A professional corporation describes a business owned and operated by licensed professionals. You can only form a Delaware professional corporation if your profession requires you to be licensed by the state. Here’s how to form your own Delaware professional corporation.
All businesses should consider a formal entity structure, but there are some that would do better as a corporation than other types. See the ZenBusiness entity guide to see what’s right for you. When forming a business in Delaware, professionals typically choose between a professional service corporation (PSC) or a limited liability company (LLC).
A professional corporation is governed by a board of directors that is responsible for drafting, amending, and implementing the company’s bylaws. Professional corporations can also issue stock. An LLC has a more informal structure in which the organization is run and possibly managed by its members.
The tax structure differs as well. In a professional corporation, the business must pay taxes on corporate profits. Additionally, the shareholder must pay taxes on their personal income and dividends, a situation known as double taxation. S corporation status can help prevent this if the PSC meets certain qualifications. On the other hand, LLCs can choose from several filing options.
By default, LLCs are taxed as pass-through entities, meaning that the business itself isn’t taxed on profits before they’re distributed to the members, who then pay taxes on their share of the profits on their personal tax returns. LLC members can also elect to be taxed as a C corporation or S corporation.
For more information about the advantages, here’s how to form an LLC in Delaware. If you decide on a professional corporation, make the following decisions before filing.
Decide who your shareholders are, and how much of the company each shareholder owns. Ownership may be distributed equally or in another way that accurately represents each party’s interests in the organization.
This will be important when drafting your bylaws. PSCs are controlled by an elected board of directors. This body is responsible for appointing officers, making business decisions, and maintaining the corporate record.
A good name reflects what your business is and the services it offers to the public. Be aware of the following rules:
Every professional corporation must have a registered agent on file with the state. A registered agent is someone who has agreed to accept legal notices and certain official documents on behalf of your business. Your registered agent must be an adult who has a physical address within the state of Delaware and is available to accept service of process during all normal business hours.
You can also have ZenBusiness’s registered agent partners perform this job for you. This is a good idea if you can’t commit to being available and on-site during all business hours.
The Certificate of Incorporation is the document that formally creates your professional corporation as a legal entity. Note that your business and registered agent must have physical addresses within the state to incorporate.
You must also have an incorporator, who is the person or entity responsible for creating your business. This may be you, or you may have an attorney, a business formation service, or someone else acting on your behalf.
Filings are completed by mail and require a minimum filing fee that may vary based on the amount of stock issued. Submissions should be accompanied by a cover letter and a check payable to the Delaware Secretary of State. Filings can be expedited for a variable fee.
This is a record of all important business decisions made by your company. You can keep this record at your business location, but best practice is to keep a backup copy off-site.
Your board of directors is responsible for guiding your business’s growth and addressing any problems. Ensure that the document creating your board of directors becomes part of your corporate record.
Your corporation’s bylaws define how it functions and should outline at a minimum:
You may wish to have a lawyer look over your bylaws to ensure that they comply with all necessary state laws.
The incorporator often arranges and attends this meeting. During this meeting, the board of directors should:
Have someone on hand to take the minutes, and ensure those minutes are signed and filed in your corporate record.
To file your corporate tax returns, you need an employer identification number (EIN). This functions like a Social Security number and identifies your business to the IRS. You can apply to the IRS for this yourself or eliminate the hassle with ZenBusiness’s EIN service.
In addition to federal taxes, you must pay Delaware taxes. You must also pay a filing fee of for the Delaware annual report and a franchise tax between $175 and $200,000. The Delaware Division of Corporations has more information about these requirements.
Lastly, check with your municipality. Some cities and counties levy taxes on local businesses.
Professionals should acquire a professional license before creating a Delaware professional corporation. Title 24 of the Delaware State Code covers the various regulations about which professions can form a PSC. Carefully read the section applying to your field, and ensure that you and all applicable employees are in full compliance.
You may also need other federal, state, local, or industry-specific licenses and permits. Although there’s no central licensing authority, our business license report will show you exactly what you need.
Although optional, you’ll want to get general liability insurance to cover incidents, such as if a client slips and falls on your premises. If you have employees, obtain workers’ compensation insurance. Coverage is required for one or more workers. Although Delaware doesn’t require professionals to carry malpractice insurance, it’s a wise idea to protect yourself from possible liability claims related to your professional services.
Opening a business bank account is the last step! To keep your individual assets safe, avoid storing company assets in your personal accounts. When you open the account, be sure to define who can access the money and under which circumstances. Don’t forget to establish how to change who that person is, should someone resign or otherwise become unavailable. Make sure to have your EIN and Certificate of Incorporation available when you apply.
At ZenBusiness, we are proud to support small businesses through a variety of different tools and services. Whether you need a registered agent service, want to reserve a business name, or are looking to register a domain name for your business website, our goal is to help you stay on the road to success. Check out our services and contact us today to see how we can help you grow your company.
The filing fee will depend on how many shares of stock you have. Since filings are submitted by mail, anticipate your paperwork taking up to two weeks to complete. If you require this faster, you can pay an extra fee to have your paperwork processed within 24 hours.
Fees change over time, so check the Delaware Secretary of State website for the most recent fee schedule.
You’re not required to retain a lawyer, but one can help you navigate paperwork and compliance issues.
Other than a PSC, there are no other entity types in Delaware specifically intended for professionals. Professionals can, however, form a regular LLC.
Technically, yes. However, as the licensing and compliance rules are different for each profession, you’re advised to hire a lawyer who is familiar with these laws.
That depends on how much stock your company has issued and its type. If you have fewer than 100 shareholders, only issue one class of stock, and are not owned by another company or a foreign (out-of-state) shareholder, you can apply to be taxed as an S corporation. Otherwise, you’re taxed as a C corporation.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Delaware Business Resources
Get a Professional Corporation in These States
Start Your Professional Corporation in the Following States
Ready to Start Your Delaware Corporation?