Delaware is a great place to do business. In fact, the state boasts the 2nd lowest total business cost in the nation, as well as the 4th lowest tax burden for businesses. Delaware’s business-friendly courts, low tax rates, and other perks explain why the state is home to nearly 60% of Fortune 500 companies.
But it’s not just big firms that you’ll find in Delaware; small businesses can thrive too. There are more than 84,000 small businesses in Delaware, in a state with less than 1 million residents!
Are you looking to join the ranks of these entrepreneurs and start your own Delaware company? This is the guide for you. Whether you live in Delaware or simply wish to incorporate there for the multitude of benefits, this guide will walk you through how to start a business in Delaware.
Decide on a business idea
First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:
- What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
- What business does your community need? Have you talked to people to find out?
- What are you interested in? Can you combine any of your passions with a business idea?
- Is this going to be a full time business, or more of a side hustle?
These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.
Plan your Delaware business
Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:
Select a business name
Before you register or form a business, you will need to come up with a name for it. You will want to pick a name that is relevant to your business and memorable to your clients or customers. Plus, you’ll need to follow some rules, including:
- The name must be unique, meaning it must be distinguishable from the names of other businesses already registered in Delaware. You can conduct a business name search to determine whether or not a name is available.
- LLC names need to contain “limited liability company”, “LLC”, or another approved abbreviation
- Corporation names need to contain “corporation”, “inc”, or other approved abbreviations
- Certain financial words and phrases are restricted, and additional written permission must be obtained in order to use them. This includes terms like “bank” and “trust”
- Other rules apply. See the Delaware business name rules for details
Once you select a name that is available and suits your needs, you can move on to the next step.
Alternatively, you can temporarily reserve the name by paying a $75 filing fee. This will reserve the name for you so that you can think about it and nobody else can register it for a period of time. When you’re ready to register the business, you can move on with filing the formation documents.
Delaware trade names
One final consideration when naming your business is to consider that you can use what is called a “trade name” or “fictitious name” (aka a Doing Business As/DBA name). Delaware allows businesses that are already registered to register additional trade names, which they can then do business under.
Using a trade name gives you more flexibility in how you brand and market your new company. DBAs are not required, but they can be useful to keep in mind when you’re planning out your business. You can learn more about Delaware DBAs here.
Register a domain name
Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering.
You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative.
Complete market research
Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee.
Select a business location
Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business.
Create a business plan
You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:
- Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
- Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
- Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
- Staff & Partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses?
If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans.
Decide on a business structure
Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.
Sole props are single-person operations. Examples include freelancers, gig economy workers and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.
The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you.
A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy.
LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship.
A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise.
Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation.
A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed.
Register your business in Delaware
The next step to tackle is to actually register and form your new company in the state of Delaware. This will involve working with the Delaware Division of Corporations to get the necessary paperwork filed.
Alternatively, you can save time and hassle by using a business formation service.
These services help walk you through every step of the business formation process. This saves you time and also reduces the risk of costly mistakes.
Some great options to use include Northwest Registered Agent, ZenBusiness, and Incfile. All three are affordable and offer a variety of plans to help you incorporate in Delaware (or any other state, for that matter!) They can also serve as your Registered Agent, which is a requirement to fill in Delaware.
If you don’t use a service and choose to do the work on your own, there are various steps you will need to complete:
- Choosing a name for your business
- Choosing a Registered Agent for your business. This agent is responsible for receiving legal documents and correspondence for your company
- Filing formation documents with Delaware
- Applying for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS)
- Applying for other necessary permits or licenses
The specific steps will vary a bit depending on which type of business you are forming. More on this below.
Form a Delaware sole proprietorship
Follow these steps:
- Decide if you will operate under your legal name, or use a trade name
- If you use a name other than your own, you will need to register a trade name (the cost is $25 per trade name)
- Apply for a business license and/or other necessary permits from local governments (city/county)
Form a Delaware LLC
Follow these steps:
- Name your LLC (follow the Delaware LLC naming rules)
- Choose a Delaware Registered Agent (or use a service such as Northwest Registered Agent)
- File the LLC Certificate of Formation online, and pay the $90 filing fee. The form can also be filed by mail (by mail requires the submission of an additional filing cover sheet)
- Draft an LLC operating agreement
- Apply for an EIN with the IRS
Form a Delaware corporation
Follow these steps:
- Decide on your desired corporate tax structure (S corp or C corp)
- Name your new corporation (follow the Delaware corporation naming rules)
- Hold an organizational meeting and appoint directors
- File the Delaware Certificate of Incorporation online, and pay the $89 filing fee. This form can also be filed by mail, along with a filing cover sheet
- Apply for an EIN from the IRS
Apply for business licenses and permits
Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses.
The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.
There are different requirements at each level of government:
- Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
- State: Delaware may require certain permits or licenses. Check the Delaware One Stop business portal for details.
- Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details.
At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick.
For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.
For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.
If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.
- Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
- Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business.
Set up your business finances
Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:
- Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
- Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards.
- Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help.
- Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started.
Create a business website
In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele.
The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.
Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).
Once you have an EIN, you will be able to hire employees. You will also need to report each new hire to the state of Delaware. This can be done online.
Employers in Delaware will also be subject to various taxes. This includes unemployment insurance tax, Gross Receipts Tax, and withholding tax. There may be other tax requirements, depending on the business.
At this point, you also should look into setting up your payroll system – whether you handle it yourself, or use a payroll service.
Run and grow your business
Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.
Delaware business FAQs
Still have questions about running a business in Delaware? Here are some answers to frequently asked questions.
What are some business resources in Delaware?
Business owners in Delaware have a variety of resources at their disposal. A great place to start is the Delaware Small Business Development Center (Delaware SBDC). This resource provides free business advisor services, webinars and training, and many other useful resources. The Delaware Division of Small Business also maintains a great list of resources and nonprofits that help small businesses in a variety of ways.
What is the minimum wage in Delaware?
Delaware has a statewide minimum wage of $9.25 per hour. There is also a “training wage”, which is a reduced $8.75 for adults for the first 90 days on a new job. For youth employees ages 14 to 17, the minimum wage is $8.75 per hour.
Delaware’s minimum wage is set to increase to $15 per hour by 2025. The wage will rise each year. Check with the Delaware Department of Labor for the most up-to-date minimum wage laws.
Delaware also has a tipped minimum wage law that allows businesses to pay as little as $2.23 per hour for employees who receive tips. There are specific rules for this pay structure, however – see this resource for details.
Keep in mind that individual cities and counties are able to impose their own minimum wage laws. Check with your local city/county governments to ensure that you are compliant with all local laws.
What business taxes does Delaware have?
There are a variety of taxes that DE businesses must pay. Delaware has no sales tax, but they do have a Gross Receipts tax that ranges from 0.0945% to 1.9914% depending on the business activity. The Gross Receipts tax applies to most businesses selling taxable goods or services.
Other business taxes that may apply to your company include business entity tax, unemployment insurance tax, Gross Receipts Tax, and withholding tax, among others. Check with the Delaware Department of Revenue for details.
How do I dissolve an LLC or Corporation in Delaware?
If you end up needing to close your business, you will need to dissolve it. To do this, you must close down all your tax accounts with the state of Delaware, and file any outstanding tax returns. You must also file the Articles of Dissolution with the state in order to formally close your Delaware business.
Closing a business can be complex, so you may wish to hire a certified public accountant (CPA) for help with this process.
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