Incorporating your business is one of the most important steps you will take in launching your startup. While you may choose to incorporate in any state, Delaware's corporate law provides a number of advantages, including lower taxes, structural flexibility, and a legal system that favors businesses. In addition, venture capitalists and investors generally prefer Delaware.

Below are some steps you need to take once you have decided to incorporate in Delaware. They are divided into five broad categories: (1) Planning; (2) First Steps; (3) Certificate of Incorporation; (4) Post-Incorporation; and (5) Financial Requirements.

(Click here for more information about choosing the type of business structure and the advantages and disadvantages of incorporating in Delaware. )

1. Planning

  • When: There is no set time period or deadline to file incorporation paperwork. However, to receive corporate protections, you must complete the incorporation process before doing business or entering into any contracts.

  • Review your employment contract. Your employer may claim intellectual property rights to anything you create during the scope of your employment even if it doesn't directly relate to your job. Be sure your employer can't claim your work. Learn more in our guide for protecting intellectual property for startups.

  • Legal advice. Incorporating is a significant legal step. Get input from a startup attorney before you make any final decisions about where and how to incorporate. In addition, you may want to consider joining an incubator or accelerator program. They may help you with incorporating your business and finding a good lawyer. You can learn more about how to prepare for an accelerator program here.

  • Have a checklist/questionnaire. Create a checklist or questionnaire of all of your important business, legal, and capital raising goals. Before you make a final decision, review it with your co-founders and make sure your plan will meet each goal.

  • Divide equity. Decide each founder's initial share of the company. You can learn more details on equity splits and how to distribute founder and employee stock.

  • Vesting schedules for founders. Vesting conditions or vesting schedules are commonly added to take back equity from founders who do not remain committed to the business. A typical vesting schedule would be four years with a one-year cliff and double-trigger acceleration.

  • Payment for founders' shares. Founders may pay for their shares with cash, other tangible property, intellectual property, or sweat equity. Decide how payments will be made when you divide equity.

  • Eliminate "lost founders." A lost founder is a person who makes small contributions to your early development, has no further involvement, and then tries to claim a stake in your company after you've had huge success. Have anyone involved in your company sign a release in exchange for cash or a small number of shares so that you can later prove they were already paid in full for their contributions.

2. First Steps

  • Consider reviewing an incorporation questionnaire. Here is an example from the law firm of Wilson Sonsini Goodrich & Rosati.

  • Select a registered agent. The agent must be an individual or business with a physical street address in Delaware. Her job is to accept legal papers on your behalf. The state of Delaware has a list of Delaware Registered Agents on their website.

  • Reserve your name. You must choose a unique name that is not in use by any other Delaware business. While not required, filing a name reservation in advance holds your chosen name for 120 days while you complete the incorporation process. The fee is $75.00 and can be paid with a Visa, MasterCard, American Express, or Discover Card. Also consider filing for a federal trademark for your company and/or product name. Read our guide on the Delaware corporation name search here.

  • Select a sole incorporator. The sole incorporator is a person over the age of 18 who has the authority to file the certificate of incorporation on your behalf. This is largely a formality as the board of directors will take over once the paperwork is complete.

  • Dissolve your existing business. If you have an existing corporation, LLC, partnership, or other business form that you are converting to a Delaware corporation, you will need to legally dissolve that business in the state in which it is registered.

3. Certificate of Incorporation

  • Stock shares: Set the authorized number of shares and their par value. Legally, you can choose virtually any amount. Practically, be sure that you place an appropriate valuation on your company and you have enough authorized shares for future equity sales. A typical number is 10,000,000 shares of common stock with a par value of the common stock at $0.00001 per share.

  • Dividing equity to initial founders: A typical amount of founders shares assuming there is a total of 10,000,000 authorized shares would be 6,000,000 shares.

  • Non-standard capitalization (Optional): If you choose to have other classes of stock, such as preferred stock or restricted-voting stock, you can specify this in your certificate of incorporation. If you don't include this option and later wish to have multiple share classes, you will need to obtain approval from your shareholders.

  • Complete your certificate of incorporation and other forms. While there are great Certificate of Incorporation for Delaware standardized forms available, you should adapt them to your exact business needs. If you wish to protect your privacy, this form can be filed anonymously without naming the directors or members on the certificate (many other states require this information to be public record).

  • File your forms by mail or fax. If you need expedited services, you have multiple options, including one-hour processing, at an additional cost. The fax number is 302-739-3812. The mailing address is Division of Corporations - John G. Townsend Building - 401 Federal Street - Suite 4 - Dover, DE 19901.

4. Post-Incorporation

  • Appoint the board of directors. The founders select the initial board of directors, and one of the sole incorporator's final responsibilities is to formally appoint the board. The new board of directors will then hold their first meeting to complete the remaining incorporation steps including appointing officers, setting up your tax and accounting periods, and issuing shares. Read more here on the guide to building a board of directors.

  • Sign initial board consent (Optional). If quickly holding your first board meeting is impractical, or you've already made all of the important decisions prior to incorporating, you can use a written initial board consent in place of holding the first board meeting.

  • Sign initial stockholder consent (Optional). Delaware law requires that the shareholders consent to take certain actions not specified in the articles of incorporation. This includes adding classes of stock or using stock incentive plans.

  • Sign founder's stock purchase agreements. This document formally sets out each founder's share of equity and what they are contributing.

  • Adopt bylaws. A corporation's bylaws further outline the responsibilities of the board of directors and how your company will operate.

  • Draft a shareholder agreement. The shareholder agreement further defines the rights of shareholders such as the voting process. Have a shareholder agreement in place before seeking outside investments.

  • Issue stock certificates (Optional). Issuing stock certificates is optional, but it gives shareholders a more formal record of their ownership in the company.

  • Request copies of your filing and certificate of good standing. Financial institutions and investors may require them as proof that you are properly registered. The fee is $50.00 per certificate for a Short Form Certificate of Status (which includes the name of the entity and the status at the time the certificate is issued) or $175.00 for a Long Form Certificate of Status (which states all documents that have been filed, including the dates and times and any name changes that occurred along with the status at the time the certificate is issued).

  • Register as a foreign corporation (Optional). If you are doing business in your home state (or any other state besides Delaware), you will need to register as a foreign corporation with that state. You may also need to obtain business licenses or other permits.

  • Sign CIIAAs. The Confidential Information and Invention Assignment Agreements (CIIAAs) protect the intellectual property rights of the startup by assigning founders' inventions to the startups and otherwise requiring founders to keep proprietary information confidential.

  • Create stock incentive plan (Optional). The stock incentive plan receives shares for employee compensation options and lays out the general framework for how they may be required.

  • Create minute book. The minute book contains records of your board and shareholder meetings. While you don't need to file these records with the state, you are required by law to keep them in case of litigation over the status of your corporation.

  • Comply with state-specific regulations. Each state you operate in may require additional permits or licenses beyond incorporating or registering as a domestic corporation. These include both general licenses as well as those specific to individual industries or activities.

  • Comply with city-specific regulations. Similarly, local jurisdictions may require additional permits or impose zoning regulations governing where you can do business.

  • Create terms of use (Optional). The terms of use or terms of service creates a contract governing the use of your software or website. It often includes disclaimers, warranties, and payment terms.

  • Create a privacy policy (Optional). A privacy policy sets out how you will use the information you collect online. This includes both information you ask for directly, such as an opt-in mailing list, and information you obtain indirectly, such as website traffic statistics. Certain states and countries require you to post a privacy policy if you have a website.

5. Financial Requirements

  • Open a corporate bank account. Because a corporation is a separate legal entity, you are required by law to keep corporate funds in a separate bank account owned by the corporation. To do so, the bank may ask you to obtain an EIN from the IRS. You can learn more here with a guide from the IRS.

  • (Don't) elect S corporation status. But if you choose to operate as an S corporation, file Form 2553 with the IRS. You can learn more here through the IRS guide. You should not do this if you will seek outside equity investments because the law severely limits the number of shareholders as well as who may be a shareholder.

  • Report vesting shares to the IRS. If you elected to have vesting shares, Section 83(b) of the Internal Revenue Code requires you to inform the IRS within 30 days of granting the share.

  • Check securities law requirements. Depending on your number of founders and their initial investment, you may be required to register with the SEC under the Securities Act of 1933 or with your state under “blue sky” laws.

  • File form D (Federal Security Filing, Optional). Form D is used to declare to the SEC that you are offering securities under a Regulation D exemption.

  • File "blue sky" filings (State Security Filings, Optional). In addition to Securities Exchange Commission (SEC) requirements, a state where you are offering securities may also require you to register the offering or file financial information.

  • File your annual report. Once you incorporate, you must file an annual report and pay your franchise tax no later than March 1st each year. If your franchise tax will be more than $5,000, you must make quarterly estimated tax payments.

Get Legal Help

To learn more about the advantages of incorporating in Delaware and how they compare to your own state's laws, talk to a business formation lawyer near you. UpCounsel's lawyers are prescreened, highly qualified and have an average of 14 years of experience.