What's the benefit to incorporating in Delaware vs. New York? Deciding to incorporate can be a thrilling step towards unlocking the full potential of your business. Many companies located in New York often question whether they should incorporate in Delaware or their home state.

Incorporating Your Business

First-time business owners sometimes struggle with deciding on how to structure their business. Choosing an entity structure can be difficult and should be thoroughly researched before making a commitment. It can also be a somewhat complex endeavor as there are many tax and legal scenarios which need to be worked out.

There are many advantages to incorporating in Delaware. However, will incorporating in Delaware be the best step for your business? To answer simply, it will all depend on your business.

It always makes sense to incorporate your business in the state in which it runs, especially if the company is fairly young. However, incorporating in a foreign state (a state in the US that is not considered your home domicile) may provide your business with additional benefits. Selecting in which state to incorporate is a serious decision with a wide array of ramifications. It should be researched thoroughly before deciding.

Many businesses decide to incorporate in Delaware because of the friendly corporate environment, tax structure, and predictable body of law. Yet others choose to incorporate in their home domicile of New York because they believe it's in the best interest of their business.

Advantages of Incorporating in New York

New businesses in New York will most likely have most of their operations and customers located within the state. Logistically, many business owners think that it's usually much easier for a business to incorporate where it lives and thrives. Additionally, the state of New York provides businesses with a lot of freedom in their operations. New York LLC laws allow members to:

  • Personalize their fiscal allocations
  • Form an LLC with unlimited duration
  • Protect their personal interests from creditors
  • Utilize New York's supportive commercial contract laws and courts

Government officials have been trying to make the state more business friendly by actively updating policy initiatives. Many businesses save money by incorporating in New York.

Advantages of Incorporating in Delaware

Delaware has become the most popular state in which to incorporate. About 50 percent of the largest publicly traded companies in the world have decided to incorporate in Delaware. Many companies incorporate there because of the extremely friendly business laws. There are many tough laws protecting the personal assets of members from creditors. Additionally, the state shelters the members from personal liability.

The state's also attractive to business owners because it doesn't require businesses to pay state income tax unless they're operating in Delaware. Other advantages to incorporating in Delaware include:

  • Not having to pay taxes on income received from intangible assets
  • Being taxed at a potentially lower rate (as compared to the home state)
  • A simple online incorporation process
  • An exclusive court that's been created to quickly handle business disputes
  • A predictable and well-developed corporate law system
  • Outside investors and venture capitalists usually prefer to work with businesses that have incorporated in Delaware

Disadvantages of Incorporating in Delaware

Incorporating in Delaware may include the following disadvantages:

  • Having additional obligations or paying extra fees
  • Competition from other states has made Delaware not as alluring
  • Many businesses in New York will see no advantage to incorporating in Delaware
  • Incorporating in Delaware will force your business to register as a foreign corporation in New York (which includes an additional fee)
  • Incorporating in Delaware doesn't prevent your business from paying New York taxes
  • An additional cost to pay for a registered agent
  • An annual franchise tax
  • Delaware requires businesses to file annual reports
  • Small businesses that only operate out of a hand full of states may see a limited, or no additional benefit to incorporating in Delaware

Should a New York Business be a Delaware LLC?

There are three main requirement for forming an LLC in New York, they are:

  1. File the articles of organization
  2. File a publication requirement within 120 days of submitting the articles of organization
    • A notice of formation should be published in two newspapers for a period of six weeks
  3. Create an operating agreement
    • The operating agreement will explain how the LLC is managed and outline how profits are distributed

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