Monday, October 3, 2022

Pros and Cons of Incorporating in Delaware

 Potential Benefits of Incorporating in Delaware: 

Investors prefer Delaware corporations. 

VC investors and investment banks like Delaware corporations above all other states and business forms on average. If you are genuinely pursuing VC financing or going public, it would be wise to incorporate your company in Delaware before an investment banker or venture capitalist requires you to do so.

Delaware has more privacy protections than most other states.

The names of officers and directors are not required on formation paperwork. This offers a degree of privacy and anonymity only seen in a handful of other states. As with registering a business in most states, companies must assign a registered agent who maintains a physical address to be the official address and to receive mail and collect paperwork. Unlike most states, however, in Delaware, the registered agent is the only name that must be disclosed in association with the company. Other officers and directors are not required to disclose their names, allowing an extra degree of anonymity. Because of this lack of reporting, officers, directors and shareholders are also not required to maintain residency in Delaware.

Filing is simple and quick in Delaware

In Delaware, filings are $89. At that price, processing can take a couple of weeks. For extra $50, they'll process your filing within 24 hours. For extra $100 they'll incorporate you same day.

Filings are now easy via DE online document upload system.

In California, the filing fee for Articles of Incorporation is $100 but the expedited fees are much higher. 24–Hour Filing Service - $350; Same Day Filing Service (Class B) - $750. In addition, in CA, you must submit a Statement of Information, an initial report including information about your business. The filing charge for the first report is $25, while the service fee is $75. Annually, the state of California requires corporation owners to produce annual reports. The yearly report submission cost is $25.

Specialized Corporation Court, more predictable results in legal disputes.

Instead of a typical trial system, corporate disputes in Delaware are settled by the Court of Chancery, a court comprised of corporate law experts. Because of this, Delaware's legal precedents are well-established and dependable, which might be advantageous for corporations. While the normal civil litigation may take several years to conclude, Delaware's employment of judges rather than juries and prioritizing of corporate-related issues allows comparable instances to be adjudicated more swiftly.Since these judges have a background in corporate law, cases can be decided rapidly and without juries that may be less experienced.

Delaware law is better known to corporate lawyers.

Corporate lawyers are knowledgeable about Delaware business law because they study it in law schools of all states. Delaware corporate law is sort of a golden standard.

Delaware can be a tax haven.

If you do business in another state, there is no corporate income tax in Delaware. Additionally, there is no tax on royalties or other "intangible assets." Delaware does not tax stock shares whose owners do not live in the state. Companies having a high number of authorized stock shares and intricate capitalization structures are taxed favorably. Non-residents are exempt from income tax. Non-Delaware residents are exempt from Delaware stock taxes.

Corporate statues are more flexible in Delaware

One of the primary advantages of Delaware incorporation is the flexibility of company structure. Delaware's corporate regulations are regarded as among of the most adaptable when it comes to structuring a business and choosing its directors and board members.  A Delaware corporation offers freedom when it comes to organizing management structures, economic rights, and other company matters. The shareholders, directors, and executives of a corporation incorporated in Delaware may live outside of Delaware. One individual may be the only director, shareholder, and officer, but in other states, at least three persons are required to hold the officer and director designations.

Investment bankers favor Delaware corporations for initial public offerings.

Investment bankers often demand a company to incorporate in Delaware before the company can go public.

Moving the corporation might be less costly.

The yearly franchise tax in Delaware is as little as $125 per year plus reporting costs, while the annual franchise tax in California is $800 per year.

Potential Disadvantages of Delaware

There are several reasons why to incorporate in Delaware. There are also some potential drawbacks.

Additional  expenses

Annual recurrence of registered agent fees in Delaware. If your business is actually located outside of Delaware, you will be required to pay registered agent fees in order to receive legal communications. These fees might cost more than $129 each year. You may also need the services of a Delaware corporate attorney.

Extra foreign qualification expenses

You may need to register to do business in another state if you have a physical site and workers outside of Delaware. Foreign qualification authorizes a company to do business in a state other than its state of incorporation. Foreign qualification expenses and recurring fees may apply in states where you do business.

Extra Franchise Taxes

You must pay the yearly Delaware franchise tax and franchise taxes in the state where you are conducting business. The sum will be determined by the worth of your company's shares. The tax begins at $75 plus a $50 filing charge and may exceed $100,000+ if you authorize more than 5,000 shares and forget to use the Assumed Par Value franchise tax calculation method. Use this calculator.

Extra reporting obligations

Even if you already submit yearly reports in your home state, Delaware compels you to do so as well.

Registering in multiple states

If you want to do business outside of Delaware, you must register your company in several states.


Do I have to live in Delaware to incorporate there?

No, you are not need to reside or do business in Delaware in order to incorporate your business there. You must appoint a registered agent with a physical location in the state to receive lawsuits and other legal paperwork on behalf of your company.

What taxes must I pay if my corporation is not headquartered in Delaware?

You will only be required to pay the franchise tax if your business is situated in a state other than your own.

What is the role of the registered agent?

If the company is ever sued, the papers will be sent to your agent. They are also billed annually for franchise taxes.

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

Yes. Even if you fulfill the standards in your home state, you likely must adhere to various restrictions in Delaware.

How quickly can a Delaware corporation be formed?

The Division of Corporations in Delaware includes "same-day" and even "1-hour" alternatives. This is consistent with their concept of a welcoming business environment.

Procedures for Incorporating in Delaware

The formation procedure for a Delaware corporation may be comparable to that of your native state. Always keep in mind that there will be discrepancies. These are the fundamental stages for incorporating a Delaware corporation. If you would want a more detailed breakdown, here are the processes required to incorporate in Delaware and create a company.

1) Select a company name and type: You may be required to do business under a different name if another company in Delaware already uses yours. Additionally, you must choose between a general, non-profit, or close corporation. General is the most used term.

2) Locate the registered agent: If your business is located in a state other than Delaware, you must obtain a registered agent.

3) Submit paperwork and costs for certificate of incorporation: Forms must be accompanied by a cover page when sent in. Submit this form to the Corporations Division with your payment info .

4) Obtain a Federal Tax Identification Number. Before establishing an account, certain banks may need an EIN, certificate of good standing or a status certificate. It's easy to get an EIN from the IRS online here.