Why Incorporate in Delaware?

More than half a million businesses, including half of all American publicly traded companies, nearly two-thirds of Fortune 500 companies, and most technology startups have incorporated in Delaware.

Companies often consider whether to incorporate in Delaware or Nevada, but highlighted below, you will find various reasons why the U.S. Chamber Institute for Legal Reform has called Delaware the best legal climate for corporations in America for 10 years straight and why incorporating in Delaware may or may not be the right move for you.

Potential Advantages of Incorporating in Delaware:

  1. Venture Capital Firms and Angels prefer Startups incorporated in Delaware

    • Venture capital firms typically require startups to be a Delaware corporation before they provide funding. VC firms and angel investors are generally more familiar with Delaware corporate law

  2. More predictable outcomes in law disputes from many past cases

    • The high volume of corporate cases in Delaware means there are likely several similar cases where advisors can look for precedents, rulings on past cases, and create deals that lead to more predictable outcomes and less uncertainty in a legal dispute.

  3. Delaware Court of Chancery specializes in Corporate Law

    • Delaware has a separate Court of Chancery that hears cases involving corporate issues. Since these judges have corporate law backgrounds, cases can be decided quickly and without juries who may not be as experienced.

  4. Corporate Attorneys are more familiar with Delaware Law

    • Most corporate attorneys are familiar with Delaware business law and can move more efficiently and save you money

  5. Delaware is a Tax Haven.

  6. There is no corporate income tax from Delaware if you do business in another state.

  7. There is also no tax royalty payments or other "intangible assets"

  8. Stock shares are not taxed by Delaware if their owners don't reside in the state.

  9. Companies with a large amount of authorized stock shares and complex capitalization structures get favorable taxation.

  10. Non-residents pay no personal income tax.

  11. No Delaware taxes on stock shares for non-Delaware residents.

  12. Filing is easy and quicker in Delaware

    • Filings can be guaranteed to be processed in less than an hour whereas in California, there is a 24 hour processing option, but it is not guaranteed to be completed and rush processing is more expensive than Delaware

  13. Corporate Statues are more flexible in Delaware

    • Delaware is very flexible in the organization of the corporation and the rights and duties of the board members and shareholders. As an example: In Delaware, one person can be the only director, shareholder, and officer, but in other states there would need to be at least three people to fill the officer and director positions

  14. Investment Bankers prefer Delaware Corporations for IPOs

    • Investment bankers typically require a company to incorporate in Delaware before the company can go public

  15. Relocating the corporation can be less expensive

    • Relocating the corporation could be less expensive - the annual franchise tax in Delaware can be as low as $125 / year with reporting fees whereas in California the annual franchise tax is $800.

  16. Greater Privacy Protections in Delaware than some other states

    • Officer and director names aren't necessary on the formation documents. This creates a level of anonymity and privacy not experienced in other states.

Potential Disadvantages of Incorporating in Delaware

There are many reasons why to incorporate in Delaware. There are also a few possible disadvantages.

  1. Additional filing costs

    • Forming a corporation in Delaware can cost between $1-2K more than in other states.

  2. Recurring annual cost for registered agent and attorney in Delaware

    • You will have to pay registered agent fees to receive legal correspondence if your business isn't in Delaware. These charges can range from $129+ per year. You may also need to retain a Delaware corporate lawyer

  3. Extra Franchise Taxes

    • You must pay the annual Delaware franchise tax and franchise taxes in the state where you are doing business. The amount will be based on the value of your corporate shares. The tax starts at $75, plus a $50 filing fee, and can go higher than $100,000+

  4. Extra reporting requirements

    • Delaware requires you to file annual reports even if you already have in your home state.

  5. Registering in multiple states

    • You'll have to register the business in more than one state if you'll do business outside of Delaware.

  6. Extra foreign qualification costs

    • You may need to register to transact business in another state if you have a physical location and employees outside of Delaware. Foreign qualification registers a company to do business in a state other than the state of incorporation. There may be foreign qualification costs and ongoing fees in other states where you transact business

Frequently Asked Questions

  • If I'm already incorporated in my state, do I have to meet Delaware corporate requirements?

    Yes. Even though you may meet your requirements in your state, Delaware likely has different regulations that you must follow.

  • How long does it take to create a Delaware corporation?

    Delaware has “same day” and even “1-hour” options at the Division of Corporations. This keeps with their friendly business environment vision.

  • What taxes do I have to pay if my corporation isn't located in Delaware?

    You'll only have to pay the franchise tax if your business is located in another state.

  • What does the registered agent do?

    Your agent will receive the paperwork if the company is ever sued. They also receive the bill for franchise taxes every year.

  • How much is the filing fee for corporations in Delaware?

    There's a filing fee of $89. Keep in mind you'll have to pay filing fees in other states if doing business outside of Delaware.

Steps to Incorporate in Delaware

The process to forming a Delaware corporation may be similar to that in your home state. Always remember that there are going to be differences. These are the basic steps to incorporating in Delaware. If you want a more comprehensive overview, here are all the steps you need to incorporate in Delaware and launch your startup.

  1. Choose a corporate name and type:

    • You may have to do business under another name if another Delaware company already uses it. You'll also need to choose between a general, non-profit or close corporation. General is the most popular.

  2. Find a registered agent:

    • You will need to find a registered agent if your business is in a state other than Delaware.

  3. Figure out share information:

    • Your franchise taxes are based on the shares of your company.

    • This is necessary even if you don't plan on going public and issuing stock.

    • Keeping under 5,000 shares reduces your tax liability in Delaware.

  4. Submit certificate of incorporation forms and fees:

    • A cover sheet needs to be mailed in with all your forms.

    • Submit this form to the Division of Corporations. Filing fees are due immediately.

  5. Open bank account for the corporation:

    • A corporate bank account must be opened if you haven't already done so. You cannot use your personal account.

    • You'll need a Federal Tax ID number.

    • Some banks may require a certificate of good standing or a status certificate before opening your account.