings, directors, officers, shares, and amendments. Adopting corporate bylaws is crucial for starting an S corporation in Delaware.
Although Delaware law does not require corporations to have bylaws, it is highly recommended to adopt them. These laws govern your corporation’s operations, including elections, meetings, and voting rights. They outline the procedures for electing and removing directors, determining quorum, and governing corporate matters.
Key considerations in adopting corporate bylaws must include flexibility, compliance with Delaware corporate law, and incorporating best practices. Bylaw provisions include annual meetings, special meetings, quorum requirements, director and officer titles, shares, and amendment procedures. You can consult a corporate attorney to ensure legal soundness and tailored needs.
6. Get an EIN.
Starting an S corporation in Delaware requires obtaining an Employer Identification Number (EIN). This is a unique nine-digit number assigned by the IRS for tax reporting, opening a business bank account, and hiring employees. Applying online, faxing, or mailing is simple.
An Employer Identification Number (EIN) is a nine-digit number the IRS assigns to businesses for tax purposes. EIN is crucial for filing federal taxes, opening a corporate bank account, and hiring employees.
Starting an S corporation in Delaware requires obtaining an Employer Identification Number (EIN). The applications can be made online, by phone, or by mail. The processing time varies depending on the method chosen.
7. File IRS Form 2553.
To obtain S corporation tax status, you must submit Form 2553 within 75 days of your LLC or corporation’s formation. Filing can be done electronically or by mail, and it takes 30 days. Form 2553 is a crucial step for starting an S corporation in Delaware and electing its status.
To be classified as an S corporation under Section 1362(a), your corporation or other eligible entity must use Form 2553. Form 2553, Election by a Small Business Corporation, is the final step in forming an S corp.
To file your IRS Form 2553, you will need information such as EIN, date of incorporation, state, election date, tax year selection, and fiscal year selection. Added information such as family member consideration, main contact information, shareholders’ names, addresses, stock percentages, and signatures are also needed.
8. Comply with other tax and regulatory requirements
Maintaining the legal status of an S corporation in Delaware requires compliance with tax and regulatory requirements, including filing federal and state income tax returns, reporting changes, and obtaining licenses or permits from local, state, or federal agencies.
Your Delaware S corporations must comply with state and local tax regulations, in addition to federal taxes. To maintain the legal status of your S Corp, you have to ensure complete compliance with Delaware’s tax and regulatory requirements.
State taxes include income tax, sales tax, property tax, business licenses, and occupancy taxes. Other regulatory requirements include environmental regulations, labour laws, and consumer protection laws.
It’ll be advisable to consult with a tax professional or attorney for guidance on filing tax returns, collecting and remitting taxes, and ensuring compliance with all relevant laws.
Recap
Delaware’s favorable corporate laws and privacy protections make it a popular choice for S Corp formation. This has made it easy for you to create your S Corp with ease by diligently following the key steps of knowing the eligibility criteria for starting an S Corp in Delaware.
Other steps include choosing a business name, appointing a registered agent, filing the certificate of formation, and adopting corporate bylaws. In addition, you need to get an EIN, file the IRS form 2553, and ensure you comply with other tax and regulatory requirements.
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