What Happens if My New Company Doesn’t Conduct Any Business?

Clients continue to form Delaware companies daily with the plan of conducting lawful business activities around the world.  Perhaps, you wish to get a head start on the process or you want to have everything ready to go so that when you’re ready to conduct business activities, the first steps would have already been completed. It’s not uncommon for clients to form a new Delaware company, first, but not begin conducting business activities right away. When and after forming a new Delaware entity, there are sometimes many things that need to be accomplished prior to conducting business.

Perhaps, if forming a Delaware Corporation, you plan on bringing aboard more investors. Or, maybe you plan on appointing additional directors. Clients can establish their internal bylaws which set the rules for the company. Or, if forming an LLC, maybe you want to establish other members within the entity and want to generate your internal LLC Operating Agreement which explains the economic relationship among owners.  Or, maybe you need the Delaware company formed on a specific date as the birthdate of the company has a specific meaning of importance but you don’t plan on proceeding with business activities until a later date.

Or, sometimes, you wish to establish a working relationship with an accountant or attorney convenient to your location to assist with internal matters prior to proceeding with conducting business activities.  While these are important decisions to be made, other important factors to consider include the following:

• Obtain the EIN/Federal Tax ID Number for the entity:
  If you're operating a business in the United States, generally, all U.S. companies are required to have an EIN to open a U.S. bank account, obtain loans, hire employees and more.
• Obtain a Foreign Qualification for the Delaware company:
  Clients generally obtain a Foreign Qualification for their Delaware company if they plan to physically operate in a state other than Delaware (the state of incorporation), hire employees in another state or in some cases, open a bank account in that state depending on the banks requirements. Your business would essentially be considered domestic to the State where formed, and foreign in all other States. To take advantage of the strong corporate law structure, Delaware is by far the most popular domestic choice which is why clients typically form their company in Delaware and obtain a Foreign Qualification by registering their Delaware company to do business in another state.

It’s important to note that if you form a Delaware entity, the company will still need to remain compliant in Delaware even if no business is conducted or if no income is generated.  If the entity does not physically operate inside of Delaware, the two annual Delaware fees required to be paid each year to keep the entity active and compliant in Delaware include the Registered Agent fee and Delaware Franchise Tax.  The Delaware Franchise Tax is the fee imposed by the state of Delaware for the right or privilege to own a Delaware company.  Please be advised, the tax has no bearing on income or company activity as it is simply required by the state of Delaware to maintain the good standing status of your company in Delaware.

For example, if you form a Delaware LLC in 2021 but do not begin conducting business activities until 2022, the state will still require that the 2021 Franchise Tax be paid by June 1, 2022 for the LLC.

Whether you plan on conducting business right away with your new Delaware company is entirely an internal decision.  Either way, Harvard Business Services, Inc. can assist with the Delaware formation once you’re ready to proceed.

If you have any questions or need assistance with forming a new Delaware company, I will be happy to assist.  Feel free to contact me via email at justin@delawareinc.com or I can be reached directly at 1-800-345-2677 or 1-302-645-7400 ext. 6144.