Running and Maintaining a Delaware C-Corp
More Expensive Than You Think!
Incorporating a business as a Delaware C-Corporation (C-Corp) might seem like a great idea, especially if you’re excited about taking your startup to the next level. Delaware is known for its business-friendly legal framework, and many big-name companies call Delaware home. But while the initial excitement is high, maintaining a C-Corp, especially in Delaware, is no small feat—and certainly not cheap.
Let’s break it down.
The Roller Coaster of Excitement vs. Reality
Here’s a rough sketch of how things usually go when starting and running a C-Corp in Delaware (see the graph below).
- You start off filled with enthusiasm. Incorporating a C-Corp sounds prestigious, and it feels like you’re on the fast track to scaling your business.
😁 “I’m super excited! I’m going to incorporate a Delaware company!”
- You quickly find out that getting a Delaware C-Corp registered is relatively simple, and the initial fees are manageable.
😄 “Incorporation was fast and relatively cheap!”
- The IRS provides you with an Employer Identification Number (EIN), and now you feel official.
🤓 “Got my EIN from the IRS—things are moving!”
- You’re still feeling good. You open up a business bank account and maybe deposit the first funds to get things rolling.
😄 “Let’s open fancy business accounts and maybe make my first deposit.”
- Reality starts setting in. You’ve got to stay compliant, file tax returns, and suddenly you realize that accountants and tax services aren’t cheap.
🤔 “Oh, I need to submit IRS tax returns, and now I need to find a tax accountant.”
- The real kicker comes in: whether you’re making money or not, you need to pay for bookkeeping and tax filings, which can be costly. This is where many founders start feeling the financial strain and anxiety levels sky rocket.
😕 “Wait, accounting costs are so expensive, especially for a company that’s not generating any revenue!”
- If your business isn’t performing well, these recurring expenses can feel like a huge burden.
😳 “Business isn’t doing well, and these bookkeeping and tax accounting costs just keep coming in.”
- At this point, frustration peaks. You’re paying out more than you’re bringing in, and it’s hard to justify the costs.
😧 “F**ck this, I need to shut this down”
- As if it wasn’t enough, dissolving a C-Corp isn’t free. There are costs involved with shutting it down, too.
😡 “WTF! Dissolution costs are also high.”
- Once it’s all over, you might find yourself wondering, “Was it even worth it?”
😮💨 “Never again! What was this all about?”
The Hidden Costs of Running a Delaware C-Corp
While the initial process of incorporation is fast and relatively inexpensive, the ongoing costs to maintain compliance can be hefty. Here’s what you need to know:
- High Maintenance Costs: Just to keep the C-Corp compliant, you’re looking at ongoing expenses such as state franchise taxes, filing fees, and accountant fees. These costs can pile up, especially if you’re not generating revenue.
- Strict IRS Deadlines and Fines: Missing IRS deadlines, whether it’s for filing taxes or other compliance documents, can result in high fines. The penalties add up quickly if you’re not on top of it.
- Accounting Costs are No Joke: Most C-Corp owners underestimate how expensive accounting can be. Whether you’re making money or not, the IRS expects you to file your returns. For a company that’s not generating revenue, these recurring expenses can feel even more painful.
- Lack of Funding or Revenue? Beware: If you don’t have solid revenue or substantial funding, running a Delaware C-Corp can become prohibitively expensive. Many entrepreneurs jump in, excited about growth potential, only to find themselves bogged down by the sheer cost of compliance.
Think Twice Before Incorporating
Before you rush into incorporating a Delaware C-Corp, ask yourself:
- Do I have stable revenue or access to enough funding to cover the annual accounting and compliance costs?
- Can I justify the expense if my business isn’t generating income yet?
If the answer to either of these is “no,” it might be worth reconsidering your options or delaying incorporation until your business has more stability.
A Rough Estimate of Annual Costs
It’s worth estimating how much it will cost to keep your Delaware C-Corp alive. While fees vary depending on the size of your company and your specific needs, here are some ballpark figures:
- Delaware Franchise Taxes: At least $175 per year, but this can go up significantly for larger companies.
- Registered Agent Fees: About $100–$300 annually.
- Accounting Fees: Anywhere from $1,000 to $5,000 per year, depending on the complexity of your finances.
- Legal Fees: If you need ongoing legal services, this can add another few thousand dollars annually.
Final Thoughts
It’s More Expensive Than You Think!
Starting a Delaware C-Corp sounds great on paper, but the reality is much more complex and costly than many first-time founders realize. It’s a fantastic option if you’re planning to raise venture capital or scale your business significantly. However, if you’re bootstrapping or working with minimal funding, be aware that maintaining the company can be a financial burden.
Before you commit, make sure you understand the costs and have a clear plan for covering them. And as always, consult with a tax professional or legal advisor to ensure you’re making the best decision for your business.
Recommended Resources for Founders
While you’re thinking about the costs of maintaining a C-Corp, you might also want to check out our post on ‘Playing Startup’—it dives into the fantasy versus reality of startup life. And if you're looking to get your C-Corp's accounting in order, check out our review of a professional accounting service that specializes in helping startups.
Disclaimer: This blog does not provide any accounting or legal advice regarding Delaware C-Corporations. For more information and tailored guidance, please consult a proper tax accounting firm in the USA.