Did you know you can incorporate your business in any state? It doesn’t have to be where you are headquartered. Many businesses today are incorporating in Delaware, even if they are based in New York, Idaho, or California.
Delaware has better tax breaks, more forgiving laws, and is generally the preferred state of incorporation by venture capitalists. If you haven’t incorporated yet, make sure to read this guide before you do.
As a small business owner, you want what’s best. Learn why incorporating a business in Delaware might be the best option for your company. Keep reading to find out more!
1. Low Taxes and High Returns
Delaware tax laws are business-friendly. Delaware doesn’t foist corporate state income taxes on businesses incorporated in Delaware that do business outside of the state.
Company shareholders outside of Delaware also don’t need to pay any taxes on stocks of Delaware incorporated businesses. For these reasons, Delaware is considered a “tax haven” for businesses. It reduces taxes for the business and its shareholders.
The state of Delaware also does not tax any royalty payments and intangible assets which further reduces taxes for businesses.
2. Fast and Easy Legal Filing
Delaware has its own court dedicated solely to corporate filings. They don’t have a jury and only use judges to process any legal work. This speeds up the process for all corporate legal documents and disputes.
If you file to be a Delaware corporation, your certificate can be processed in as little as one day. As your company grows, you’ll have more legal work that sometimes needs to be processed quickly to proceed with business.
Delaware’s dedicated Court of Chancery is composed of experienced experts in corporate law. This makes outcomes timely and also predictable. Since there are so many incorporations in Delaware, it is also easier to find a corporate lawyer that is familiar with legal laws for the state. This could save your business time and money.
Delaware law is part of the ABCs of corporate law today. It’s rare to find an attorney that isn’t familiar with Delaware law. As a business, this means you can avoid legal pitfalls or bottlenecks.
This can prevent you from losing money with lots of lawyer fees and mistakes in legal miscommunications and misunderstandings.
Because Delaware is laser-focused on business law, the court is regularly amending laws. This means legal rules are consistently amended to stay current and create regulations relevant to the way businesses operate today. There is more info on recent amendments and updates online.
Many other states have not updated their corporate laws in years which is disadvantageous for newer businesses.
3. Greater Personal Protection
Avoiding a sole proprietorship is not the only way to keep your businesses separate from yourself and increase your legal bubble wrap. Incorporating in Delaware comes with greater privacy and protection for LLCs and C-corps.
Traditional LLCs in other states usually only offer a one-way shield of protection. In Delaware, a business is protected with a two-way shield. This means greater protection for the business and the individuals associated with the business, whether founders, employees, or shareholders.
Delaware law of course doesn’t allow for unethical business practices. However, it can prevent a personal trial in legal mishaps in the following scenarios:
- Absence of fraud in business ownership
- When the owner is not personally providing business services
- When the owner is adhering to a corporate function
- When contracts that enforce personal liability have not been signed
- When the owner is not comingling funds
In general owners of a Deleware LLC will not be personally liable or do not have to personally guarantee any business obligations. This is the greatest protection offered by any state and is incomparable.
4. Corporate Structure Flexibility
Delaware’s laws on how you structure your corporation are flexible. There is a lot of autonomy for businesses incorporating in Delaware.
In Delaware, you only need to have one officer, director, or shareholder. In other states sometimes you need a minimum of three. Having the flexibility to structure your board gives the founder more control over the businesses without the headaches of rules and regulations.
5. Preferred by Venture Capitalists and Investors
Nearly 70% of Fortune 500 companies are registered in the state of Deleware. Most startups and about two million American businesses are incorporated in Delaware. This is due to the flexible, rewarding business laws of Delaware for any type of business.
For these reasons, venture capitalists (VCs) prefer to invest in businesses that are already or are planning to incorporate in Delaware. It’s a smart management choice as a business owner to incorporate in Delaware from the get-go. You can convert to a Delaware corporation if you already are incorporated.
Even if you aren’t planning on seeking outside funding yet, you might need to down the line. Investors prefer Delaware because it means a better bottom line in the long run.
It also shows them that you’ve conducted your research and are capable of making wise decisions on behalf of your business. Since investors are generally investing in the team, not just the idea, it can help boost your chances of securing funding.
Benefits of Incorporating in Delaware
Incorporating in Delaware is a great choice for new and existing businesses. Businesses benefit from the Delaware Court of Chancery which works solely on corporate cases. This means everything is processed more efficiently and your business can grow quickly.
There are also better corporate tax laws in Delaware. Even though you still have to pay taxes in the state you operate in, you are more likely to owe less and get a higher return in the end with a Delaware incorporation.
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