Did you know that more than 50 percent of all publicly traded and Fortune 500 companies are incorporated in Delaware? This is because Delaware has certain tax advantages and corporation-friendly laws that can make it appealing for businesses to incorporate there. Not all companies will realize the same benefits if they choose to incorporate in Delaware, however, and factors such as the size of the business affect whether it makes sense to do so.
The Pros
Delaware’s Court of Chancery specializes in corporate matters, which means that businesses incorporated in this state who have their legal matters brought to court in Delaware will be seen by a judge who is an expert in corporate law.
If you need to be able to structure your business in a particular or unusual way, Delaware’s corporation laws are very flexible, giving you more freedom to organize your corporation and board as you wish. Unlike other states, there is no requirement for shareholders, directors, and officers to be residents of the state, and it is permitted for only one person to be director of the corporation where other states require at least three members to hold this position. Also, corporations in Delaware are not required to share the names of their officers or directors on their formation documents, which can be advantageous for those who need more privacy.
In addition, Delaware corporations enjoy some tax advantages. For example, businesses formed in the state that conduct their business elsewhere are not required to pay state corporate income tax. People who own stocks and shares in the company also don’t need to pay this tax if they reside outside of Delaware, making investment more appealing. This is one of the reasons why Delaware is the preferred incorporation state for many institutional and venture capital investors.
The Cons
For larger businesses with many shareholders, incorporating in Delaware might be a smart move. For smaller companies, however, the advantages may be negligible. For businesses that are not headquartered in Delaware, it could be more costly to incorporate because companies must pay the annual franchise tax in both the state in which they operate as well as Delaware. Additionally, these businesses will be required to follow the reporting rules for both states.
Other costs include registration fees to allow you do business in your home state as well as other states (known as foreign qualification) in addition to the fee for incorporating in Delaware. Hiring a registered agent in Delaware who receives all legal documentation on behalf of the corporation is mandatory and also costs money.
If the benefits described above would not outweigh this additional administrative time and expense in your case, it may make more sense to incorporate elsewhere.
Contact Integrated General Counsel
If you are thinking about incorporating your business in Delaware, you should consult with a knowledgeable and experienced business attorney. Get in touch with Integrated General Counsel today to discuss your options. We have helped many other businesses complete this process, and we would be happy to assist you too.
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