Generally, there are three options:
1) Filing with services:
In addition to the filing fees, you could pay a service provider to file the documents for you. After answering a few questions, some companies prepare and file the documents for you. However, you should know that the incorporation packages offered by “Do it yourself” services often don’t include the essential post-formation docs you need.
2) Hire a lawyer in order to file:
An attorney can help you answer tough questions. Also, you grow your company, might run into issues concerning employee agreements, protecting intellectual property, raising capital and more – areas of legal that a lawyer can help you organize from day one.
3) Do it yourself:
You’ll only have to pay filing fees and, depending on where you live, a registered agent. The process of incorporating is not complicated, and you can do on your own.
a. Choose a Corporate Name
You have to determine a unique name which is not registered with the Delaware Secretary of State. Also, the name must include a corporate ending or abbreviation thereof (ex. “Inc.”, “Incorporated”, “Company”, “Co..”, “Corporation”, “Corp.”, “Association”, etc.). You can check for availability in Delaware Secretary of State business name database.
b. Prepare and File Certificate of Incorporation
The incorporator is responsible for preparing the Delaware Certificate of Incorporation which officially creates the corporation when the state accepts for filing. The Certificate of Incorporation must contain the corporation’s name, its registered agent’s name, street address, the object of the corporation, the number of shares it is authorized to issue, the valuation of the shares, which is the cheapest price that a corporation can issue its shares to its initial founders, incorporator’s the name and address.
Corporate shareholders, directors, and officers do not have to be recognized in the Certificate. You can find this document on the Delaware Secretary of State website. Also, the incorporator’s sign and date must include the Certificate of Incorporation; you must be submitted Certificate of Incorporation with the appropriate fee to the Delaware Secretary of State by mail, fax or hand delivery but you cannot submit it online.
c. Required Personnel
A company must have at least one shareholder, one director, one registered agent and one officer secretary who can sign legal documents on behalf of the corporation and can record minutes of meetings. The director and registered agent do not have to be a shareholder. However, the director must be a natural person and registered agent must have an address — not a P.O. box — in Delaware. Also, the registered agent is the person responsible for receiving official communications for the corporation.
d. Stockholder Agreement
If your corporation has more than one stockholder, you should arrange a Stockholder Agreement. Stockholder agreement is optional. Any corporation which has more than one stockholder should have a Stockholder Agreement in order to reduce future problems of valuation, buyback, and unwanted third parties owning the stock.
Delaware is the state where the registered offices of many companies in the world are located, with the ease of doing business for the entrepreneur and even the investor, having less paperwork, and the advantages of privacy and tax. In addition to the registered offices of many large companies around the world is located, many enterprises that are new, dynamic and waiting for investment, establish a company in Delaware although the business center is in another country. Besides, Limited Liability Company (“LLC”)’s are one of the in-demand company types in the U.S. and do not seek citizenship. The establishment process for an LLC is the same for a foreign citizen as it is for a U.S. citizen and is quite simple. So how to establish an LLC in Delaware?
In general, there is a reasonably commonprocess for establishing an LLC-type company in the U.S., although it varies according to the type of business.
Determine a Registered Agent:
If you are not physically in the U.S., you will need registered intermediary services for the provision and notification of the necessary legal documents. A registered representative receives these documents by post and passes them to you in your own country (or elsewhere in the United States).
Fill the LLC Form:
This form is the company registration document. After you prepare and file these documents, LLC will be ready to start your business. This form shall include at least as follows;
• Company name,
• Principal and Mailing Address,
• Registered Agent,
• Statement of Acceptance by Registered Agent,
• Duration (can be not limited to duration),
• Members (Shareholders),
• Purpose and,
EIN Number: EIN is issued by the American Tax Administration (IRS) and is used for taxation of companies. With the most basic characteristics, this tax identification number is necessary for the companies to run their activities in the U.S. in accordance with the law, to open the company’s bank accounts, to employment and to perform the payments of the company. This tax identification number can be considered as a Social Security Number for companies.
A limited liability company, or LLC, is a hybrid corporate structure that combines the characteristics of both a corporation and a partnership or a sole proprietorship. LLC has simplicity, flexibility and tax advantages similar to a partnership whereas also provides liability protection like a Corporation. Because of its hybrid compilation, an LLC might be a good alternative to people who operate a partnership or a sole proprietorship and need to have more protection from individual liability for debts, loans or lawsuits. Because when you establish your business as an LLC, the business starts as its separate legal entity; therefore, its assets separated from the members’ assets.
Choosing a business entity is an essential part of starting a business. Here are some reasons why you should form an LLC:
It Provides Limited Liability
LLCs provide their members’ protection from liability meaning that the members are not personally liable for debts and lawsuits incurred by the LLC. Therefore, generally, the members can protect their assets (cars, bank accounts, investments, homes, etc.) from creditors of the company if there is litigation or bankruptcy
You Avoid Double Taxation
An LLC is considered as a “pass-through entity” meaning that all profits and losses pass directly to the members who then report their share of profits on their individual tax returns. Thus, unlike C-Corps where the profits of the company are taxed both before the distribution to the owners and after each owner report its share of profits on their individual tax return, the profits of an LLC are only taxed once without being taxed by the government on the company level.
Additionally, an LLC is not considered as a separate entity for tax purposes by the IRS. Therefore, the IRS does not tax the LLC directly at the beginning. Instead, the members of the LLC get to decide how they want to be taxed.
It is Easy to Register
Initial paperwork and fees to form an LLC are relatively light, but it is important to keep in mind that the fees differ from state to state. Although it is suggested to consult a lawyer for help, the process of forming an LLC is simple enough to do without special expertise. Additionally, LLC has the freedom from many of the legal formalities that corporations must deal with. For example; annual reports, director meetings, and shareholder requirements. Residency is not required to operate an LLC; therefore you do not have to be a U.S. resident to form an LLC.
It has Management Flexibility
An LLC can have one or multiple members (the official term for its owners). Members can be individuals or businesses, and there is no limit to the number of members an LLC can have. Members draft a contract called the LLC Operating Agreement that contains the regulations of the company and the rules that govern the members of the company. With this agreement, the terms and regulations of each LLC can be customized to accommodate the specific needs and preferences of an LLC.
How and where the LLC is formed will determine the extent of tax benefits and liability protection offered through an LLC. For example; Delaware is one of the most selected states when forming an LLC because of its predictable laws and corporation-friendly tax structure. You are also not required to disclose any information about the owner of an LLC to the state of Delaware. In Delaware, you need only to have a designated contact person and a Delaware Registered Agent. As mentioned above there are multiple reasons to form an LLC, but you should definitely consider your business type and decide accordingly.
Drop shipping is a kind of business model which allows a company to operate without the need for maintaining inventory, owning a warehouse to store their products. The company does not even have to ship their products to their customers themselves. It works in a way that, the retailer works with a drop ship supplier. The dropship supplier manufactures and/or warehouses products, does the packaging of the products and also ships them directly to the retailer’s customer, on the retailer’s behalf. So instead of purchasing a large amount of inventory, you simply partner with a dropshipping supplier and list their product for sale. Then, when you receive an order from a customer, you forward it to the supplier. The supplier then ships the product directly from their warehouse to your customer. Finally, you are charged only for the price of the shipped item.
Drop shipping is suitable for entrepreneurs because it doesn’t request as much as the traditional retail model. First of all, the entrepreneurs do not have to open a brick-and-mortar store, pay overhead, and stock products. Instead, you open an online storefront and buy wholesale from suppliers who already have products and warehouse space.
Millions of entrepreneurs flock to drop shipping because it requires less hassle and money to get started. That’s why you’re interested! And the best news of all? With drop shipping, you can build a business that’s sustainable in the long term right from your laptop.
Drop shipping has many benefits, including;
- The limited investment required; drop shipping businesses don’t need to keep products on hand or maintain a warehouse to store the inventory.
- It’s easy to set up; to someone who is new to e-commerce, this business model is relatively easy to understand and implement.
- You do not have exorbitant overhead costs; electricity/phone bills, stationery, etc.) are not an issue. The fixed cost of managing the website is all that a business owner has to worry about.
- You can run your business from anywhere thus the business owner is location independent; no office, no warehouse, no employees and no hassles.
- You have more time and resources to scale your business; with drop shipping, all you need to do is send customers’ orders to your dropship supplier and then let the suppliers handle everything else. In the meantime, you earn the profit and are left with more time to develop your business.
- Losses are reduced on damaged goods; since the shipment goes directly from the supplier to the customer, it is obvious that there are fewer shipment steps involved which naturally eliminates the risk of damaged items while moving from one space to another.
On the other hand, there are certain legal risks to operating a dropshipping business which every entrepreneur needs to know. In order to keep the legal risks low, you should incorporate your dropshipping business before you begin operating.
Running your dropshipping business under a U.S. company has many advantages. It is relatively affordable and easy to register and maintain U.S. company. We highly recommend you to organize your business using a U.S. legal entity such as LLC or C-corp. Since a dropshipping business owned by a non-US based entrepreneur that is not resident at any specific state; you have the freedom to choose any of the 50 states as the home state of your U.S. company. It is recommended to incorporate in one of the incorporation-friendly states such as Delaware.
Here are four reasons to incorporate your dropshipping business:
1. By Incorporating You Limit Your Liabilities
The products that you dropship may have defects. And this situation can lead to liabilities for you and your business. As a drop shipper, you will not be able to see the product that you sell. However, because of the contract for the sale, the customer will reach out to you, not the supplier, about product complaints. Since the purchase contract is between the customer and you, your business could be liable if product liability issues occur. Incorporation is a way to limit your liabilities and ensure that, as the owner of the drop shipping business, you will not be held responsible for the defective products. Therefore, your assets (like your car, and computer) will be safe from any claims made by customers.
2. Benefit From Tax Advantage for Your Corporation
From a tax perspective, there is no state corporate income tax in Delaware on goods or services provided by Delaware corporations operating outside of Delaware. (Though there is a franchise tax)Because a dropshipping business essentially deals with tangible goods, the question of sales tax becomes relevant, and as a result, many drop shippers prefer to register in one of the states that have no sales tax. Delaware, being a no-sales-tax state is often the state of choice for drop shipping business registration.
3. Customers and Suppliers are more tend to Deal with Incorporated Businesses
With the absence of an established brand name and official corporate registration, customers may be uncertain about dealing with new businesses. Incorporating makes your dropshipping business seem more professional and credible. Customers will expect your business to be accessible for customer services issues and other questions that may arise if you obtain a professional corporate name. This will also apply to suppliers who prefer, and expect, to deal with only incorporated businesses.
4. Incorporating makes it easier to grow for the future
It is a known fact that all long-term highly-successful businesses choose to incorporate. Incorporation facilitates the growth of your drop shipping business and becomes easier to hire employees once the demand for your products increases.
In conclusion, the dropshipping model provides small startups with limited resources the opportunity to confidently compete with medium and large-sized online retailers, thus making the e-commerce world an equal playground for all. Even though it seems advantageous, there are several legal risks to operating a dropshipping business which every entrepreneur needs to know. To keep the legal risks low, it is recommended to incorporate your dropshipping business before you begin operating.
If you are a not a U.S. citizen and thinking about incorporating, U.S. might be the right choice for you. First of all, incorporating a business in the United States is almost similar to the procedure required for a U.S. citizen. Since being a U.S. citizen or resident are not necessary for incorporating in the U.S., non-U.S. citizens can start or expand a business on American soil. However when you cross borders and oceans; you should consider the differences in individual state tax laws, transportation costs, tariff/trade regulations, size and scope of your company, leases, employees and much more.
People who are not US citizens and who want to do business here, have extra advantages especially for online businesses.In order to be able to use certain payment methods and to take advantage of the tax facilities, it is necessary to get an EIN number.So it is in your best interest to establish your business here.
Incorporating in the U.S. is that company incorporation in the United States is administered at the state level -not federal level- for both foreign nationals and U.S. citizens. The most important thing to realize is that you do not register your business in the U.S.; instead, you register it in one of the 50 states. The process is different from state to state, but generally there are two steps: 1) applying to register in that specific state, 2) establishing a registered agent with a valid physical address in the selected state. When you decide which state to register in, there are a few things to keep in mind. If you have any office or physical presence in the U.S., then you should incorporate in that state. If you do not have a physical presence in the U.S., then you can incorporate in any state. Delaware, Nevada, and Wyoming are traditionally considered the most business-friendly states for incorporating.
Among others, Delaware is considered the most reliable state in which to incorporate or form LLCs. Incorporating in Delaware has many advantages; here are a few things you need to take into consideration:
The Delaware court system is well established and highly respected
Delaware’s laws are generally business-friendly, and, unlike other states, it has a separate and specific Court of Chancery that hears cases about corporate law. Chancery judges generally have a background in corporate law and can decide cases relatively quickly, without the need for a jury. Delaware’s corporate laws are fair, consistent, and well understood. These predictable laws allow corporations to evaluate the probable outcomes of litigation or the advisability of settling a case.
Delaware offers a lot of flexibility for structuring your corporation
It is quicker to form a corporation in Delaware than in just about any other state. The Delaware corporate statutes provide serious flexibility in the organization of a corporation. The rights and duties of board members and shareholders are also more eligible than others. For example, shareholders, officers,directors, and don’t need to be residents of Delaware. While in other states, you may need a minimum of three people to hold the officer and director positions, Delaware laws allow just one person to be the only director, shareholder, and officer of a corporation.
Delaware offers great privacy
As opposed to other states, Delaware does not require you to publicly disclose the names of the corporation’s directors or shareholders. This provides anonymity that is not available in some states.
You don’t have to be in Delaware to incorporate
You can form a Delaware LLC or C-corp online; therefore, you do not have to be in Delaware. You can electronically register your new C-corp or LLC in Delaware within as little as an hour from receipt of your internet order.
Delaware offers some tax advantages.
Delaware has some corporation-friendly tax law. There is not any sales tax in Delaware. There is none state corporate income tax in Delaware on goods or services provided by Delaware corporations operating outside of Delaware. (Though there is a franchise tax). Also, people outside Delaware who own stock shares aren’t subject to Delaware taxes. Delaware does not tax intangible property such as leases, royalties, trademarks, or copyrights. Non-residents pay no personal income tax. Delaware does not have ad-valorem or value-added taxes (VATs) or taxes on business transactions (TBTs). Delaware does not have the use tax, inventory or unitary tax. There is also no State of Delaware inheritance tax on a stock of Delaware corporations that are operating outside of Delaware and are non-residents of Delaware. There are no Delaware capital shares or stock transfer taxes which also makes Delaware the most suitable state to incorporate in.
Angel and VC Investors are more likely to invest in Delaware Corporations
Angel investors and venture capitalists usually prefer to invest in companies incorporated as a C Corp in Delaware. Therefore, if you seriously consider about receiving investments from these types of investors, you may want to incorporate in Delaware.
It is less expensive to relocate your corporation
Relocating the corporation might be less expensive – the annual franchise tax in Delaware can be as low as $125 / year with reporting fees whereas in California the annual franchise tax is $800.
You do not need to have a Delaware business office address
You only have to maintain the address of your Delaware Registered Agent which is required for service of process.
In conclusion, it is an exciting step to form a corporation in the life of your business, but you should think carefully before deciding which state to incorporate. Depending on the type of your business, Delaware’s predictable laws and corporation-friendly tax structure make it a clear choice.