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.
Determine the proper structure
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 PC 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.
How will ownership be divided?
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.
How will the professional corporation be managed?
This will be important when drafting your bylaws. PCs are controlled by an elected board of directors. This body is responsible for appointing officers, making business decisions, and maintaining the corporate record.
Choose a name
A good name reflects what your business is and the services it offers to the public. Be aware of the following rules:
- You cannot use a name already used by another Delaware company. Check ahead of time if your preferred name is available by using the business name search engine on the Delaware Division of Corporations. If you have a name you really like, you can reserve it. Be advised that reserving a name comes with a $75 fee and is good for 120 days. You can renew your reservation, but you must pay another fee. ZenBusiness can handle the name reservation process for you with our service.
- You cannot name your business something misleading. For instance, you cannot use the words “law firm” unless it provides legal services. You cannot use financial terms like “bank,” “brokerage,” or “investment,” either.
- It should describe the nature of the business or include the last name of at least one primary shareholder.
- It must include “Chartered,” “Professional association,” or “P.A.”
Select a registered agent
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.
Complete your Certificate of Incorporation
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 $89 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.
Establish a corporate record in Delaware
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.
Designate a board of directors
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.
Create corporate bylaws
Your corporation’s bylaws define how it functions and should outline at a minimum:
- Shareholder voting procedures.
- The types of corporate officer roles appointed by the board.
- How many people are on the board of directors, and how they are removed or replaced.
- The procedure for resolving internal disputes.
- How often the board meets.
You may wish to have a lawyer look over your bylaws to ensure that they comply with all necessary state laws.
Hold your first board meeting
The incorporator often arranges and attends this meeting. During this meeting, the board of directors should:
- Review and approve the bylaws.
- Designate any necessary officers, such as a general manager.
- Select a bank.
- Approve the issuance of stock certificates.
Have someone on hand to take the minutes, and ensure those minutes are signed and filed in your corporate record.
Handle Delaware tax obligations
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 $50 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.
Obtain business licenses and permits
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.
Acquire insurance for your professional corporation
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.
Open a business bank account
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.
Ready to kickstart your business?
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.
Delaware Professional Corporation FAQs
What are the filing fees for a Delaware professional corporation?
The filing fee is at least $89, payable by check, depending 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 $50 to have your paperwork processed within 24 hours. For same-day processing, the fee is $100.
Do I need a lawyer to form a Delaware professional corporation?
You’re not required to retain a lawyer, but one can help you navigate paperwork and compliance issues.
Does Delaware have other professional entity types?
Other than a PC, there are no other entity types in Delaware specifically intended for professionals. Professionals can, however, form a regular LLC.
Can professionals from different fields form a Delaware professional corporation together?
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.
Will I be taxed as an S corporation or C corporation in Delaware?
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.