Incorporating in Delaware vs. New Jersey
Incorporating in Delaware vs. New Jersey can depend on several factors, including the complexity of your business.3 min read
2. Reasons to Choose New Jersey
3. Incorporating in Delaware
Updated November 5, 2020:
Incorporating in Delaware vs. New Jersey can depend on several factors, including the complexity of your business. Large, complex corporations are typically informed in Delaware, as this state has a very business-friendly climate. Incorporating in New Jersey also has its advantages, so it's important to compare each state in closer detail.
Forming an LLC in Delaware vs. New Jersey
For most companies, the most beneficial business entity is a limited liability company (LLC). If you've decided to structure your business as an LLC, you will need to choose a state for formation, with two of the most popular options being New Jersey and Delaware. In many cases, making this decision should be very easy. If New Jersey is not your home state, you will need to cover the costs required for a foreign business entity, which means you should instead form your LLC in Delaware.
Forming in Delaware is also the better option for LLCs that plan to use a complex ownership agreement. LLCs that have plans to work with investors should also choose to form in Delaware.
Reasons to Choose New Jersey
Several reasons exist to incorporate in New Jersey. For starters, New Jersey has a vibrant economic climate, with thousands of LLCs formed in this state every single year. New Jersey is also one of the highest-ranking states in terms of job creation and gross domestic product.
One of the biggest advantages of incorporating in New Jersey is that LLCs will have a tremendous amount of contractual freedom. In this state, the members of an LLC can define capital contributions however they wish, and will also be able to share losses and profits in whatever way best fits the company. The New Jersey LLC Act also gives limited liability companies the right to create different membership classes. This means that LLCs can issue both non-voting and voting interests.
Another benefit of forming an LLC in New Jersey is that there is no member's names filing requirement in this state, which makes establishing the LLC much easier. For instance, a person can sign the company's Certificate of Formation without actually being a member of the company. Similarly, the person that files the LLC's formation documents does not need to be an LLC member. This means the members of the LLC could hire a non-member to handle formation of the LLC.
There are several other benefits of forming a New Jersey LLC:
- Your company will have an unlimited duration.
- You can customize the duties between parties to your operating agreement.
- You can secure control of your LLC.
Incorporating in Delaware
Delaware has put tremendous effort into positioning itself as the most beneficial states in the country for corporations. In addition to a variety of business-friendly laws, Delaware handles corporate law cases in a Court of Chancery instead of in a traditional court.
The judges that hear cases in the Court of Chancery have experience in corporate law, meaning they are able to make quick judgments without the use of a jury. This system has provided Delaware with a developed body of corporate law, which makes it easy for corporations to determine the potential outcomes of litigation so they can decide whether settling a case is advisable.
One of the most often cited reasons to incorporate in Delaware is the beneficial tax climate in the state. Unlike other states, Delaware does not require corporate taxes for corporations that don't transact business in the state. This means that a corporation could form in Delaware and avoid corporate taxes by doing its business out of state.
Delaware also does not impose taxes on intangible assets or royalty payments, which can help many corporations substantially lower their tax burdens. Incorporating in Delaware can also be completed very quickly, and there is no need to disclose the name of your corporation's shareholders or directors.
The only real disadvantage of incorporating in Delaware is that you would need to register as a foreign entity in your home state before you would be able to do business. Depending on the laws in your home state, qualifying as a foreign entity can be very expensive. Delaware also requires that corporations appoint a registered agent, but this is a requirement in most states where you could incorporate.
If you need help with incorporating in Delaware vs. New Jersey, you can post your legal needs 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, Menlo Ventures, and Airbnb.