Why to Consider Incorporating in Delaware

Delaware has very corporate-friendly laws. The state’s tax laws, in particular, provide many benefits to businesses, especially to those businesses claiming Delaware as its home state. The process is rather quick and straightforward. Moreover, you are not required to publicly disclose the names of the directors or shareholders thereby saving a great deal of time when incorporating. While Delaware collects corporate taxes from Delaware corporations that don’t conduct business in the state, it does not collect tax royalty payments or other intangible assets.

What to Do Before Incorporating in Delaware

Before incorporating in the State of Delaware, you’ll want to ensure that you take the following steps:

Step 1. Choose what type of business entity you want to operate, which can include a general or closely held corporation, non-stock corporation, limited liability company (LLC), or limited partnership. Should you choose to incorporate as a general or closely held corporation, you’ll have to provide the number of shares you want to authorize to prospective shareholders.

Step 2. Choose a business name. Remember that there are requirements when choosing a name, particularly the fact that you can’t choose a name that is already taken. In order to figure out if a name is already being used, you can search the Delaware Secretary of State’s corporate name website. Also remember to include the specific business suffix for whichever type of entity that you wish to operate, i.e., Inc., Corp., Co., Ltd., LLC, etc. You cannot choose a name that has the terms “bank,” “insurance,” “university,” “college,” or “trust.”

How to Incorporate in Delaware

After choosing a business name, you can begin the actual process of incorporating, which includes filing a certificate of incorporation with the Delaware Secretary of State. The certificate will include specific information, including your business name, economic purpose, number of shares you wish to issue, name and address of your registered agent, and the names and addresses of the incorporators.

Advantages of Incorporating in Delaware

There are many benefits to incorporating in Delaware, which include:

  • Larger businesses have greater benefits than smaller businesses
  • Delaware has very flexible business laws
  • For corporations, there is no corporate income tax that are formed in Delaware but don’t transact business there. Keep in mind that you will be charged a franchise tax
  • There is no personal income tax for non-residents
  • Shareholders, directors, and officers of a corporation or members and managers of an LLC don’t need to be Delaware residents
  • Those stocks owned by people outside of Delaware are not subject to Delaware taxes
  • The Delaware Court of Chancery is an attractive venue for shareholders legal proceedings
  • The Delaware Court of Chancery hears only business cases and uses only judges, not juries

Disadvantages of Incorporating in Delaware

The following are some disadvantages to incorporating in Delaware:

  • There are fewer benefits for smaller entities
  • If your business doesn’t have a physical office in the State of Delaware, you will be faced with additional costs if you choose to incorporate in Delaware
  • You are required to appoint a registered agent in Delaware, which is an additional fee. It also costs additional to hire the professional company to operate as your registered agent
  • Annual franchise tax based on the corporation’s shares, which starts at $75, as well as a filing fee in the amount of $50. Note that the franchise fee can be as high as $180,000
  • You will need to comply with Delaware’s yearly reporting requirements, in addition to any other states you operate in (which will have its own reporting requirements and fees)

Contact us

If you need additional information regarding Delaware income tax, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.