Delaware Company Formation
Although small, the state of Delaware is of great importance to the corporate world. Almost half of USA’s publicly held companies, counting giants like Coca-Cola, Google, Apple and Wal-Mart, are established in Delaware.
The state has long been known for its laws favouring corporations. Furthermore, its tax legislation permits low-rate taxes for corporations thus allowing them to avoid the higher costs in their original states. Are you considering incorporating your business in Delaware? Have in mind the following pros and cons for choosing the state as the home of your corporation.
The benefits of incorporating in Delaware
For a long time now Delaware has been making efforts to gain recognition as an attractive centre for corporations. Its legislation generally favours business and it stands out among other states with its independent Court of Chancery dealing with corporate cases. The judges are qualified in the field of corporate law. They make relatively quick decisions on cases and do not need a jury. Since Delaware is home to thousands of corporations, this accounts for a very well developed, predictable volume of corporate laws. This uniformity allows corporations to better assess the probable outcome of disputes or make informed decisions on the settling of cases.
Some people identify Delaware as a tax haven since corporations established there do not pay corporate taxes if their business is developed outside of the state. Also, royalties and intangible assets, in general, are exempt from tax. This policy saves substantial amounts of money for particular corporations. However, you are advised to consult a professional in tax law to determine whether forming a company in the state will bring tax benefits to your business.
The process of establishing a corporation in Delaware is faster than in most other states. Furthermore, in contrast to some states, you will not be required to disclose the personal details of the directors and shareholders to the public. Another advantage is that investors providing capital to ventures and other stockholders often direct their investments to corporations established in Delaware.
Possible disadvantages of setting up a company in Delaware
In case your business operations are physically located elsewhere, the incorporation in Delaware will bring additional obligations and costs, such as:
– the costs for business registration in your original state and, additionally, in other states where you operate (foreign qualification). You will be charged with these fees plus the cost of incorporation in Delaware.
– payments for a registered agent. In order to establish your business in Delaware, you will have to name an agent having an actual address in the state to receive any official correspondence on your behalf. You can ask a local you know to become your agent. Otherwise, you will need to pay a company for this service.
– the annual franchise tax is collected from all corporations in Delaware and depends on the actual value of your shares. It starts at 75 USD + 50 USD processing fee and can reach 180 000 USD.
– annual reporting obligations. You will need to comply with the reporting requirements both in your original state of incorporation and in Delaware.
Therefore, if your company is small and operates in few states, the costs of incorporation in Delaware could surpass the benefits.
The process of incorporation in Delaware
In order to set up a corporation in Delaware, you need to submit a certificate of incorporation to the Secretary of State. The document must include the name and purpose of your company, the quantity of authorised stocks, the details of the founders and the registered agent.
Your corporation’s name must be unique in Delaware (it should not match the name of another corporation, partnership or LLC in the state). Therefore you better make sure that your proposed business name is not in use before you apply for incorporation. You can check that by performing an online search.
Setting up a corporation is a thrilling step in the development of any business, but owners have to consider carefully their choice of state for incorporation. Some businesses, particularly ones with external investors and wide coverage, would clearly benefit from Delaware’s laws and tax structure, while others will have more advantages if incorporated in their original state.