Incorporating in Delaware

Incorporating in Delaware refers to the process of starting a corporation in the state of Delaware. Many large corporations, such as AT&T, DuPont, and Total Wine & More, started or placed their corporate headquarters there. Other recognizable corporations, such as Coca-Cola, Google, and Apple, remain incorporated there.

Mid-sized and smaller companies also choose to incorporate in Delaware for the business and tax benefits. The key to knowing if it is right for a company to incorporate in Delaware is determining if it can be profitable in other places. Businesses must weigh the pros and cons of incorporation in Delaware before they make their final decision.

Why Incorporate in the State of Delaware?

As a state, Delaware is exceptionally business-friendly. This is largely why so many successful Fortune 500 companies, among others, incorporate in Delaware even if they choose to operate somewhere else. The very low tax rate makes incorporating in Delaware common because it is considerably lower than the tax rate found in other states. This saves corporations a lot of money, which can be reinvested into their business operations. It also makes them more profitable faster.

In addition, Delaware has many corporation-friendly laws outside of taxation rates. Some examples of these laws include:

  • There is a separate Court of Chancery to hear legal cases that involve corporate law.

  • There are predictable laws that make it easier for businesses to determine outcomes of litigations in advance.

  • There are no taxes on royalty payments or intangible assets.

  • It is easy and quick to start a corporation compared to the existing process found in other states.

Delaware wants corporations to set up businesses in the state, so it has cultivated an environment that's extremely welcoming to corporations. One of the ways that Delaware accomplishes this is that it does not collect corporate taxes from corporations that do not do business in the state. This explains why many of the Fortune 500 companies that would otherwise do business elsewhere incorporate in Delaware.

Benefits of Incorporating in Delaware

There are many benefits for companies that decide to incorporate in Delaware. On top of the corporate tax and legal benefits, there are other advantages to justify incorporating in Delaware. Consider these benefits:

  • It is not required that corporations publicly disclose names of directors or shareholders.

  • Outside investors prefer to invest in companies that are incorporated in Delaware.

  • There is no personal income tax if you don't live in Delaware.

  • Stock shares owned by non-residents don't have to pay Delaware state taxes.

  • You don't need to have a physical presence in Delaware to incorporate there.

  • It's less expensive to incorporate in Delaware than most other places throughout the world.

Cons of Incorporating in Delaware

While incorporating in Delaware makes a lot of sense for many companies, it isn't the right choice for all companies. For instance, if your company is small, it may not be worth the additional hassle and cost of incorporating in a state other than the one where you live and do business. Here are some other disadvantages to consider before incorporating in Delaware:

  • There might be additional fees and taxes from your home state that you'll have to pay on top of whatever the cost is for incorporating in Delaware.

  • Unless you know someone with a street address in Delaware, you'll have to find a service that can serve as your registered agent.

  • There is an annual franchise tax based on what your corporation's shares are worth. The tax may cost $75 to $180,000.

How to Incorporate Your Business in Delaware

If you've decided to go ahead and take the leap toward incorporating your business in Delaware, you're not alone. Many businesses have decided to do the same thing. To form your Delaware corporation, you must:

  • Ensure that your business name is available and not similar to the name of a different business entity.

  • Avoid using prohibited words in your business name, including university, college, insurance, or trust.

  • File a certificate of incorporation that includes the name of the corporation, its purpose, information about your registered agent, stock information, and the names of any incorporators with the Secretary of State in Delaware.

  • Open a corporate bank account where it is most convenient for you.

If you need help with incorporating in Delaware, 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.