5 Reasons to Incorporate in Delaware

When you are ready to incorporate your business (whether it’s an LLC or more traditional corporate structure), you’ll need to pick a state of incorporation. More than half of all publicly traded and Fortune 500 companies have incorporated in Delaware – even when they’re not physically headquartered there.  Why is that?

There are several benefits, but the primary advantage for bigger businesses is that Delaware has a long history of corporation-friendly laws (with precedents set). In addition, Delaware’s tax laws allow corporations to be taxed at a low rate in Delaware and avoid higher taxes in their home states.  Even if you’re a smaller LLC you may find the tax advantages and the fact that Delaware LLCs don’t requirethe listing of managers and members in the initial Certificate of Formation for an LLC or any other subsequent filings, and because Annual Reports are not required that means you can have a bit more anonymity.

The benefits of incorporating in Delaware

Here are 5 great reasons to incorporate your startup in Delaware:

1. The Delaware court system is well established and highly respected. Its laws are generally favorable to businesses, and, unlike other states, it has a separate Court of Chancery that hears cases involving corporate law. This means that if your business is involved in litigation, you’ll get a judge with a lot of expertise in complex corporate law matters – there are no juries in Delaware’s Court of Chancery.  Chancery judges can decide cases relatively quickly, without the need for a jury meaning that Delaware has an unusually well-developed and predictable body of corporate law.
2. Delaware offers a lot of flexibility for structuring your corporation. Delaware’s corporate statutes are very flexible in terms of how you can structure your corporation or LLC. Delaware doesn’t require residency for any shareholders, directors and officers. They also allow just one person to be the only director, shareholder and officer of a corporation. In other states, you may need a minimum of three people to hold the officer and director positions.
3. Anonymity and Privacy. You can form a corporation more quickly in Delaware than in just about any other state, and, unlike some states, Delaware does not require you to publicly disclose the names of the corporation’s directors or shareholders.
4. Investors prefer Delaware. VC investors and investment banks typically prefer Delaware corporations above all other states and business structures. If you are seriously considering VC funding or going public, you’d be smart to incorporate in Delaware now, instead of having to convert your company when that’s demanded by an investment banker or venture capitalist.
5. Delaware is considered a Tax Haven.  Delaware does not collect state corporate income taxes from Delaware corporations that do not do business in the state (though there is a franchise tax). It also does not tax royalty payments or other “intangible assets.” These tax policies lead to substantial savings for some corporations. Additionally, stock shares owned by people outside Delaware aren’t subject to Delaware taxes.

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