Delaware is known as one of the most business-friendly states. According to the State’s website, Delaware is home to more than one million business entities, including two-thirds of the Fortune 500 companies. Why is Delaware so desirable? Should you follow the footsteps of these other businesses and incorporate in Delaware? Here are some of the reasons why Delaware may be the best choice for many businesses.
- Tax Haven. A corporation that does not conduct business in Delaware does not need to pay state corporate income tax. There is, however, an annual franchise tax, which can be as low as $125, plus reporting fees. Franchise taxes in other jurisdictions can be much higher. California, for example, has a minimum annual franchise tax of $800.
- Court of Chancery. Delaware has a Court of Chancery that specializes in hearing cases involving corporate issues. Cases can be decided relatively fast given that there are no juries and the judges have a background in corporate law. If it’s unavoidable, you may want your case to be heard in the Delaware Court of Chancery.
- Predictable Case Outcomes. As mentioned above, Delaware is home to a striking number of businesses, which means a large database of precedents or previous cases. Although each case is unique and different, your legal advisors could use these precedents to assess the risks and outcome of your case more accurately than in other states.
- Privacy. You can form a corporation in Delaware without disclosing the names of the corporation’s directors or officers. Compared to states like California, where the names and addresses of corporation’s officers and directors are freely available on the Secretary of State website, Delaware offers a layer of anonymity.
Despite these advantages, however, there are some drawbacks to incorporating your corporation in Delaware if you don’t actually conduct business there.
- Cost of Foreign Qualification. You will need to register your corporation in the state in which it is conducting business. For example, if you incorporate your corporation in Delaware but the headquarter is in California, you have will have to register your corporation with California as well.
- State Compliance. You will need to comply with Delaware’s regulations and the regulations of any other state in which your corporation is registered to conduct business. Regulations vary from state to state and can include reporting and filing requirements.
- Cost of Registered Agent Services. Delaware requires that a company’s registered agent have a Delaware address. Unless you know someone with Delaware address who is willing to serve as your registered agent, you will have to hire a third-party for this service.
Although Delaware has the reputation of being business-friendly, it may not be the best choice for your particular corporation. We recommend that you speak to an attorney to discuss the pros and cons of incorporating your business in Delaware.
Legal Disclaimer: The information in this article is provided for general informational and educational purposes only. It is not intended to be legal advice and does not create an attorney-client relationship.