How to start a business in Delaware

If you're an aspiring entrepreneur and you’re considering how to start a business in Delaware, your intentions are well founded. The Diamond State may be small, but it boasts a big reputation as a haven for corporations and businesses. Delaware offers many opportunities and benefits for new small business owners, including a business-friendly tax system, a skilled workforce, and a high quality of life along the sandy shores of the Atlantic.

Delaware is home to some of the best places to start a business in all of the United States, such as Wilmington, Dover, Newark, and Rehoboth Beach. These cities have vibrant sectors that include finance, biotechnology, manufacturing, and tourism. Delaware also has a plethora of business resources and incentives to help you grow your enterprise and achieve your goals.

To start a business in Delaware, you’ll need to understand the legal requirements and responsibilities that come with your new venture. These may vary depending on the type of business you want to run and where you want to operate. Use this comprehensive, step-by-step guide to help you navigate the process.

What are the steps to opening a business in the state of Delaware?

1. Develop your business idea

Coming up with a business idea is one of the most exciting and challenging parts of starting your own business in Delaware. If you don't have a fully fleshed-out idea just yet, you can find inspiration by thinking about your passions, skills, and hobbies. Consider how you can turn them into a profitable and sustainable business. You can also learn from other successful businesses in Delaware to see how you can improve their offerings.

Still, thinking up a great idea isn't always enough — you also need to make sure there’s a market for your product or service. You can do some research to see if there are any competitors in your niche and how they are doing, but if you don’t see any competition in Delaware, it could mean there simply isn't enough demand.

Here are a few ways to validate your idea:

• Ask family, friends, and other trusted people for feedback on your business idea. They can help you evaluate its feasibility and profitability.

• Study your industry and learn from successful local businesses. This can help you find opportunities and create new ideas to set you apart from competitors.

• Consider your target audience and how your business will serve them. If you’ll have a physical location or serve a specific area, research the demographics to make sure they align with your audience and goals.

• Seek honest feedback and be open to criticism. This can help you improve your Delaware business idea and plan for success.

2. Create your small business plan

To start a new business in Delaware, you’ll need a solid business plan. Use it to outline your goals, strategies, and financial projections, and to help you secure funding from investors or lenders.

Your business plan will cover every important aspect of your business, including your products or services, target market, financial projections, company structure, management hierarchy, and marketing strategies. The more detailed your business plan is, the more prepared you'll be to face any challenges as you run your business.

To write a good business plan, you'll want to be clear and concise. Use strong language and visuals to make your points, and be realistic about your goals and projections. Get feedback from others before you finalize your plan, and don't forget to update your plan as your business grows and changes.

Here's what to include in your business plan:

3. Secure funding

If you want to start a business in Delaware with enough cash to get your new venture off the ground, there are many funding options that can cover your initial expenses.

Capital lending solutions are loans offered by third-party lenders specializing in helping small businesses launch. Heartland offers loan options that can range from $5,000 to $5 million so you can reduce the common startup stresses and cover the expenses necessary to get your first customers through the door.

You can also raise money through crowdfunding or personal investment, but unless you have sizable savings, these options may prove to be less stable. Either way, you'll need cash to get going, so be sure to consider all of your options before making a final decision.

4. Choose your business name

You may already have a business name in mind, but if not, it's important to choose one that will be easy to remember and easy to pronounce. Also make it unique and relevant to your business in Delaware.

Search the Delaware Secretary of State's website to confirm a specific business name is available. If it is, you can register it with the Secretary of State's office. Registering your business name will help you protect your rights and prevent other businesses from using the same name.

If you aren't prepared to form your legal entity just yet, reserve your chosen business name for a period of up to 120 days. The cost to reserve a business name in the state of Delaware is $75 for all entity types, but it’s important to note that name reservation doesn't prevent other businesses from using it. To do that, you'll need to legally register your business.

Pro tip: Reserve your website’s domain name

After you choose a business name, it's a good idea to purchase a matching website domain name. It's also advisable to open new social media accounts using your business name so you can reach your customers where they hang out online. This will keep your online presence consistent, increase your visibility, and help you promote your brand.

5. Identify your business structure and business entity type

Choosing the right legal entity type for your Delaware business is a crucial step. It will impact how you operate your business and how it pays taxes to the Internal Revenue Service (IRS). Your business formation will also affect how much personal risk you take on, how much paperwork and reporting you need to do, and your funding options. Choose a legal structure that suits your specific needs and circumstances — if you’re not sure, consult with a legal or accounting professional.

Here are your legal entity options for Delaware:

General partnership

You can form a general partnership in Delaware if two or more people agree to share the profits and losses of your business. Each partner will contribute money, property, labor, or skills to enjoy equal rights and responsibilities in managing the business. Partnerships don't require any formal registration or paperwork, but many partners will use an operating agreement to detail their roles and responsibilities in an effort to avoid disputes.

General partnerships don't have any limited liability protection in Delaware, meaning partners have unlimited personal liability for the debts and obligations of the business. If the business becomes engaged in a lawsuit or goes bankrupt, the partners’ personal assets can be seized to pay off creditors. Business insurance can help, but it isn't a stand-in for liability protection.

To file taxes, partners report their share of the partnership income or loss on their personal tax returns, as they are not registered companies.

Sole proprietorship

A sole proprietorship is a business owned and operated by one person, referred to as the sole proprietor. The sole proprietor is the sole decision-maker and has complete control over every aspect of the business. Sole proprietorships are easy and inexpensive to start and don’t require any formal registration or paperwork. But just like partnerships, sole proprietorships lack limited liability protection, so the owner is responsible for covering any debts and obligations from their personal assets. Sole proprietors report their income and expenses on their annual tax return for personal income taxes. All profit is taxed by the IRS as personal income.

Limited liability company (LLC)

A limited liability company (LLC) is a business structure that protects its owners from personal responsibility for debts or liabilities. LLCs can have one or more owners who can be individuals, corporations, other LLCs, and foreign entities. LLCs are legally formed by filing articles of organization with the Delaware Division of Corporations.

Delaware LLCs offer several advantages for business owners, including limited liability, tax-filing flexibility, and the ability to avoid double taxation. Your LLC can choose to be taxed as a pass-through entity, which means its income and expenses are passed through to the owners and taxed on their individual tax returns. Alternatively, you can choose to be taxed as a corporation, which means the LLC is taxed separately from its owners (a potentially better option for high-earning LLCs).

A Delaware LLC with only one owner or member needs to file Form 1040 with the IRS, while LLCs with more than one member or owner (a multi-member LLC) need to file Form 1065.

Subchapter "S" corporation (S Corp)

An S Corp is a type of corporation that elects to be taxed as a pass-through entity. This means income and expenses are passed through to shareholders and taxed on their individual tax returns in an effort to help business owners reduce their overall tax liability. S Corps also offer limited liability protection to their shareholders, which means they’re not personally liable for the corporation’s debts and liabilities.

However, S Corps do have eligibility requirements. They can only have up to 100 shareholders and issue one class of stock. S Corp shareholders can only be individuals, estates, trusts, or certain types of charitable organizations. These requirements may limit the flexibility and growth potential of an S corporation, but they also provide the benefit of being both a corporation and a pass-through entity.

A corporation must file Form 2553 “Election by a Small Business Corporation” with the IRS to elect S Corp status.

Subchapter "C" corporation (C Corp)

Delaware is a popular state for forming registered corporations, especially for public corporations, multinational enterprises, and complex alternative entities. Delaware’s laws and courts provide predictability and flexibility for managers and important protections for investors. This makes Delaware state business a valuable choice for sophisticated entities, even if they have no physical operations in Delaware.

The C Corp is a popular business structure for these types of businesses. A C corporation is a separate legal entity that is taxed separately from its owners and shareholders. A C corporation can have an unlimited number of shareholders, offers limited liability protection, and can access more sources of capital.

One potential drawback, however, is that C Corps face double taxation on their income. This means the corporation pays both state tax and federal corporate taxes on its income, and shareholders pay personal taxes on the dividends when they file their personal tax returns. A C Corp registered in Delaware also has to file annual reports, elect a board of directors, and hold an annual meeting for shareholders. Businesses forming a C Corp have to file Form 1120 with the IRS.

Nonprofit organization

Nonprofits are businesses that have been granted tax-exempt status by the IRS. This means they don’t have to pay federal income tax on their income, as long as they use it for charitable purposes and don’t support or engage in any political activities. Nonprofits can receive donations from various sources, and these donations are typically tax deductible for donors. Nonprofits also have the same limited liability protection as other registered corporations.

However, nonprofits do have to meet certain requirements to be eligible for tax-exempt status. Since they’re not-for-profit corporations, any profit generated must be reinvested into the business and put toward achieving their main purpose. And that main purpose has to align with improving something for the good of the public. To apply for tax-exempt status, nonprofits have to file Form 1023 with the IRS. Once they have been granted tax-exempt status, they have to file an annual Form 990 with the IRS to report their revenue, expenses, and business activities.

6. Register your small business in Delaware

Starting a new small business in Delaware requires choosing a registered agent, filing articles of incorporation, and paying the state filing fee. The easiest and fastest way to do this is online through the Delaware Division of Corporations website. There’s a $99 filing fee to register —whether for an LLC, a corporation, or a nonprofit.

What is a registered agent?

A Delaware registered agent is an individual a business appoints to receive legal documents and notices for them. Registered agents must have a real address in Delaware (not a P.O. Box) and be open during normal business hours to act as the contact point for any legal mail that the business may receive. Delaware businesses can be their own registered agents, or they can use a third-party registered agent service.

What are articles of organization?

New businesses in Delaware have to file legal documents to become official businesses recognized by the state. These documents are called articles of organization or articles of incorporation, and they give key information about the business and the owner's responsibilities.

Articles of incorporation include certain information requirements that are reviewed and approved by the Delaware Division of Corporations. This information includes:

Entrepreneurs determining how to start a business in Delaware can file their articles of organization through the Delaware Division of Corporations website. Once approved, the state will issue a Certificate of Formation (sometimes called a Certificate of Incorporation) to the newly registered business.

7. Apply for an employer identification number (EIN)

A Federal Employer Identification Number (EIN) is a nine-digit number assigned by the IRS to businesses and organizations for tax purposes. A Delaware business is required to have an EIN if it has employees or if it files a federal tax return.

There are several benefits to having an EIN. You can use it in place of your Social Security Number to keep your SSN safe, it makes it easier to apply for loans or open a business bank account or credit card account, and you can legally hire employees to help you run your business.

You can apply for an EIN online through the IRS website. The application process is quick and easy, and you'll receive your EIN immediately once you submit. Once you have your EIN, you'll need to use it on all of your business tax forms and other official documents.

8. Open your small business bank account

Opening a business bank account in Delaware can help you manage your business finances more effectively and professionally. By keeping your personal and business finances separate, you can avoid potential tax problems and keep better track of your business income, expenses, and tax obligations.

Additionally, a business bank account can help you establish business credit, make your business appear more professional, and help you manage your business finances through online banking. If you’re considering opening a business bank account in Delaware, compare different banks to find one that offers the best features and benefits for your business.

9. Obtain your business licenses and permits

In Delaware, a business license is required for any person or entity conducting a trade or business in the state. This includes entities in Delaware conducting out-of-state business. To obtain a business license, you must file an application with the Delaware Division of Revenue. The application process is straightforward, and you can usually get your license within a few days.

Once you have your business license, you’re required to display it prominently in your place of business and renew it every year. If you fail to obtain a business license, you may be subject to fines or other penalties.

Your city or local municipality may also require another license or other permits that pertain specifically to the type of business you run and the activities you engage in. For example, you need a special license to serve or sell alcohol. Always check with your municipality to confirm your permit and license obligations before you dive in.

10. Get familiar with Delaware business taxes

Businesses in Delaware have to pay taxes, just like businesses in other states.

Here’s a quick reference guide to Delaware state taxes:

Gross receipts tax

Delaware doesn't charge sales tax, but businesses are required to pay a gross receipts tax if they sell products or services. The amount is calculated by tallying the total receipts obtained by selling goods or services within the state of Delaware. No deductions are allowed.

Franchise tax

Delaware charges a franchise tax for the privilege of doing business in Delaware state. This tax varies, but it begins with a minimum tax amount of $175.

Corporate income tax

Delaware corporations must pay a state corporate income tax of 8.7% on their taxable income. This is separate and in addition to the 21% federal corporate tax rate. Corporations are required to file a Delaware corporate income tax return every year — whether they earned income or not (so even if they don't owe any taxes).

To stay compliant with all tax regulations, review the Delaware Division of Revenue’s website for useful information and resources. It’s also a great idea to seek the advice of a licensed tax professional.

What is a DBA?

A DBA, or a trade name, is a name that a business can use instead of its registered or legal name. Your business might use a DBA to create a brand that is more catchy and memorable than its legal name if you plan to expand its services over time, or if the purpose of the business changes.

However, a DBA is not a separate legal entity from the business itself. The business still has to register its legal name with the state in which it is located by forming a legal entity, and then register its DBA.

Reap the benefits: Start a small business in Delaware

Excited to embark on your journey as an entrepreneur? Take the Start-Up Path for Entrepreneurs to learn how to start a small business in Delaware with golden information and insights every step of the way. It’s an interactive resource designed for new entrepreneurs ready to bring their incredible ideas into the world who may need some practical advice to simplify and speed up their paths to success.

The Start-Up Path can help you start or grow a business in any state — and it’s filled with interesting content.

Here’s what you can expect:

• Interactive, easy-to-understand tools

• Planning sheets

• Advice from real entrepreneurs

And when you just need a dose of inspiration from someone who's been in your shoes, be sure to tune into The Entrepreneur’s Studio podcast. We interview guests from all walks of life who have built amazing businesses from the ground up. You’ll catch interviews with the likes of fashion designer Rebecca Minkoff, restaurateur and celebrity chef Aarón Sánchez and Bailey Wilson, founder of Bondi Bowls.

Frequently-asked questions (FAQ)

Ready to work with a company that knows what it’s like to start a business?

Starting a business is an exciting venture, but there’s a lot to know before you begin. Having the tools and insights you need to launch a small business can help set you up for success — and we’ve got guidance in spades.

As you’re putting in the work to make your Delaware business happen, we invite you to check out the Start-Up Path for Entrepreneurs. It’s a jam-packed resource with interactive worksheets and planning guides that complements the information reviewed here, and it’s totally free (seriously!).

The best part? You can move through it on your own schedule and reference it anytime as your business grows or shifts.

We know you’re busy, so if on-the-go know-how works better, tune in to our Entrepreneur’s Studio podcast. You’ll hear empowering and inspiring stories from Shake Shack founder Danny Myer, all-inclusive makeup studio owner Alex Bradberry and philanthropist and former NFL quarterback Tim Tebow.

Whenever you’re ready to start your business in Delaware, take note: Heartland is here to assist you.

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Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us