Incorporate your Business in Delaware: What You Need to Know
For years now, Fortune 500 companies and smaller companies alike have sought incorporation within the state of Delaware. In fact, more than 50% of all publicly traded companies within the United States are incorporated in Delaware at present. There are various reasons why so many companies choose Delaware over any other state when it comes to incorporation. Before you decide to incorporate your business in Delaware, take a look at this list of pros and cons, and make sure to use a registered agent when it comes time to incorporate.
If you’ve recently decided to form a corporation, then you may want to consider the pros of incorporating within the state of Delaware. Some things to think about include:
- Income Tax: unlike many other states, Delaware does not charge any income tax on corporations that don’t operate within the state.
- Incorporation Fees: Delaware has very low incorporation fees as compared to many other states.
- Shareholder Taxes: company shareholders who do not live in Delaware do not have to pay Delaware state income taxes.
- Favorable Court System: Delaware’s “Court of Chancery” exists solely to handle business cases. This court is very sophisticated and efficient, and often followed by other courts throughout the United States.
- Quick Processing Times: Incorporating a business within the state of Delaware is faster and simpler than in most other states.
There are also some negative aspects associated with incorporating a business in the state of Delaware. While these factors are often disregarded, it’s a good idea to weigh the pros and cons of incorporating in Delaware closely. Here are some reasons why incorporation within Delaware may not work for your business:
- Heavy Bank Tax: while the state of Delaware does not tax most businesses heavily, banks are the exception to this rule. Banks are often taxed more than any other business.
- Your State Taxes: the incorporation taxes in Delaware are rather low, but you may still have to qualify your business in your home state.
- Home State Tax: you will still have to pay any taxes that apply to corporations in your home state.
While large companies and companies who receive (or expect to receive) venture capital financing may greatly benefit from incorporating within the state of Delaware, smaller closely-held companies might not enjoy the same benefits. If you own a small business it may be worthwhile to consider other states for your incorporation.
