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How To Start A Business In Delaware [2023 Guide]

How To Start A Business In Delaware [2023 Guide]

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How To Start A Business In Delaware [2023 Guide]

Delaware, a small yet influential state on the East Coast, has long been a magnet for entrepreneurs seeking the ideal location to launch their businesses. Renowned for its business-friendly laws, low tax rates, and commitment to privacy, Delaware offers a unique combination of advantages that have attracted numerous large corporations and small businesses alike.

By starting a business in Delaware, entrepreneurs can reap the benefits of a supportive and efficient environment, positioning their ventures for long-term success in the competitive world of commerce.

Delaware Small Business Stats

Steps to Start a Business in Delaware

There are a lot of steps to take and so much information to learn when starting a business in Delaware, and our checklist serves as a valuable tool for guiding aspiring entrepreneurs through the process.

By following the steps, individuals can ensure they meet the common requirements, from registering their businesses and acquiring appropriate licenses, to tapping into financing, so they can establish a strong foundation from the start.

Step 1: Choose a Business Idea

The first step of starting a business is, not surprisingly, the idea.

If you are still searching for that spark of inspiration, here are a few tips that may help.

Assess your interests and passions: Consider the activities, industries, or hobbies that genuinely excite and motivate you. Starting a business around something you are passionate about increases the likelihood of long-term success and personal satisfaction.

Evaluate your skills and strengths: Reflect on your talents, skills, and experiences that can be applied to a business. Think about how your background can be leveraged to create a unique value proposition in the market.

Conduct market research: Research your market, its demographics, and the needs of the community. Look for gaps in the market or areas where demand outpaces supply, offering potential opportunities for new businesses.

Consider the competition: Analyze the competitive landscape in your preferred industry or area. Determine if there is room for a new player and how you can differentiate your business from existing competitors.

Network with local entrepreneurs: Connect with other business owners in Delaware, attend local networking events, and join business organizations to gather insights, ideas, and advice from individuals who have already navigated the process of starting a business.

Test your idea: Before fully committing to a business idea, consider testing it on a small scale or creating a minimum viable product (MVP) to gauge market interest and validate your concept.

Check out our library of business ideas to get detailed industry information, trends, costs to start, tips, and lots more.

Step 2: Write a Business Plan

Once a solid business idea is in place, it’s time to start working on the business plan.

Writing a business plan forces you to think critically about every aspect of your business, from marketing and sales to operations and finances. A business plan also allows you to evaluate the feasibility of your business idea by analyzing market demand, competition, and financial projections. This assessment can help you determine whether your idea has the potential to be profitable and sustainable.

While writing your first business plan may be intimidating, we have resources to help you get started!

Step 3: Select a Business Entity

As a new entrepreneur, researching the different types of business entities and deciding which one is best for you in Delaware can be a daunting task. There are four primary business entities in the state, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.

A Sole Proprietorship in Delaware is a type of business entity with a single owner and is the least complicated form of business to start up. The main consideration is that if the business is going to be operated under a business name, you will need to register a trade name with the Prothonotary’s Office in all of the counties where you plan to transact business.

Related: How to start a sole proprietorship in Delaware

A General Partnership is a business entity formed by two or more individuals or entities who agree to share ownership, profits, and losses. Each partner contributes to the business by providing capital, property, labor, or skills. The partners share in the management and decision-making process, and each partner has the authority to bind the partnership in contracts and other legal obligations.

Related: What is a partnership?

Corporation is a business structure that is a separate entity from the individual. While corporations are more expensive and difficult to form than sole proprietorships and partnerships, the major advantage is that the corporation provides personal asset protection for the owners should the corporation be sued. The downside is the business formation requirements and administrative burdens of having a board of directors, annual meetings for directors and shareholders, taking minutes at the meetings, issuing stock certificates, and more.

Related: How to form a Delaware Corporation 

The Limited Liability Company (LLC) is a popular business entity choice because it provides the liability protection of a corporation with the sole proprietorship’s ease of operation.

People choose to make an LLC because it helps protect the owners, called “members,” from losing their personal assets (like their homes, vehicles, etc.) if the business can’t pay its bills or gets sued.

Related: How to form a Delaware LLC

Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.

Some popular formation services include:

IncFile - Great service and free registered agent the first year.

Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!

ZenBusiness - Easy to use and free registered agent for 1 year!

Step 4: Register the Business

Certain licenses and permits will be needed to operate a business in Delaware, and the ones needed will vary on the business’s activities and location. Some common registrations include:

State of Delaware Business License: All Delaware businesses must obtain a business license from the Delaware Division of Revenue. Additionally, many Cities may also require a business license in order to operate.

Employer Identification Number: The Employer Identification Number or EIN (sometimes referred to as the Federal Employer Identification Number or FEIN) is a nine-digit tax identification number issued by the Internal Revenue Service (IRS). This number identifies a business operating in the U.S and is used for paying payroll taxes, filing tax returns, and more. Much like what a social security number is to a person, the EIN is similar to a social security number for a business. While most businesses will need to get an EIN, some do not.

Professional Licensing – Some services, such as accountants, cosmetologists, gun dealers, and appraisers, require licensing in Delaware. While this isn’t a license on the business, licensing is required in order to operate.

Related: What business licenses and permits are needed in Delaware?

Step 5: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses. Every bank is different, but in general, they will request:

Sole proprietorship & partnership – Trade Name Certificate, EIN or SSN and owner(s) drivers license
Corporation – Certificate of Formation, bylaws, Certificate of Good Standing, EIN, and owner(s) drivers license
LLC – Certificate of Formation, Operating Agreement, Certificate of Good Standing, EIN and owner(s) drivers license

Step 6: Find Financing

A great idea and plan are sometimes not enough, as getting the funds to start a small business is a challenging process for many.

There are several different sources of funding for small business, which include conventional banks, Small Business Administration (SBA) loan guarantees, investors, grants, and many others.

Related: Understanding the different types of business funding.

Step 7: Hire Employees

Hiring employees is a complex and often overwhelming process for a new business owner, as there are multiple agencies to register with and labor laws to understand.

Employers are responsible for reporting each new hire, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, and payroll withholding taxes, including Social Security and Medicare.

Related: Steps to hiring your first employee in Delaware

Step 8: Obtain Business Insurance

Business owners in Delaware need insurance to protect their business from potential risks and liabilities. Insurance can help cover the costs of accidents, property damage, legal fees, and other expenses that may arise. It is important for business owners to understand the minimum requirements for insurance in Delaware, as well as any additional coverage they may need to ensure their business is properly protected.

Most types of business insurance are optional, except for workers’ compensation insurance which is required for any business in Delaware with employees. This type of insurance helps cover medical costs and lost wages if an employee is injured while on the job.

Even if insurance isn’t required, and there is a fire, theft, or personal injury lawsuit, the business owner may have to pay out-of-pocket for damages and legal fees. Home-based businesses and side-businesses may want to consider business insurance, too, as personal home and vehicle policies may not cover a business loss.

Related: Types of insurance your business may need

Step 9: Set up an Accounting System

Taking care of bookkeeping is important for businesses in Delaware not only in the event of a state or IRS tax audit, but maintaining accurate financial records helps businesses monitor their financial health, manage cash flow, and make informed decisions. Understanding the business’s financial position enables owners to identify areas for improvement, control expenses, and plan for growth.

Related: Setting up accounting for a business

This material is property of StartingYourBusiness.com

Common questions when starting a business in Delaware

Is Delaware a good state to start a business?

Delaware is a great place to start a business for several reasons. Many business owners choose Delaware because it has friendly business laws, low taxes, and a simple setup process. Let’s explore some reasons that make Delaware an attractive place for businesses:

Business-Friendly Laws: Delaware is known for having some of the most business-friendly laws in the United States. The state has a separate court system called the Court of Chancery, which focuses on business cases. This court helps resolve business disputes quickly and fairly, making it easier for companies to operate.

Low Taxes: Delaware is known for having low taxes, which can save business owners money. For example, there is no sales tax in Delaware, which means customers don’t have to pay extra when they buy something from a business.

Privacy: Delaware allows business owners to keep their names off the public record, providing more privacy for the owners.

Prestige: Many large companies choose to incorporate in Delaware, which gives the state a reputation for being a good place to do business. This can make it more attractive for smaller businesses to start there as well (though that’s not always the best choice.

What are the steps to starting an LLC in Delaware?

There are three main steps to starting an LLC in Delaware. These include:

1. Making sure the LLC name is available
2. Appointing a Registered Agent
3. Filing the Certificate of Formation

There are a few more details to consider depending on the business. Learn more about starting an LLC in Delaware.

How much does it cost to start an LLC in Delaware?

The cost to start an LLC in Delaware is $90 to file the Certificate of Formation with the Delaware Secretary of State.

What licenses do I need to start a business in Delaware?

In addition to the state business license that is required for all businesses, there are also several additional licenses and permits a Delaware company will need to obtain before starting.

Related: What business licenses and permits are needed in Delaware?

How To Start A Business In Delaware [2023 Guide]

How To Start A Business In Delaware [2023 Guide]

Greg Bouhl

Greg Bouhl

Welcome! My name is Greg Bouhl, and I am a serial entrepreneur, educator, business advisor, and investor.

StartingYourBusiness.com is here because of the many clients I worked with who made decisions based on inaccurate and outdated information.

Starting a business is hard, but here you will find the practical tools, resources, and insider tips to help you successfully start a business.

If there is a question about starting a business or help finding a resource, I'm here to help!

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