Delaware Corporation Definition Types How To Form

What is Delaware Corporation?

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Types of Delaware Corporation

#1 – General Corporation

It is the most attractive type of corporation. In this corporation, company owners sell their shares to the public and raise funds from the public. In this structure, shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company’s total shares.read more own the company and its shares, whereas directors will handle day to day operations of the company. It is just like a public limited company.

#2 – Close Corporation

It is similar to a general corporation structure but very restricted. In a public corporation, the company can sell its shares publicly but can sell shares to a specified number of shareholders in a close corporationClose CorporationA closed corporation is a company that does not raise funds from the public and instead operates with a small number of shareholders to ensure supreme control over its functioning. Unlike a publicly-traded company, closely held corporations do not observe strict corporate regulatory norms regarding business operations and data reporting. Instead, there are special rules that are set to govern such corporations.read more. It means only outsiders can buy these shares. If anyone wants to sell their shares to an outsider, there should be the refusal of the entire existing shareholder.

#3 – Public Benefit Corporation

These are legally registered in Delaware, and certificates of incorporation of these companies are marked as these are operated only to benefit the public, society, and environment, not to maximize shareholder profit. These companies will act morally, ethically, and responsibly toward the community and the public.

#4 – Non-Profit Corporation

These do not have shareholders like the other three corporations. Instead, this will have a member with voting rights. These members can appoint directors by casting their votes. Generally, activities of this type of corporation are non-profitable. Therefore, they are not required to pay any income taxIncome TaxIncome tax accounting recognizes the income tax payable in the books of account and determines the current period’s tax expenses. It has to be paid either before or after the end of the financial year and recognized in the books of account accordingly. read more but must file the return with all the required information.

Steps for Formation of Delaware Corporation

Decide the corporation’s name, and it should be unique and not familiar with the other company already operating in Delaware.File certificate of incorporation with all the details like name of the company, address, authorized capital, and other required information.Appoint an agent registered in Delaware who will act on behalf of the corporation.Prepare corporate books to keep essential papers like share certificates and meeting minutes.Prepare internal company policies to follow during business operationsBusiness OperationsBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company’s goals like profit generation.read more.Appoint initial corporate directors who will sign all the incorporation papers and serve on the board till the directors are elected in the first annual meeting of shareholdersMeeting Of ShareholdersShareholders Meeting means a meeting of the stockholders of the corporation wherein resolution are placed before the shareholders to discuss and approve the corporate matters and other matters required by the bylaws of the company.read more.The first board of directors meeting will be held in which the directors will take corporate officers, corporate banks, policies, authorization of issue of sharesIssue Of SharesShares Issued refers to the number of shares distributed by a company to its shareholders, who range from the general public and insiders to institutional investors. They are recorded as owner’s equity on the Company’s balance sheet.read more, and the necessary decisions.Shares will be issued to the public and raise funds.Comply with the Delaware annual reportAnnual ReportAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company’s performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements.read more requirement, franchise tax requirement, and other regulatory requirements.

Advantages

Delaware corporation is beneficial for start-up and venture capitalVenture CapitalVenture capital (VC) refers to a type of long-term finance extended to startups with high-growth potential to help them succeed exponentially. read more firms because it helps raise funds.The law of Delaware is very transparent, and there are so many cases already decided. Therefore, it is easy to settle any future dispute and predict the outcomes of those cases.Delaware Corporation law/statute provides flexibility in the organization and rights and duties of directors and shareholders. For example, only one person can act as a director, shareholder, and member of the company in Delaware. It is also not required that directors and company members reside in Delaware.There is greater privacy and anonymity in a Delaware Corporation. Also, there is no need to disclose the name of directors and company members publicly like others.Delaware is a tax havenTax HavenA tax haven is a place or a country with very low or nil rate of income tax. It provides a business-friendly macroeconomic environment, such as financial and economic stability, as well as financial secrecy from tax authorities.read more for the company registered in the state because it provides various tax advantagesTax AdvantagesTax Advantage are the types of investments or saving plans that benefit tax exemption, deferred tax, and other tax benefits. Examples include Government bonds, Annuities, Retirement Plans. read more. For example, corporate taxCorporate TaxCorporate tax is a tax levied by the government on the profits earned by a company at a fixed rate each year and is calculated in accordance with specific tax regulations.read more is not applicable if a company is registered in Delaware but doing business in another state. No royalty is chargeable on intangible assetsIntangible AssetsIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can’t touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more and many other advantages.The value of companies registered in the state is generally higher than those registered in other states.

Disadvantages

Registration costs of Delaware Corporations are usually higher than in other states.If the company is operating in other states, it needs to pay double franchise taxFranchise TaxThe franchise tax is the charges levied by the government of some US states on certain companies to run business in their states. Some organizations belonging to limited liability companies, fraternities, and non-profit organizations are exempted from this tax liability.read more – the Delaware franchise tax and the franchise tax in the state where it operates.It has more paperwork for compliance with regulations compared to others.Legal cost is high in Delaware because companies hire only registered agents to receive legal advice and Delaware corporate lawyers for court cases.

What is Delaware Corporation?#

Types of Delaware Corporation#

#1 – General Corporation#

#2 – Close Corporation#

#3 – Public Benefit Corporation#

#4 – Non-Profit Corporation#

Steps for Formation of Delaware Corporation#

Advantages#

Disadvantages#

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