Let’s Talk About Delaware-The Home of the Fortune 500
Delaware, the small but mighty state, has long been the favored place to incorporate. In fact, many Fortune 500 Companies are formed here, including Apple and Coca-Cola, as well as more than half of U.S. publicly traded companies. According to the State of Delaware in 2016, 1.2 million entities were formed in the state. Although there is no legal requirement that dictates which state you choose to incorporate your business, Delaware continues to be a favorite choice.
There are numerous advantages to forming a business entity in Delaware, the Incorporation Capital. They include Delaware’s Unique Court System, Flexible Business Laws and Tax Haven status.
Unique Court System
Delaware has a court system that is uniquely its own, The Court of Chancery. The court is one compelling reason why many companies choose Delaware. The Court settles corporate disputes, where cases are heard by experienced judges rather than juries. As a result, corporate law firms across the country maintain practices with expertise around Delaware corporate law.
Flexible Business Law
Delaware’s corporate laws are flexible, which makes conducting business easier. These laws permit an entity to only have one shareholder, member, director, or manager. For privacy purposes, the director or officers are not required to be listed on any formation documents.
No personal income tax filing is required for nonresidents. If a business is incorporated in Delaware, that business is not required to pay taxes based on revenue. You are only required to pay an annual Franchise Tax. This tax is based on the authorized shares of stock, starting at $125 annually. For Limited Liability Companies, the Franchise Tax is $300.
Unfortunately, where there are advantages, there are also disadvantages. Research both as part of your due diligence efforts. Accordingly, let’s discuss those disadvantages.
Foreign Qualification – If you form your business in a state where your business will not be physically located, you may have to register the business as a “foreign entity”, also known as a “foreign qualification”. Each state has its own rules and regulations about whether a business must register in this manner. Regardless there are some common situations in which you might have to:
- Maintain a brick and mortar location
- Hire employees in the state of location
- Purchase property/holding real estate
- Transact business that requires special licensing
These can be considered a disadvantage because of the additional filing fees associated with filing a foreign qualification.
In addition to Delaware’s annual Franchise tax requirement, the state where you live may also have annual reporting and fees required.
If you have any questions about forming an entity in the Delaware, give us a call at (877) 264-8998 or leave a comment.