Delaware is popular for incorporation due to its well-established, business-friendly legal framework designed to provide a clear, flexible environment for businesses. These protections are simply incomparable to other states, making Delaware the Incorporation Capital. Many Fortune 500 companies incorporate in Delaware, although few have offices there. About 75% of Delaware companies are LLCs.
Advantages for Out-of-State Corporations
The advantages include no income tax on out-of-state corporations and no tax on shares for non-resident shareholders. There is also a Court of Chancery handling only corporation cases.
While incorporating in Delaware has advantages, most small businesses likely benefit more from filing in their home state. The registration process in Delaware is easy but there may be disadvantages too.
Tax Benefits and Customized Regulations
The main reasons to incorporate in Delaware are tax savings. For example, no payment of state income tax for companies operating out of state, no inheritance tax on stock held by non-residents, and no sales tax on intangible property. The state fee to incorporate starts at $89.
Delaware allows customized LLC rules and operating agreements with flexibility in defining member rights and responsibilities. Asset protection is also extensive.
Considerations for Startups and International Firms
However, a Delaware corporation is not always the ideal entity for a startup. Delaware appeals to international firms due to business statutes providing advantages and efficient procedures for transactions.
Two major reasons for incorporating in Delaware are the tax benefits and the quality of Delaware courts and judges specialized in corporate law, without juries.
You do not need to live in Delaware to incorporate there. The state is very flexible in ways that benefit company owners.