Delaware C Corporation Advantages
Delaware allows corporations to be taxed at a lower rate in the state and to avoid the higher taxes that a corporation would pay in its home state.3 min read
2. Advantages of Incorporating in Delaware
3. Disadvantages of Incorporating in Delaware
4. Things to Consider When Incorporating in Delaware
Updated July 9, 2020:
Delaware C corporation advantages have a long history since the state has corporation-friendly laws. Delaware also allows corporations to be taxed at a lower rate in the state and to avoid the higher taxes that a corporation would pay in its home state.
About Incorporating in Delaware
Delaware plays an important role when it comes to corporations. Many major companies, such as Wal-Mart, Coca-Cola, Apple, and Google, are incorporated in Delaware.
The state stands apart from others because it has a Court of Chancery that is separate from the other courts. Its sole purpose is hearing cases that involve corporate law. The five judges presiding over these cases have a background in corporate law and are considered experts. This allows them to make decisions quickly and without the aid of a jury and to create well-known, predictable rules regarding corporations in Delaware.
Delaware is also known as a tax haven since it does not collect corporate taxes from any Delaware corporation that does not do business in the state. Also, neither royalty payments nor other intangible assets are taxed.
The policies governing taxes can provide significant savings for some corporations. It is recommended that any company considering incorporating in Delaware consult a tax professional to find out if by doing so will provide any tax benefits.
Setting up a corporation in Delaware is a relatively quick process compared to other states. Corporations in Delaware, unlike other states, are not required to make public the names of their shareholders or directors. The state draws many outside investors and venture capitalists interested in investing in Delaware corporations.
Advantages of Incorporating in Delaware
While large businesses find Delaware advantageous, the opposite is true for smaller businesses that may not have access to the same benefits. Some pros and cons of incorporating in Delaware are:
- Delaware's tax laws are the most flexible in the U.S.
- Companies with complex capitalization structures or those with large numbers of shares of stock usually encounter favorable tax requirements.
- Delaware does not impose a personal income tax on non-residents.
- The officers, shareholders, and directors of a corporation and the managers or members of a limited liability company are not required to be Delaware residents.
- A person outside of Delaware who owns stock is not subject to Delaware taxes.
- Due to Delaware's long-standing reputation for incorporation, corporate lawyers choose the state by default.
Disadvantages of Incorporating in Delaware
Businesses not physically located in Delaware will have additional costs and obligations if the company chooses to incorporate in the state. For example:
- The business will incur a registration fee for its home state and any other state in which business will be conducted. These fees are in addition to the fee for incorporating in Delaware.
- A company incorporating in Delaware must hire the services of a registered agent with an actual street address in Delaware. The name of the person or company taking on the role of registered agent must be provided when registering the business.
- While there is no corporate income tax for companies formed in Delaware, there is an annual franchise tax. The tax is based on the value of the shares of stock. The current tax starts at $75 plus a $50 filing fee.
- Corporations must abide by Delaware's annual reporting requirements. These are due along with any reports your home state may require.
- Smaller companies doing business in one or two states may find the additional costs associated with incorporating in Delaware are not beneficial to the company overall.
Things to Consider When Incorporating in Delaware
Prior to filling, a business must ensure the name being registered is available and it is different from any other Delaware partnership, limited liability company, or corporation.
Incorporating is a big step for a company and the choice of where to incorporate should be considered carefully.
Businesses with a nationwide scope and outside investors may benefit from the tax structure and the laws of the state. Other businesses may find it a better option to incorporate in their home state.
Most investors will prefer a business to incorporate in Delaware because of the state's tax and regulatory laws, most notably the Delaware General Corporation Law.
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