Why incorporate in Delaware?
Why every high growth startup incorporate in Delaware?
Choosing a state to incorporate in can be daunting. You can incorporate it anywhere. So, which state is best to incorporate in? Here are some things to consider before choosing a State to Incorporate.
What's the best state to incorporate? Most people prefer Delaware to create their LLC or corporation. Choosing to incorporate in Delaware means Delaware law must regulate the company's internal affairs, including owner versus manager disputes.
Additionally, by incorporating in Delaware, you have access to the Delaware Court of Chancery, a specialist, internationally esteemed business making expedient and well-thought-through decisions that strengthen the already resolute laws of the state. Some of the country's best business lawyers become judges here. Incorporating in any other state may result in capricious juries or inexperienced generalist judges deciding your case without the depth, protection, or sophistication of Delaware law.
Benefits of Incorporating in Delaware
Delaware remains one of the more competitive states to form an LLC (14th lowest filing fee of 50 states). Delaware ranks well for incorporation fees (17th lowest 50-state filing fee). However, choosing the incorporating state based solely on incorporation fees and annual fees is a mistake. Many firms incorporate where the company is physically located, irrespective of that state's reputation for business law. Considering initial and continuing expenses is rational, but the primary purpose of forming an LLC is to protect owners from personal liability of company debts and obligations. Therefore, Delaware remains the best option to create an LLC or incorporate your business
Incorporating a company in Delaware offers economically valuable advantages to the parties involved. Such measures are superior to any other state Delaware companies range from single-person consultants to multi-national conglomerates. It is no wonder that over 65% of Fortune 500 firms and over half of U.S. publicly traded companies are registered in Delaware. Also, companies like Bank of America, Coca-Cola, and Google incorporated in Delaware. With such large numbers, asking why Delaware is the preferred state for incorporation among so many entrepreneurs isn't unusual.
Here's a summary of the Delaware legal entity's pros and cons.
Investor Credibility: Many institutional and sophisticated angel investors prefer to invest in a Delaware-based incorporated corporation. If you meet investors and your business is already registered in Delaware, it shows you are knowledgeable and appreciate the investor's needs and desires.
Well-established Corporate Law: Delaware's corporate law is advanced and developed, and the large volume of precedent cases means that the way Delaware courts are likely to interpret contracts and other business transactions in highly predictable fashion, crucial to resolving deals or determining whether to seek litigation.
Limited Liability Protection: Corporate law provides strong protections for stockholders ' personal assets. Directors and officers also have durable personal liability protection for their business decisions, resulting in company damages.
Chancellery Court: Delaware has a separate court hearing only business-related cases, with judges who are business law specialists. Similar to other state courts, Chancery Court legal disputes can be resolved quickly by competent, professional judges instead of juries.
Administrative support: Delaware operates an effective business filing operation. Reports can be filed electronically and reviewed in less than an hour by the Corporate Delaware Division with proof of filing.
Company-friendly Incorporation formalities: Delaware is more welcoming than most other jurisdictions. For instance, (i) Delaware does not require disclosure of the company's stockholders and directors ' names; (ii) stockholders and directors may act by written consent rather than by meetings; (iii) mergers, acquisitions, changes to governing documents and other filings may be completed quickly online; (iv) a single person may hold title to each of the company's officers; and (v) there are no minimum bank account balance requirements.
Taxation: Businesses incorporated in Delaware but not operating within the state are not required to pay state income tax, and non-Delaware citizens are not taxed on their Delaware company stock ownership.
If the company doesn't operate in Delaware, Delaware's biggest drawback is the additional cost:
Franchise-tax: A Delaware company is required to pay an annual franchise tax based on calculating the number of its authorised shares and the value of its properties, plus a filing fee. The minimum yearly expense is $125.
Foreign eligibility: The Company may need to register to do business in a different state in the US. This annual foreign qualification cost varies from state to state.
Registered Agent: A Delaware company is necessitated to have a registered agent in Delaware to obtain legal documents on behalf of the company.
Annual report: The Company requires filing a yearly report in Delaware.
Final Thoughts
With so many businesses registering in Delaware each year, because from versatile business structures to fast legal dispute resolution, for many companies, Delaware remains an attractive incorporation choice. However, it is also essential that businesses determine how incorporating into the state meets their needs by assessing the benefits and disadvantages of incorporating into the state.
*Disclaimer*: Sieve, Inc. or StartGlobal is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Sieve, Inc. or StartGlobal is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Sieve, Inc. or StartGlobal.
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