Can a Delaware LLC doing business in New York? Good question. There are considerations to be taken into account when incorporating a startup. If you are wondering which state offers more flexibility and is more cost effective, between Delaware and New York, there really is no simple answer. Naturally, you would think the more logical thing to do would be to incorporate in the state in which you reside, but there could be substantial benefits to incorporating out of state.

Benefits of New York and Delaware for Startups

Both New York and Delaware are considered to be startup-friendly, but each for various reasons. For instance, all that Delaware requires to incorporate is a business name and a registered agent. That's it. The state does not require you to identify owners or officers. Delaware is also considered and recognized as a tax haven state. Income from intangible assets such as trademarks and leases are not considered taxable income. To reduce tax obligations, many business owners will park intangible assets in a Delaware corporation. Worth mentioning as well is that Delaware has a court, Chancery Court, solely designed to hear and resolve business disputes.

New York provides ample opportunities as well and is currently adopting policy initiatives to make it an even more startup-friendly state. New York has many of the best startup lawyers around offering expertise and advice on incorporating, raising money, contract review, and other services. Many of these lawyers are from a few of the country's most competitive law schools and are willing to work on a flat-fee arrangement.

Choosing Which State to Start a Startup In

Operating under the umbrella of a limited liability company (LLC) in New York can limit personal liability. As previously mentioned, there is no simple answer to which is best, but New York and Delaware are commonly thought to be states that are worth considering for startup incorporation.

Understanding Fees

Steps to incorporate:

  • Pay articles of organization fee
  • Provide a certificate of good standing
  • File for status as a foreign limited liability company
  • May need a registered agent

A New York LLC is required to pay a fee of $200 when filing the articles of organization. In Delaware, the fee for filing a certificate of formation is only $90. Although considerably less, if the Delaware LLC plans to do business in New York, the LLC will need to show a certificate of good standing from Delaware, and then file an application of authority for a foreign limited liability company. The certificate of good standing will cost the Delaware LLC $50 - $175 and the application for a foreign limited liability company will be an additional cost of $250.

A New York LLC has 120 days once the articles of organization takes effect to publish a copy of either the articles of organization, a notice of formation, application for authority, or a notice showing qualification of the LLC in two separate newspapers for at least eight weeks, and this must be within the county in which the LLC is located. This same rule applies to any state, such as Delaware, in which one would have 120 days after filing as a foreign entity.

Although a Delaware LLC is not required to file a report annually, it does have to pay a $300 franchise tax. The tax has to be received before the first of June each year. A New York LLC must pay an annual filing fee to New York State. Likewise, a Delaware LLC conducting business in New York must pay the same annual fee as well. The form to be used when submitting payment is the IT-204-LL form.

Do Delaware and New York Businesses Need a Registered Agent?

Unlike in New York, an LLC in Delaware must have and maintain a registered agent in Delaware. The agent must have a physical street address and be authorized to conduct business in the state of Delaware. The registered agent can be either a business entity or an individual resident. There's a good chance the registered agent will denote an additional fee to be paid annually.

While the state of Delaware is, and has been for some time, considered and recognized as being startup-friendly, many other states, such as New York, have caught up in terms of fees and legal precedents. With New York's new startup initiatives creating tax-free zones for both new and expanding businesses, New York is creating a name for itself as well.

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