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Top 9 Reasons to Become Incorporated in Delaware

by Olufisayo
Incorporated in Delaware

You’re getting ready to start a business. You want to make it official and register the business as an LLC or another form of corporation.

The next common question that people will ask is “Where should I incorporate?” Of course, the most obvious place is in the state where you do business. Delaware offers many advantages, which is why about 60% of Fortune 500 companies are registered corporations in Delaware.

Should your business be one of them? Find out the top nine reasons why your business should be incorporated in Delaware.

Incorporated in Delaware

1. Case Law Favors Businesses

The case law in Delaware for businesses is very clear and extensive. The case law here has legal precedents for just about any business situation. That means that if your business has a legal issue, you can point to previous case law to predict the outcome.

2. Minimize Your Tax Burden

There’s not a sales tax in Delaware. Corporations also don’t have to be concerned with taxes on investment or interest earned by the corporation. Those earnings aren’t subject to state taxes in Delaware, which could result in huge tax savings for companies.

3. The Court of Chancery

Delaware has its own court to settle disputes, called the Court of Chancery. Instead of going to a jury trial where anything can happen, a Chancellor who is experienced in corporate law will hear your case. They’re likely to invoke a business judgment rule, which is a favorable outcome for corporations and their board members.

4. People Want to Invest in Companies Incorporated in Delaware

Do you plan on looking for investors in your business? Venture capitalists would rather be involved in companies that are incorporated in Delaware because it’s less risk and more privacy for them.

5. Privacy for Owners and Board Members

In most states, when you look up a company through the Secretary of State’s website, you have access to a lot of information. Delaware only shows the name and address of the registered agent and the name of the business.

6. Investment Bankers Like Delaware Corporations

Let’s say that your business is a startup and your plan is to take your company public. You have to find an investment banker to work with. Investment bankers like to work with corporations in Delaware because the case law for businesses is so strong.

If you know that you’re going to take your company public, you’re better off creating a corporation in Delaware now. The alternative is to create a company where you do business and then move your corporation to Delaware, which can be more costly in the long run.

7. It’s Simple to Set Up a Corporation in Delaware

If you want to set up an LLC in Delaware, it’s pretty simple and inexpensive to do. You do need to have your articles of incorporation

You do need to have a registered agent in Delaware, and that can cost about $125 a year or less.

Don’t forget that you do have a responsibility to maintain your Delaware corporation every year. You have to file an annual report with the state and pay an annual franchise tax, which is $300 for an LLC.

8. Delaware Statutory Trusts

For real estate based companies, Delaware offers something completely unique compared to other states, which is the Delaware Statutory Trust (DST). A DST can be used as part of a 1031 exchange to help you minimize capital gains taxes and invest in a much larger property as a passive investor.

You can learn more about using DSTs in a 1031 exchange here.

9. A State That’s Efficient

An efficient bureaucracy? Is that really a thing? It is in Delaware. Believe it or not, the State of Delaware gets very high marks for customer service.

Let’s say you’re in a situation where you need to set up your Delaware corporation within a few hours and it’s outside of regular office hours.

In most states, you have to wait until 8 or 8:30 am the next business day and then wait an additional few days for your corporation filing to be completed.

In Delaware, they can process an application within an hour if you pay the $1,000 expedited fee. Here’s the kicker, though. You can file your application as late as 9 pm EST. If you wanted to wait two hours, you can pay $500.00 and have until 7 pm to file.

Should You Incorporate in Delaware?

Now that you know the advantages of incorporating in Delaware, is it the right move for your business? It really depends on a few factors.

The first is whether or not you consider your business to be a national company. For a local company, it doesn’t make sense to have a Delaware corporation. In fact, it could cost you more money in the long run. You may have to pay an annual franchise tax to Delaware and to your own state.

You would have a business that’s incorporated in Delaware, but you’d still have to register as a “foreign corporation” in the state where you do business.

You would also have to comply with any reporting requirements in the state where you do business and in Delaware. That’s more time and costs to your business.

You should incorporate your business in Delaware if you want corporate case law, privacy, and potential tax savings on your side. This is ideal for larger companies that do business nationally.

Before you make the decision for yourself, you’ll want to consult with a business and tax attorney to make sure that you’re business is set up for success in the long-term.

Businesses Incorporated in Delaware Have a Lot of Advantages

Should your business be incorporated in Delaware? That really depends on your business. In some cases, you’re better off registering in the state where you do business because it will cost your business more in the long run.

However, there are a lot of advantages to being incorporated in Delaware, whether you’re a small business or a Fortune 500 company. There are potential tax savings and case law is definitely kinder to Delaware entities than in other states.

Do you want to know more about life as an entrepreneur? Visit our blog often for more great tips to start a successful business.

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