A startup business owner greatly benefits from registering his company in Delaware. Registering a business here is often better than creating an LLC in your city, especially if you’re planning to secure outside funding.
Around 63 percent of Fortune 500 companies are in Delaware, which is also the home of more than one million smaller enterprises and LLCs. What are the reasons for the state’s popularity among startups, and why register a business in Delaware?
Delaware’s advantages for startups
Corporations in Delaware only need one director. It keeps leadership consolidated, and it minimizes costs. In addition to this, businesses based in the state only need to maintain a registered agent with a local address—no need for a physical presence or office.
You are assured of privacy protection since the officers’ and directors’ names do not need to be on the formation documents. Apart from security, a Delaware-based corporation poises you for maximum revenue. For one, tax payments here are low. No corporate income tax is levied on business done outside the state. There is also no personal income tax or tax on stock for owners who live outside Delaware.
Another is that Delaware hosts plenty of corporate transactions. The state’s legal agreements and processes are familiar to many lawyers, investors, and executives.
Finally, since Delaware has the richest corpus of corporate law in the U.S., you can expect predictable legal outcomes, standardized documentation, and rapid resolution of disputes. One of the state’s biggest draws is the quality of its courts and judges. The Court of Chancery, a special court, rules on corporate law disputes.
What should I know if I’m based out-of-state?
Incorporating in Delaware requires you to register with a Foreign Agent Qualification in all U.S. states where you do business. Alternatively, you can set up your business in other countries or states as a subsidiary of your Delaware corporation. This helps you minimize tax liabilities.
Furthermore, you must consider the methods of computing franchise taxes in Delaware. Most taxes use an annual flat tax and file a Delaware annual report. It would be more efficient for you to hire a business accounting firm specializing in Delaware tax preparation.
Why Delaware over other business-friendly places
Some entrepreneurs prefer incorporating in other states for various reasons. New Mexico, Nevada, and Wyoming are options for business owners who wish to keep their personal information out of public record. Meanwhile, Washington, Texas, and Florida are reasonable options for people who are after zero or low corporate tax.
Keep in mind, though, that where you incorporate is not necessarily where you will have your daily operations. Choosing the jurisdiction that meets your needs will help you secure your investors’ support and provide you with the best legal frameworks to grow your business.
There are plenty of benefits to reap from incorporating in Delaware. Its’ franchise tax is among the lowest in the U.S., and hundreds of thousands of businesses call this state home. A Delaware corporation provides legal and financial incentives for business owners, and its combination of policies and laws ensure the best outcomes for beginning entrepreneurs.
Small business owners and solopreneurs must focus on growing their business strategically. A4E can help—we are a business growth service operating from Boston, MA, offering accounting and financial services to tech startups. Get in touch with us today to learn more!