You’ve closed the flip. You’re now a Delaware C-corporation. Congratulations.
But now comes the part nobody talks about: running a Delaware company is different from running a UK limited company. The governance model is different. The compliance obligations are different.
Here’s what you need to know.
Governance: The Board of Directors
Delaware corporations are required to have a Board of Directors.
Unlike a UK Ltd (which has “directors”), a Delaware corporation has a “Board of Directors” with specific legal duties under Delaware law:
- Duty of care: Directors must make informed decisions based on available information.
- Duty of loyalty: Directors must act in the company’s best interest, not their own.
This isn’t theoretical. If there’s ever a shareholder dispute, these duties matter legally.
What this means practically:
- You need to hold board meetings (typically quarterly, sometimes monthly).
- Board decisions should be documented in meeting minutes.
- Board members should be engaged—not rubber-stamping decisions.
Common structure post-flip:
- 2–3 board members initially (founders + 1 independent)
- As you scale, this might expand to 5–7 members
- Investors typically push for board seats once they invest
Important: Treating the board as a formality is a mistake. If you ever face litigation or shareholder disputes, the quality of your board documentation is scrutinised heavily.
Stockholder Records
Unlike a UK Ltd, you’re not required to file a public “members register” with Delaware authorities. But you do need to maintain stockholder records internally:
- Who owns what shares
- Vesting schedules
- Option grants
- Convertible notes or SAFEs that might convert
This is typically tracked in a cap table (Carta, Pulley, or a spreadsheet), but it needs to be accurate and current.
Annual Compliance
Delaware requires several annual filings:
Delaware Franchise Tax Return:
- Due March 1 annually
- This is a state fee (not income tax), but it’s required
- Non-payment can result in loss of corporate status
Federal Income Tax Return (Form 1120):
- Due on the 15th day of the third month after your year-end (typically March 15 for calendar-year companies)
- Required even if you have no US income
If you maintain a UK subsidiary:
- UK Companies House filings (annual return)
- UK tax return (to HMRC)
None of these filings are cheap or trivial. Budget for accounting and bookkeeping costs.
Equity Grants and Options (Post-Flip)
If you grant options or equity post-flip, you need to follow US standards:
Option documentation:
- Options should be documented in writing.
- Exercise price typically equals fair market value at grant.
- Strike price, vesting schedule, and other terms should be clearly stated.
Valuation:
- You should periodically value the company (called a “409A valuation” in US tax terms).
- This valuation informs option exercise prices and protects against tax issues for option holders.
Why this matters: If options aren’t properly documented or priced, employees could face unexpected tax consequences. This isn’t just a tax issue; it’s a governance issue.
Investor Requirements
Once you raise institutional capital, investors will have requirements:
- Board representation: Investors typically get a board seat at Series A.
- Information rights: Investors have the right to regular financial information and company updates.
- Protective provisions: Investors have veto rights over certain major decisions (sale of the company, issuance of new equity, etc.).
- Liquidation preferences: The preference order for who gets paid if the company is sold or liquidated.
These are all defined in the investment agreement, but they shape how you govern post-investment.
A Critical Point: Don’t Skip Governance
Some founders view governance as bureaucratic overhead. This is a mistake.
If you’re ever in a shareholder dispute, facing litigation, or going through due diligence for a fundraise or acquisition, the first thing lawyers look at is: are your board minutes complete? Are major decisions documented? Is your cap table accurate?
Poor governance creates liability and slowdowns. Good governance is protection.
Quick Compliance Checklist (Post-Flip)
- Schedule quarterly board meetings
- Document all board meetings in minutes
- Keep stockholder records current
- File Delaware Franchise Tax Return annually (by March 1)
- File federal income tax return (Form 1120) annually
- File UK filings (if UK subsidiary remains)
- Update cap table after any equity grants or changes
- Maintain bank accounts and financial records
- Consider Delaware registered agent (required; can be a service provider)
The Bottom Line
Running a Delaware company requires more formal governance than a UK Ltd, but it’s manageable. The key is taking it seriously from day one.
Don’t treat board meetings as a checkbox. Don’t ignore annual filings. Keep your cap table accurate. And when in doubt, consult with advisors who know Delaware corporate law (that’s where Abrams Law comes in).
Questions about Delaware governance or compliance? Abrams Law can advise on proper processes and ensure you’re meeting all requirements.
