How to Form a Professional Corporation in Delaware (2024 Guide)

Steve Bennett
Business Formation Expert  |   Fact Checked by Editorial Team
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Forming a Professional Corporation in Delaware

If you would like to start and learn how to form a corporation in Delaware, there are a few things that you should do now. However, in a professional corporation, professionals must create a special organizational structure to establish a professional or service corporation. Among the appropriate professions to organize a professional corporation in Delaware are accountants, physicians, engineers, architects, and attorneys.

Forming a professional corporation in Delaware or any business organization needs a certain number of steps. In this article, Webinarcare Editorial Team is going to share those steps. Keep in mind that these are general procedures. Depending on local law, it may be modified. For instance, your professional corporation may be subject to city or county-based rules.

What is a Professional Corporation in Delaware?

A professional service corporation (PSC), often known as a professional corporation (abbreviated as PC), is a particular type of organization that is permitted by state law to allow owners of specifically licensed professions to practice in the Delaware. A professional corporation’s owner is answerable for their own negligence or wrongdoing but is not held personally liable for the actions of other owners. The abbreviation PC or P.C. is frequently used to denote professional corporations.

This structure allows professionals to enjoy some of the benefits and protections of a traditional corporation while maintaining their professional status and abiding by the regulations of their respective licensing boards.

LegalZoom is the recommended corporation formation if you are thinking of forming a professional corporation from scratch. However, you can always start an LLC in Delaware, if you changed your mind.

WEBINARCARE EDITORIAL TEAM

How to Form a Professional Corporation in Delaware

To form a Professional Corporation in Delaware for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Registered Agent, filing the Certificate of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an Annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Delaware, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

To provide your service, you must be qualified and have a license. In most cases, you can now form a professional corporation after finishing your studies, passing the exam, and receiving your license. If you work in an industry that does not provide a license or professional certification, you should consider starting an LLC or corporation.

Step 2: Name your Professional Corporation in Delaware

After you have decided to form a professional corporation in Delaware, you must choose a name for your corporation. Here are some pointers to consider when naming your professional corporation.

  • The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
  • Limit of restricted words that need a license.
  • A unique name is needed with no match
  • No confusion with a government entity name.

In Delaware, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 120 days. You must file a name reservation application in the Delaware Secretary of State to keep the name.

If not already present, a professional corporation, professional association, service corporation, or professional service corporation must be included in the name. You may register your business under a different legal name if your preferred legal name is unavailable. Once you’ve decided on a name, you can apply for Delaware DBA (doing business as). This way, you can run a clinic or law firm under your name.

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Step 3: Choose the Delaware Registered Agent

The next step in forming a professional corporation is hiring a Registered Agent, who accepts legal paperwork for your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Delaware. Forming a professional corporation for your service will be easier if you have Registered Agent in Delaware.

Alternatively, you can serve as your own Registered Agent if you have the time. Usually, in Delaware, a Registered Agent costs is ranging from $50 – $300. To make it easier, you can hire Delaware Registered Agent Services for your professional corporation.

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Step 4: File the Certificate of Incorporation in Delaware

After you hire a Registered Agent to form a professional corporation, the next step is to file the Delaware Certificate of Incorporation. In writing the Certificate of Incorporation, the business name, owner’s contact information, corporation address, and Registered Agent contact information, should be written. Include the names of all co-owners as well. All owners must demonstrate that they have the necessary licenses to practice the profession in question.

Filing the Certificate of Incorporation in Delaware may be done with three ways, online, by mail and fax. The Certificate of Incorporation fee may vary from different state. However, in Delaware, it costs $89 for filing online, fax and by mail. Get the online form from Secretary of State, fill it up, and submit. Don’t refresh the page during the process. It will erase everything. . For offline filing, Send the form by mail to Delaware Division of Corporations, 401 Federal Street, Suite 4 Dover, DE 19901 or Fax it to 302-739-3812.

Step 5: Write an Operating Agreement in Delaware

An operating agreement in Delaware is a document that contains all of your company’s organizational details. It is optional to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The operating agreement includes information like-

  • About Business
  • Members and management
  • Capital contribution
  • Profit Distribution
  • Change of membership
  • Dissolution

Step 6: Designate the PC Board of Directors in Delaware

The next step is to form the first board of directors for your PC in Delaware. All of the initial directors must provide the owner with their contact information. The owner must keep records and submit them by the Delaware Secretary of State. As a shareholder and owner, you must ensure that a provision for appointing a new director is included in the By-laws. In Delaware, you must have One directors in forming your Professional Corporation.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

Creating comprehensive corporate bylaws requires specific knowledge about the company, its structure, and operations. However, I can provide you with a general outline of what corporate bylaws usually include. It is crucial to consult with Delaware Business Attorney or a legal expert to ensure that your bylaws comply with the laws and regulations governing your jurisdiction and industry.

  • Name and Purpose of the Corporation
  • Registered Office and Agent
  • Shareholders
  • Board of Directors
  • Officers
  • Committees
  • Indemnification and Insurance
  • Conflict of Interest
  • Records and Reports
  • Amendments
  • Miscellaneous

Step 8: Hold the First Board of Directors’ Meeting

Gather the board of directors for the first meeting after drafting the corporate bylaws. This meeting will conclude with the appointment of directors to manage the company’s daily operations, approval of the bylaws, selection of the corporation’s financial reporting year, and approval of the stock issue. Minutes should be taken at all board meetings and kept with the company’s records.

Step 9: Request an EIN in Delaware.

After the operating agreement’s documentation, you should get or request an Employer Identification Number (EIN) in Delaware. The tax ID for your professional corporation will be an EIN. The Internal Revenue Service can provide an EIN (IRS). It has nine digits and is comparable to a social security number. Nevertheless, EIN is different from SSN. Only business-related tasks, primarily filing general taxes, are performed using it. The form needs to be filled out and submitted online to the IRS.

The application of an EIN in Delaware can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in several ways. It will give your professional corporation the absolute advantage necessary to operate at full capacity without encountering legal or judicial issues.

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Step 10: Open a Bank Account and Prepare for Taxes.

You should open a business bank account as soon as you have applied for and received your Employer Identity Number because you will use this account for yourself, your clients, and your staff. Check out the Best Banks in Delaware for you to decide on which bank you are going to open an account.

Due to your organization’s increased legality and liquidity, having a US business bank account may make conducting business in Delaware easier. Most banks require an EIN for businesses other than sole proprietorships to open a business bank account. Also, keeping your accounts separate will prevent you from merging your personal and business finances. Also, filing taxes is simpler when you have an EIN. You can expect to pay employee and corporate taxes when you form a professional corporation.

Step 11: Get a Business License in Delaware

Before your professional corporation operates in Delaware, you must have Delaware Business License first. A business license is a formal document issued by a state government agency that allows you to conduct business in the geographic area governed by that agency. The cost of business licenses and permits in Delaware ranges from $50 – $300. You must check with the local authorities to see if any special licenses or permits are required.

Step 12: File Your Taxes in Delaware

Finally, you’ve arrived at the final process. Remember to file your taxes when you have obtained a business license and are ready to begin operations. To avoid a large tax bill, you should begin paying taxes quarterly as soon as possible. Each state has different tax requirements. Start examining the Delaware tax classification for the taxes that an LLC in Delaware must pay.

Main Characteristics of a Professional Corporation

In forming a Professional Corporation, the main characteristics must be distinguished before forming it. These are the general characteristics of forming a Professional Corporation in Delaware.

  • Limited Liability Protection: A professional corporation provides its owners, shareholders, or members limited liability protection like a regular corporation. This means the shareholders’ personal assets are generally protected from business debts, obligations, and lawsuits, except in malpractice or professional negligence cases.
  • Delaware Licensing Requirements: All shareholders must typically be licensed professionals in the same field in a professional corporation. The corporation must also comply with specific state regulations and licensing requirements that govern the profession.
  • Governance and Management: A professional corporation is governed by a board of directors, who the shareholders elect. The board appoints officers to manage the day-to-day operations of the corporation. All directors and officers must be licensed professionals in the same field as the corporation.
  • Taxation: Professional corporations are taxed as C corporations, where the corporation pays taxes on its income, and shareholders pay taxes on dividends received from the corporation. However, some professional corporations may be eligible for S corporation status, allowing pass-through taxation. Income, losses, deductions, and credits flow to the shareholders, who report this information on their income tax returns.
  • Restrictions on Ownership and Transfer of Shares: Professional corporations often restrict the ownership and transfer of shares to ensure that only licensed professionals in the same field can become shareholders. This helps maintain the professional nature of the corporation and adheres to state licensing requirements.
  • Malpractice Liability: While a professional corporation provides limited liability protection for general business debts and obligations, it does not shield shareholders from liability for their own malpractice or professional negligence. Shareholders can still be personally liable for their actions in providing professional services.

In summary, a professional corporation is a specialized corporate structure designed for licensed professionals, offering limited liability protection and a formal governance structure while adhering to state licensing requirements and regulations.

Maintain Professional and Business License in Delaware

You must maintain or renew your professional license regularly now that you have established your professional corporation. Even if your company is well-established, it is only meaningful if you have a valid operating license. And it makes no difference if your professional license is still valid for a year or two, but your business license has already expired.

Make time at least once a year to check the status of your licenses. You won’t miss anything important this way. You can address any issues that arise.

Filing Annual Report in Delaware

In Delaware, you must submit a report. The owners’ and Registered Agent’s names and contact details are listed in the Annual Report. Also, it should include all of your yearly financial activity. You must submit the report every 1 year in the Delaware Secretary of State.

FAQs

Why would anyone choose to form a professional corporation in Delaware?
Delaware is known for its business-friendly legal environment, which makes it attractive for the formation of companies.
Who can form a professional corporation in Delaware?
Any person or group of people who are licensed to practice a professional service may form a professional corporation in Delaware.
What types of professional services can be formed into a corporation in Delaware?
Professionals in a variety of industries, such as medicine, law, finance, and engineering, may form a professional corporation in Delaware.
What is needed to form a professional corporation in Delaware?
You need to choose a name for your corporation, file articles of incorporation with the Delaware Secretary of State, and prepare bylaws.
Is a separate business license needed to operate a professional corporation in Delaware?
In most cases, yes. You will need to apply for and receive a professional license from the relevant licensing board or agency.
Are there annual fees that must be paid to the state of Delaware to maintain a professional corporation?
Yes, there are annual franchise taxes that must be paid to the state of Delaware.
Can a professional corporation be managed by a board of directors?
Yes, you can give your professional corporation a board of directors and choose to be managed by that board.
Can a professional corporation be managed by just one person?
Yes, a single owner or “sole shareholder” may form and operate a professional corporation.
Do professional corporations offer liability protection to their owners?
Yes, they offer limited liability protection like other corporations, subject to some industry-specific limitations.
Is it necessary for all the owners of a professional corporation to be licensed professionals?
Yes, all shareholders must belong to the same profession related to the service offered by the corporation.
How can a professional corporation alter its structure over time if needed?
You can alter the structure by filing amendments to your bylaws and articles of incorporation with the Delaware Secretary of State.
What kinds of documents must be obtained to form a professional corporation in Delaware?
You will need to submit articles of incorporation and obtain a professional license from the relevant governing agencies.
How long does it take to form a professional corporation in Delaware?
The timeframe it takes to form a corporation varies but can generally take up to a few weeks.
Is an annual meeting of the shareholders necessary for a professional corporation registered in Delaware?
Yes, corporations are required to hold annual shareholder meetings and notice of these meetings must be provided in a given timeframe.
What are the steps of forming a professional corporation in Delaware?
Choosing a name, filing articles of incorporation, obtaining a professional license, creating bylaws, electing a board of directors, and obtaining an employer identification number.
Does a professional corporation registered in Delaware need to file any other documents besides its annual franchise tax reports?
In most cases, no. However, filing stock exchange documents may become necessary for some corporations if new shares need to be issued over time.
How much will it cost to form a professional corporation?
In addition to filing fees and professional licensure costs, allowing some budget for legal and accounting fees would be a good plan. Expenses may range from a few thousand dollars to tens of thousands of dollars.
What is meant by “limited liability protection” provided by forming a professional corporation?
In the majority of cases, a shareholder is only limited to only losing the finanaces they actually invested, which makes a professional corporation an attractive business formation option for many entrepreneurs and start-ups.
Is it hard to form a professional corporation in Delaware?
With the right information and guidance from a lawyer or business professional, it can be an easy and straightforward process.
Is it best to form a professional corporation in Delaware as a foreign entity or to instead dissolve the domestic entity and form a brand new entity in Delaware?
The optimal choice usually depends on an individual and business’s distinct situations. Seeking legal guidance is always incredibly recommended.
How long does it take to obtain a professional license in Delaware?
Depending upon the specific agency and credentials being applied for, it may take anywhere from a few days to several weeks.
Can professional corporations issue different types of stocks like limited and general?
Professional corporations are permitted to issue different classes of stock.
As a shareholder in a professional corporation in Delaware, am I personally responsible for the debts incurred by the corporation?
If the circumstances warrant such, shareholders don’t necessarily own liabilities imposed by these kinds debts financed by the corporation.
Do all professional corporations in Delaware have to maintain statutory capital?
Minority-owned business working under classification specified in Section 1244 of the IRS code, or limited members, may get away without maintaining statutory corporate capital section until a certain revenue margin is exceeded.
Can nonprofessionals own shares in a professional corporation in Delaware?
This violates state regulation statutes. All shares must be owned by licensed professionals and personnel.
Are there specific administrative formalities and documents that need to be prospectively filed before foreign professional corporations may conduct business in Delaware?
Yes, before foreign professional corporations engage in Delaware, a certified copy of the corporation’s regulations enabling for its initial formation should be consigned and filed with the Secretary of State. This application must come with a notarized declaration indicating plan, setting up policy outlines, correction-of-process papers, internet connection security agreements, and post issuance securities amendment notices.
Can a non-DE licensed professional hold any other position other than on the board of directors, for instance, ‘secretary’ or ‘officer’?
Non-DE licensed professionals are not permitted to sit in as officers however; they can participate on the board of directors in a standard sense rather than an executive director sense.
What protections are provided to directors in Delaware?
Delaware directors of corporations receive broad protections under its business-friendly laws and Court of Chancery decisions, especially durable for outsized strategic errors resulting in losses of financial assets by the company that otherwise can hurt shareholders. Soon enough, these protections may extend to LLCs.
Is an Entity in proportion to or integrated with ‘Professional Corporation’ status recommended?
The notion feels irrelevant and claims of full liability improvement are inaccurate. Virtual offices hint hybrid business types between individuals or partners and corporations created mainly to collaborate. This tends to blur the lines between corporations and LLCs, complicating legal structure.
Are there taxes professional corporations are subject to in Delaware?
Yes, there are annual Delaware minimum base taxes due, as most corporations pay such as it comes up annually assuming it reaches those profits during generated incomes operating commodities in Delaware.

Also Read

How to Save Money While Forming Delaware Professional Corporation

First and foremost, it is necessary to recognize the importance of careful planning and preparation. Before embarking on the journey of forming a professional corporation, aspiring business owners should conduct thorough research and gain a solid understanding of the legal and financial requirements involved. This groundwork will enable them to make informed decisions at each step, ensuring that they are not caught off guard by unexpected expenses or complications.

One of the most crucial considerations in cost-saving is selecting the right legal services. While it is advisable to seek professional assistance in establishing a professional corporation, it is equally important to find a legal provider who offers expertise at reasonable rates. Engaging competent attorneys who specialize in business formations can assist in navigating the intricacies of the Delaware legal framework while keeping costs in check. Comparing the fees and services of different lawyers can result in substantial financial savings without compromising the quality of support received.

Furthermore, leveraging online resources is an excellent strategy for securing significant cost reductions. There are numerous free or affordable online tools and platforms available to help entrepreneurs follow the necessary legal procedures and fill out the required paperwork. These resources guide business owners through the incorporation process, ensuring they comply with all legal formalities while avoiding unnecessary expenses. Moreover, online platforms provide access to a wealth of information and resources that can simplify the entire process at minimal or no cost.

Alongside this, aspiring business owners should leverage the advantages of technology for increased cost-efficiency. Leveraging electronic means of communication, document sharing, and collaboration reduces the need for physical expenses such as postal services and printed materials. Embracing digital platforms can not only streamline business operations but also promote significant cost savings in the long run. Additionally, entrepreneurs can explore various software solutions specifically designed to simplify management tasks, such as bookkeeping or tax filing, which may reduce the need for outsourcing these services in the early stages.

In the race to save money, one mustn’t overlook the importance of networking. Entrepreneurs who connect with other professionals, especially those in the same industry, can glean invaluable advice and recommendations on cost-saving strategies. Building relationships with experienced entrepreneurs can provide insights into best practices specific to forming a Delaware professional corporation while keeping expenses at a minimum. These networks can also lead to potential partnerships or collaborations that open doors to further cost-saving opportunities through shared resources.

In conclusion, forming a Delaware professional corporation while minimizing expenses requires careful planning, a prudent choice of legal services, and efficient utilization of online resources and technology. By following these cost-saving strategies and leveraging networking opportunities, aspiring business owners can successfully establish their professional corporation in Delaware without compromising on quality or breaking the bank. With a diligent approach and an eye on expenses, entrepreneurs can lay a solid financial foundation for their thriving enterprise.

Conclusion

In conclusion, forming a professional corporation in Delaware is a strategic decision for licensed professionals who seek to combine their expertise and services under a single corporate entity. This business structure offers limited liability protection, a formal governance structure, and compliance with state licensing requirements. However, it also comes with certain restrictions on ownership, transfer of shares, and personal liability for professional malpractice. By carefully considering the advantages and disadvantages of a professional corporation, professionals can determine whether this structure aligns with their business goals, regulatory requirements, and risk management needs, ultimately contributing to a more organized, secure, and compliant professional practice.

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