Company Formation in Delaware, USA

As an international business hub, Delaware has been recognized as a corporate paradise and is “home” to such famous firms as Amazon, Google, Tesla, Walmart, American Express and Disney, to name just a few. To incorporate/ form a Company in the State of Delaware, US Non-Residents/ Indians need not live in or visit Delaware. Anyone can incorporate/ form a Delaware company as a non-resident and run lawful business activities from anywhere in the world except residents of restricted countries (Cuba, Iran, North Korea, Syria and Russia). More than half of all U.S. publicly traded companies, and 63% of the Fortune 500, are formed in Delaware. State’s business-friendly corporation law makes it attractive as a corporate haven. Delaware has at least million registered companies which is more than people living in Delaware.

The significant benefits to incorporate a business in Delaware are tax benefits, confidentiality, expediency, easy structure and the corporation court:

• Tax Benefits- Lenient taxes are imposed by the state. Corporations registered in Delaware need not pay corporate income tax if they are not doing any business in the state. Delaware also does not have a sales tax (or GST, VAT, Service tax), investment income taxes, inheritance taxes or personal property taxes. To pay franchise tax ($ 300) in Delaware is still beneficial instead of paying heavy income taxes in other states. Franchise tax is an ongoing fee paid to the state to keep your LLC in compliance and good standing on or before June 1 each year.
• Confidentiality In Delaware-Registered agent is the only name that must be disclosed in association with the company and requirement of maintaining physical address is exempt here. Starting a corporation or LLC for a non-U.S. resident doesn’t require an address in the State of Delaware or even in the United States. Other officers and directors are not required to disclose their names which allow an extra degree of anonymity. Because of this lack of reporting, officers, directors and shareholders are also not required to maintain residency in Delaware
• Expediency and Easy Structure-Delaware is committed to being corporation-friendly, they will process your filing the same day. In Delaware, one person is just enough to hold the role of officer, director, and shareholder, which is attractive to small businesses.
• Corporation Court-Delaware has a Court of Chancery, which handles only corporation cases. The judges are experts in corporate law, and the decisions from the court tend to be more predictable than those in other states.

Registration Process

There are mainly two business entity types that are popular here for Non-US Residents:

LLC or limited liability company

LLC (or a limited liability company) is most popular type of entity to form if you want to start a business in the US as a non-citizen. A limited liability company protects your assets from business debts and lawsuits. Liability of all members is limited to investment amount. LLCs generally offer cheaper and simple taxation structures. A limited liability company is a pass-through tax entity (members are taxed, not the LLC) — thus, the earnings you make from your business only go through your income taxes. Because of this, LLC owners are exempt to file separate tax forms, which is a great cost-saver. LLC is kind of Flexible entity and all terms can be determined by founder(s). It can be managed by members or 3rd party manager. Delaware does not require LLCs to file annual reports. LLC is equivalent to Sole Proprietorship/ Partnership Firm in India.

 C-Corporation

C-Corporation is subject to Double taxation in USA. It is similar to private limited companies in India. So, when a corporation makes a profit, the corporation is taxed. Apart from that, when a shareholder receives a dividend from their shares, they are also taxed on the amount they receive. A C-Corporation is the best choice if you are a non-US resident and want to have shares in a company that you can then easily transfer to other investors or employees. C-corporations must file an annual report with the Delaware DOC (which is associated with the payment of the state’s franchise tax). This company structure is generally recommended to those who want to share responsibility with other shareholders (Unlimited number) who will also invest in the business. C-Corporation business can be managed through a Board of Directors; Corporations have more formal regulations than LLCs and tend to be more attractive to investors. Liability of all shareholders is limited to investment amount unless acting as guarantor of corporate debt. Corporation pay tax on business income at corporate tax rate. Profits distributed as dividend to shareholders are taxed at personal income tax rate. Board and officers have fiduciary duties to corporation and shareholders. Terms can be customized subject to limits of Delaware corporate law.

You will also need to think of the following:

If You are incorporating an LLC

1. Naming your business-It is optional and not a mandatory requirement.
2. Getting an EIN (Employer Identification Number). This is a number that is issued by the US Internal Revenue Service (IRS) to identify a business. You need an EIN to legally conduct business activities in the US.
3. Filing formation documents (file a Certificate of Formation for an LLC)
4. to open a bank account in the US, you will need the following documents:

• EIN
• Copy of Articles of Organization of your company
• Ownership Agreements (LLC Operating Agreement)
• Copy of your passport.

Remote opening of traditional bank account is not possible in USA. The best way to transact business in LLC is through American financial services companies that provide online money transfer, digital payment services and provides customers with working capital.

5. Getting business insurance. Business insurance will protect you from possible unexpected costs associated with running a company. These may be related to natural disasters, accidents, lawsuits and so on.
6. Getting an ITIN (Individual Tax Identification Number). If you are not a US citizen and do not have a Social Security number, you will also need to obtain an ITIN. This is a number issued by the IRS to those who need a US taxpayer identification
7. US Non- Residents will need to carefully consider their visa options. The three most common types of visas used for expats who start a business in the U.S. are the E-1, E-2, and EB-5 visas.
8. All businesses in the state of Delaware are required to obtain a business license. Delaware has no sales tax; online businesses shall require to obtain the Delaware state business license.
9. If your business will have employees, you must register with the Division of Revenue (DOR) for employer withholding taxes.

If You are incorporating a C -Corporation

1. Delaware corporate name- The corporation’s name must contain the word ” Corporation,” or the abbreviation “Corp. The name must be distinguishable from other corporations registered as a foreign corporation under the laws of Delaware.
2. Requirements for Certificate of Incorporation- Your corporation is legally created by filing a Certificate of Incorporation with the Delaware Secretary of State. The articles must include the corporation’s name; the registered office street address and name of the agent for service of process at that address; the number of shares the corporation is authorized to issue; its purpose; and the name and mailing address of the incorporator. The registered agent must have a physical street address in Delaware. An increase in the number of shares or par value can affect initial filing fees.
3. Organizational Minutes, Corporate Bylaws & Shareholder Agreement- Bylaws are an internal corporate document that set out the basic ground rules for operating your corporation. Your corporation is not legally required to have corporate bylaws, but you should adopt them because they (1) establish your corporation’s operating rules, and (2) help show banks, creditors, the IRS, and others that your corporation is genuine.
4. Directors and Board Meeting- The person who signed the articles (incorporator) must appoint the initial corporate directors who will serve on the board until the first annual meeting of shareholders (when the board members who will serve for the next term are elected by the shareholders). The incorporator must fill in an “Incorporator’s Statement” showing the names and addresses of the initial directors. The statement need not be filed with the state.
5. Issue of Stock- C-Corporation will issue stock to each shareholder in return for their capital contributions of cash, property, services, or all three. You should enter each shareholder’s name and contact information in the corporation’s stock transfer ledger.
6. File Annual Report and Pay Franchise Tax-All corporations incorporated in Delaware must file an annual report and pay a franchise tax along with it. The annual report filing fee for foreign corporations is $ 125 plus franchise taxes ($ 300) due upon filing of the report. The annual report is filed online.
7. Obtain an EIN- Your corporation must obtain a federal employer identification number(EIN). Most banks will ask for your EIN to open a business account. Also, to get a business bank account or for recruiting employees, you often need an EIN.

Cost of forming an LLC in Delaware is around $ 400 (7-8 days approval)

You may get in touch with us for incorporation requirements. Please feel free to write an email at mail@klaggarwal.com. We would be happy to respond.

How is Delaware taxation different from other state taxation in USA-Click Here