Delaware Stock (General) Corporation
A Stock Corporation is a business entity (type of company) which is registered with a state government and entitled to treatment as an artificial person, by which right it may sue or be sued in a court of law with protection for the shareholders and officers from personal claims, unless they commit fraud.
- This means that, unless a shareholder personally guarantees a debt of the Corporation, or commits fraud, her risk of loss is limited to the amount of money she invested in the Corporation; her personal assets are protected from liability.
- Stock Corporations and LLC’s are similar in the liability protection offered to owners and officers.
- A Stock Corporation which is not a Close Corporation and is not an S-Corporation may be called a Corporation or a Stock (General) Corporation when it is necessary to distinguish it.
- To distinguish between a for-profit Corporation and a not-for-profit Corporation, a for-profit Corporation may also be called a “Stock Corporation”.
How are Stock Corporations managed?
- In smaller companies the owner tends to wear many hats and in Delaware this is perfectly legal; the owner may be a sole shareholder and Director as well as serving as the titular President, Secretary and Treasurer all at the same time.
- That said, the organization of the Corporation is more rigid than that of the LLC.
- In the case of a new Corporation, the expected series of events would be as follows:
- A person representing a new company that wishes to incorporate contacts DBI. Upon purchasing DBI’s services, DBI becomes the Incorporator. DBI drafts, signs and files the Incorporation documents acting as an agent on behalf of the new Corporation. When the Incorporation is complete, DBI’s services as Incorporator are automatically terminated. The last thing DBI does in its role as Incorporator is officially appoint the Initial Director . The person who will serve as Initial Director will be indicated by the person placing the order for Incorporation services.
- The Initial Director is often the founder of the Corporation , although, the Initial Director does not have to be an owner or officer ; the Initial Director could be a manager, CPA or attorney for example. It is the Initial Director’s duty to finish setting up the organization of the new Corporation after it has been Incorporated. The Initial Director has the authority issue stock certificates to the owners to record their ownership share and to call a meeting of the shareholders to elect the Board of Directors. The Initial Director may remain a Director or his services may end after other Directors are appointed. In many cases the Initial Director stays on and becomes the Chairman of the Board of Directors.
- Once the Board of Directors is appointed, the Board ratifies the By-Laws and appoints the Officers of the Corporation . Most routine operational oversight is delegated to the Officers, but major policy must be decided by a resolution of the Board which is either approved by a majority of the voting shareholders, or in the case of a Sole Owner/Sole Director by “Unanimous Decision”. A Close Corporation is exempt from formal Board Meeting and Resolutions (see page 40 for more information), as are LLC’s.
How is a Stock (General) Corporation Taxed?
- A Stock (General) Corporation, that is, a Corporation which does not elect “Subchapter S status with the IRS” and is not a ”Not-For-Profit”, is taxed as its own “entity”; that is to say, the Corporation is taxed separately from and in addition to the personal income of the Shareholders (owners), and is taxed at a Corporate rate.
- A Stock Corporation must file its own income tax return every year on form 1120.
- In addition to the income tax the Stock Corporation must pay, any distributions made to the stockholders (also known as dividends) are taxed on the personal income tax returns of the shareholders at the shareholders personal income tax rate.
- This is what is commonly known as “Double Taxation”.
- Because the Corporation may deduct reasonable salaries before calculating income tax, a large portion of the income paid to Owner-employees is not subject to double federal income tax, however, both the Corporation and the Employee must pay FICA tax on these wages earned.
What is the benefit of forming a Delaware Stock Corporation for non-resident non-citizens?
- A Stock Corporation with no employees, owners, property or operations in the United States, and no US-source income will pay no Federal US Corporate Income Tax.
How is a Stock Corporation Taxed by the Secretary of State of Delaware?
- The annual tax due to the Secretary of State of Delaware for the purpose of maintaining a Delaware Charter is known as the Delaware Franchise Tax.
- The word “Franchise”, as used in this case, means “a special privilege granted to an individual or group ; especially: the right to be and exercise the powers of a Corporation” and does not mean “a chain of businesses licensed by the original store and operated per the original store’s pattern under the original store’s trade name”.
- Delaware Corporations authorizing 5,000 shares or of stock or less may use the Authorized Shares method and will pay the minimum $125 franchise tax regardless of income or activity.
- The Franchise Tax rates for companies authorizing 5,001 shares or more are discussed below.
- It is also necessary for Corporations to file an Annual Report. There is a $50 Annual Report filing fee for Profit-Corporations and a $25 Annual Report Filing Fee for Non-Profits.
- The following information must be included on the Annual Report:
- The physical location of the headquarters of the Corporation. This address may be anywhere in the US or in the world; it is not required to be a Delaware address. If your Corporation has no headquarters, you may give your home address. You are not permitted give a P.O. Box or the address of a mail forwarding service.
- The phone number of any company representative.
- The names and addresses of all Directors. All Corporations have at least one initial director, if that person has resigned and has not been replaced; a statement that there are no current directors may be given. It is permissible to give a business address or mail forwarding address.
- The name and address of the Officer who is authorizing the filing of the Annual Report. This is usually the President or CEO but other offices are acceptable. If there are no officers currently serving a Sole Director or the Chairman of the Board of Directors may sign. If there are no Officers or Directors please contact an Incorporation Specialist for assistance.
- The signature of the authorizing Officer. This is usually an electronic signature: if you are filing yourself online you will simply type the name, if DBI is filing for you the electronic signature will appear as “/s/FirstName LastName” for example “/s/John Doe”.
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