Delaware C-Corp Formation at a Glance
The gold standard for startups and growth companies—trusted by 93% of U.S. IPOs and virtually all venture-backed startups.
Venture capital standard: VCs and angels expect Delaware C-Corp structure. Stock options & equity: Clean, well-understood framework for employee equity. Court of Chancery: 225+ years of predictable corporate case law. Flexible capital structure: Multiple share classes, preferred stock, conversion rights. IPO-ready: Most U.S. public companies are Delaware corporations.
Corporations require more formalities than LLCs: annual shareholder meetings, board meetings with minutes, officer appointments, stock ledger maintenance, and annual reports. Failure to maintain corporate formalities can result in "piercing the corporate veil." Budget for ongoing compliance—use a cap table management tool and consider engaging a corporate paralegal or attorney for ongoing governance.
🎯 Is a Delaware C-Corp Right for You?
✅ Perfect Fit
- Raising venture capital or angel funding
- Planning equity compensation (stock options, RSUs)
- Multi-founder startup with outside investors
- SaaS, tech, or high-growth business model
- Eventually going public (IPO or direct listing)
- Selling to strategic acquirer (M&A exit)
- Need multiple share classes (common, preferred)
- Attracting top talent with equity packages
❌ Consider Alternatives
- Bootstrapped small business → LLC (avoid double taxation)
- Solo founder, no outside capital → LLC or S-Corp
- Service business (consulting, agency) → LLC
- Real estate investment → LLC (pass-through better)
- Want to avoid corporate formalities → LLC
- Don't need equity investors → LLC or S-Corp
- Foreign founders not planning U.S. operations → Consider home country
📊 Delaware vs. Top Incorporation States
| Feature | Delaware | California | Nevada | Wyoming |
|---|---|---|---|---|
| Formation Fee | $89 (online) | $100 | $725 | $100 |
| Annual Franchise Tax | $200-450 (small corps) | $800 min | $650 | $60 |
| Annual Report Fee | Included in tax | $25 biennial | $150 | $60 |
| VC/Investor Preference | ✅ Industry standard | Accepted | Rarely used | Rarely used |
| Corporate Law Clarity | ✅ Most developed | Developed | Limited case law | Limited case law |
| Stock Structure Flexibility | ✅ Maximum | Good | Good | Limited |
| Business Court | ✅ Court of Chancery | General courts | General courts | General courts |
| Officer/Director Privacy | ✅ Not disclosed | ❌ Public record | ✅ Not disclosed | ✅ Not disclosed |
- Standard legal documents: VCs use standardized term sheets and investment docs designed for Delaware C-Corps
- Predictable legal framework: Extensive case law means fewer surprises in corporate disputes
- Preferred stock structure: Delaware law explicitly supports liquidation preferences, anti-dilution, conversion rights
- Exit flexibility: M&A and IPO processes well-established for Delaware corporations
- Investor protection: Board composition, voting rights, protective provisions all clearly defined
- Due diligence efficiency: Acquirers and lawyers know Delaware corporate law intimately
- Follow-on funding: Later-stage investors (Series B+) universally expect Delaware C-Corp
- Conversion complexity: Converting LLC to C-Corp or reincorporating mid-fundraise is expensive and time-consuming
- Equity Incentive Plan (ESOP): Authorize 10-20% of shares for employee stock options at formation
- ISO vs. NSO: Incentive Stock Options (favorable tax treatment) vs. Non-Qualified Stock Options
- 409A valuation required: IRS requires independent valuation to set strike price ($2K-5K for early-stage)
- Vesting schedules: Standard 4-year vest with 1-year cliff protects company from early departures
- Early exercise: Allow employees to exercise unvested options for potential tax benefits
- 83(b) elections: Employees can elect to pay taxes at grant (when value low) vs. vesting
- Cap table management: Use Carta, Pulley, or AngelList to track ownership and options
- Board approval required: Every option grant must be approved by board or compensation committee
- Delaware advantage: Well-established law around option exercise, repricing, acceleration on M&A
- Organizational meeting: First board meeting to adopt bylaws, elect officers, authorize stock issuance
- Annual shareholder meeting: Legally required; can be held virtually or via written consent
- Board meetings: Quarterly recommended; document decisions in written minutes
- Written consents: Alternative to meetings—board/shareholders sign written resolutions
- Officer appointments: President, Secretary, Treasurer minimum; document in board minutes
- Stock ledger maintenance: Track all share issuances, transfers, option grants
- Bylaws: Internal governance rules (not filed publicly)—board size, voting, meeting procedures
- Certificate of Incorporation: Charter filed with Delaware—authorized shares, par value, stock classes
- Registered agent required: Delaware address to receive legal/state notices ($50-300/year)
- Annual franchise tax filing: Due March 1; calculated by authorized shares or assumed par value method
- Two calculation methods: Authorized shares method vs. assumed par value capital method—pay lower amount
- Authorized shares method: Based on number of shares authorized in charter (regardless of issued)
- 1-5,000 shares authorized: $200 minimum tax (most early-stage startups)
- 5,001-10,000 shares: $250
- 10,001+ shares: Increases progressively; maxes at $200,000 (for 200M+ shares)
- Assumed par value method: Based on total assets reported to Delaware—can be lower for profitable companies
- Early-stage strategy: Authorize 10-15M shares (common for startups); often results in ~$400 annual tax
- Post-funding increase: After raising Series A+, authorized shares increase; tax can jump to $1K-5K+
- Due date: March 1 annually (file online via Delaware Division of Corporations)
- Late fees: $200 penalty + 1.5% interest per month
- What triggers it: Physical office/employees in another state, regular business operations, property ownership
- What doesn't (usually): Remote employees, occasional sales, attending conferences, having customers
- California threshold: More than just incidental/occasional business; ~$500K+ revenue or significant contacts
- New York threshold: Maintaining office, soliciting business, or conducting substantial activities
- Cost per state: $100-800 registration fee + annual reports/fees in each state
- Registered agent needed: Must hire agent with physical address in each qualified state
- Annual compliance: File reports/pay fees in Delaware PLUS every foreign-qualified state
- Example math: DE corp + CA foreign qualification = $400 (DE) + $800 (CA) + registered agent fees
- Penalties: Fines up to $10K+ per state, inability to sue in state courts, back taxes with interest
- Strategic timing: Most startups wait to foreign qualify until they have physical presence (office/employees)
- No citizenship requirement: Anyone globally can incorporate and own Delaware C-Corp
- EIN required: Apply via IRS Form SS-4; without SSN expect 4-8 weeks processing (fax/mail)
- ITIN helpful but optional: Individual Taxpayer Identification Number makes banking easier
- U.S. bank account: Most require in-person visit OR SSN/ITIN; consider Mercury, Brex, Relay for remote-friendly options
- Registered agent required: Must hire Delaware-based agent ($50-300/year)
- Tax obligations: Must file IRS Form 1120 annually even with zero revenue; hire U.S. CPA ($1K-3K/year)
- Withholding on distributions: 30% withholding tax on dividends to non-U.S. shareholders (check tax treaty)
- Visa considerations: Incorporating doesn't grant work authorization; consider E-2, L-1, or O-1 visa
- VC fundraising: Many U.S. VCs invest in foreign-founder Delaware C-Corps; incorporate in U.S. early
- Flip structure: Can create U.S. parent (Delaware C-Corp) owning foreign subsidiary later if needed
- When to convert: Raising institutional capital, issuing employee stock options, preparing for acquisition/IPO
- Two methods: Statutory conversion (simpler, 1 entity) vs. asset transfer (old LLC transfers to new corp)
- Tax consequences: Generally tax-free under IRC Section 351 if done correctly—consult tax attorney
- Cost: $3K-10K in legal/accounting fees depending on complexity
- Timing: Allow 4-8 weeks; do BEFORE starting fundraising (not during term sheet negotiation)
- LLC equity becomes stock: Membership interests convert to common stock; maintain ownership percentages
- Contracts & licenses: May need to assign/amend contracts, notify customers, update bank accounts
- IP assignment: Transfer all intellectual property from LLC to new corporation
- 83(b) elections: Founders must file 83(b) within 30 days on restricted stock to avoid tax disaster
- Recommendation: If raising VC, start as Delaware C-Corp from day one—conversion is expensive hassle
- What it is: IRS election to pay taxes on restricted stock NOW (at grant) vs. later (when it vests)
- Why critical: Without 83(b), you owe taxes on vested shares' FMV—can be catastrophic if company grows
- Deadline: Must file within 30 days of stock grant—NO EXCEPTIONS, no extensions
- How to file: Mail signed election to IRS (certified mail, return receipt), send copy to company, attach to tax return
- Founder example: Receive 1M shares subject to 4-year vesting, FMV $0.01/share = $10K value
- With 83(b): Pay tax on $10K now; when shares vest/company worth $10M, no additional tax until sale
- Without 83(b): No tax at grant; but owe tax on $10M when shares vest (even if can't sell them!)
- Risk if company fails: With 83(b), you paid tax on now-worthless stock (but amount usually small)
- Recommendation: ALWAYS file 83(b) on founder restricted stock—failure is one of biggest startup tax mistakes
- Get help: Use startup attorney or services like Clerky, Stripe Atlas to ensure proper filing
🧮 Delaware State Fees (Paid Directly to State)
Delaware's franchise tax is NOT an income tax—it's an annual privilege tax for being incorporated in Delaware. You pay franchise tax to Delaware regardless of where you earn revenue. Federal corporate income tax (21%) and state income taxes in states where you operate are separate. Delaware has NO state corporate income tax on out-of-state revenue.
📅 Critical Corporate Compliance Timeline
🚀 Incorporation Process Overview
Search Delaware database • Must include "Corporation," "Incorporated," "Company," "Corp.," "Inc.," or "Co." • Check trademark/domain availability
Delaware physical address required • Available during business hours • Commercial service recommended ($50-300/year)
Define authorized shares, par value, stock classes • Name incorporator • File online with Delaware ($89)
Adopt bylaws • Elect officers (President, Secretary, Treasurer) • Authorize stock issuance • Document in written minutes
Execute stock purchase agreements • Issue stock certificates • Founders MUST file 83(b) election within 30 days
Apply for EIN via IRS.gov (free, immediate for SSN holders) • Open corporate bank account • Separate finances from personal
Board approves Equity Incentive Plan • Reserve 10-20% of shares for employees • Get 409A valuation to set strike price
Annual franchise tax (March 1) • Annual shareholder meeting • Quarterly board meetings • Cap table maintenance • Tax filings
⚖️ Professional Delaware C-Corp Formation
Attorney-prepared incorporation optimized for venture funding. All packages include Delaware state fees and registered agent.
✅ What's Included in My Attorney Fees
Delaware Certificate of Incorporation, bylaws, organizational resolutions, stock purchase agreements, board consents, registered agent (1 year), EIN acquisition, and 83(b) election preparation. Formation in Delaware at base price. Premium services include 409A valuation coordination, investor-ready documents, and cap table setup.
⚠️ Separate Ongoing Obligations (Not Included)
Delaware annual franchise tax (~$400 for typical startup), annual corporate tax returns (Form 1120), 409A valuations ($2K-5K annually if issuing options), cap table management tools (Carta/Pulley ~$2K/year), and ongoing legal compliance. Foreign qualification fees in other states are separate.
For solo founders or small teams not raising venture capital. Standard documents with basic stock structure.
- DE State Filing Fees Included
- Registered Agent (1 Year)
- Certificate of Incorporation
- Standard Bylaws
- Organizational Resolutions
- Stock Purchase Agreements
- 83(b) Election Forms
- EIN (Tax ID Number)
For startups raising or planning to raise venture capital. Investor-ready documents and stock option plan included.
- Everything in Starter
- Equity Incentive Plan (ESOP)
- Board Consent Templates
- Investor-Ready Stock Structure
- 409A Valuation Coordination
- Cap Table Setup (Carta/Pulley)
- 1hr Fundraising Consultation
- Multi-Founder Vesting Agreements
For complex situations: multiple founders, converting from LLC, international founders, or immediate fundraising needs.
- Everything in VC-Ready
- Customized Preferred Stock Classes
- Founder Agreements & IP Assignment
- LLC-to-Corp Conversion (if needed)
- International Founder Support
- 2hr Strategy Session
- Investor Document Review
- 6-Month Email Support
Delaware C-Corp Formation Intake
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Ready to incorporate your Delaware C-Corp? Let's discuss your startup needs.
Attorney
Sergei Tokmakov, Esq.
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Feel free to reach out via email at owner@terms.law or use the intake form in the "Get Started" tab. I respond to all inquiries within 24 hours during business days.