Deciding if and when to incorporate your business is sometimes a difficult decision. Of course, you need to add “where” to your considerations as well. Some states offer special advantages to corporations through tax breaks and favorable laws, so you need to explore all of your options with the help of an experienced corporate attorney.
If you are considering incorporating a company, you should consider doing so through the state of Delaware. Delaware law is uniquely constructed to be friendly to business, which is why over half of all Fortune 500 and publicly traded companies have incorporated there. Even if your headquarters are located in another state, such as California, setting up your corporation in Delaware may offer you many advantages. Incorporating in this state is also quick and generally less expensive than in other states. Depending on the nature of your specific business, Delaware may offer you the best incorporation environment.
Delaware Incorporation Law
The state has a legal system which tends to favor corporations. Delaware has a Court of Chancery which uses judges instead of juries and also specializes in corporate matters. As a result, any business litigation is decided by a judicial expert in these complicated corporate issues. Since Delaware is famous for its legal system, most corporate attorneys are better informed about its laws as opposed to the laws in other states. Delaware is a favorite for many in the business and legal community.
Delaware is ranked by experts as being one of the friendliest states to corporations. Fortunately, you do not have to live in Delaware to incorporate your company there. In fact, you don’t even need a Delaware address as long as you have a Delaware Registered Agent for your business. If your company does not operate in Delaware, you won’t need a Delaware business license, either. Depending on where you live and that state’s laws, Delaware may make your company’s administration and operation easier and less expensive.
Delaware Tax Law
The tax law in Delaware is quite favorable to corporations. If your company doesn’t actually do business in the state, Delaware does not collect corporate taxes from it. Delaware also does not collect taxes on “intangible assets” or royalty payments, a real advantage for some business concerns. In fact, for most companies, Delaware’s policies mean significant savings.
In addition, Delaware has no inheritance tax on stock for out-of-state residents. Also, stock owned by non-resident aliens is not taxed by the state. Not all companies benefit equally from these laws; however, so you should consult a skilled corporate lawyer before making the decision to incorporate in Delaware.
For companies desiring privacy, no state beats Delaware’s business environment. Delaware corporation and LLCs are not required to list owners’ names, meaning the rest of their personal information is kept private as well.
Owners also do not have to list the names and addresses of the LLC’s members in a public record except when requested by law enforcement or due to a legal action. If you prefer to keep your business matters to yourself, then Delaware is the place to make it happen.
In a Delaware corporation or LLC, one person is legally allowed to fill all the business’s positions. Also, the state’s corporation laws are hailed as flexible and progressive. Corporate attorneys are able to reliably predict the outcome of litigation in the state and offer you the best legal advice as a result. In general, Delaware law offers business no unpleasant surprises.
Delaware has such a positive reputation that investors frequently look for companies that are incorporated through the state. In some instances, investors might request you to incorporate there before they agree to invest with you. Doing so initially may make it easier to raise capital as you begin to build your business.
Even if you incorporate in Delaware, you will generally need to file additional paperwork in the state where you actually operate. These regulatory and administrative filings will also come with a cost. For instance, if you are located in New York, you will have to register as a foreign corporation and pay a fee that is similar to the fee you would have paid to incorporate in New York originally. Also, you will be subject to New York state taxes even if you are exempt from paying Delaware state taxes.
You also have to contend with paperwork and regulation from two states, in some instances. Most experts believe that Delaware law benefits larger companies, but some smaller concerns might not find Delaware as accommodating. Every company’s circumstances differ, however, so do your research.
When you plan to incorporate your company, choosing the right state is vital to your business’s success. For many entrepreneurs, that state is Delaware. Long considered business friendly, Delaware has become almost a tax and legal haven for corporations. The laws are structured to make incorporation easy, fast, and lucrative, especially for large companies. Your privacy is guarded and your tax rate is generally low. Consult with your attorney to find out if Delaware incorporation makes sense for you and your business.