Why Do Companies Choose To Incorporate in Delaware?

photograph of an entrepreneur meeting with his registered agent to talk about how he can incorporate in Delaware
Why do companies like Facebook, Coca-Cola, and Apple incorporate in Delaware? The First State is more than just a tax haven. Read on to learn more.

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Why should entrepreneurs incorporate in Delaware rather than in any other state in the United States?

Starting a business has always been a goal for many people. And why wouldn’t it be? After all, you get to be your own boss, help innovate the future, and pursue a lifelong passion. Let’s also not forget about the opportunity to earn a sustainable income while doing something you love. 

So, why are some so hesitant to start a business? If your answer is limited cash flow, inadequate product knowledge, and a precarious business model, don’t worry. You’re not alone. 

If you’re a budding entrepreneur setting your sights on forming a company, this article is for you. Before we dive into why you should incorporate your startup business in Delaware, let’s start with the basics.

What is company formation?

It refers to the process of incorporating or registering a business as a legal entity in the eyes of the state. 

Forming a company can be relatively easy, especially when you’re in the right location and have access to expert advice. With almost every state offering different benefits and tax regulations, choosing the right location for your soon-to-be company is crucial. Do you want to know one of the secrets to success for big-name companies such as Apple, Coca-Cola, and Facebook? 

Easy. Company formation in Delaware. In fact, more than 68% of publicly traded and Fortune 500 companies have been incorporated in Delaware.

Why, you ask? What does the second smallest state in the country have that places like New York or Los Angeles don’t? Simply put, the benefits of incorporating your startup business in Delaware are endless!

The benefits of a business when they incorporate in Delaware

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Image source: Unsplash

You’re probably wondering how a state with only one million residents manages to be the choice for top businesses. And why do businesses prefer to incorporate in Delaware. What’s more, how come no other states in the country have adopted such corporate-friendly laws? States like Wyoming and Nevada have begun taking steps to become more flexible. However, most legal and business professionals are already familiar with the corporate laws in Delaware. This removes any possible confusion of having to learn entirely new corporate laws on the fly. 

Tax benefits

As long as you incorporate a business in Delaware, your business can enjoy the following tax benefits:

  • No in-state purchases are subject to tax
  • Lower real estate property tax. 
  • No value-added tax (VAT)
  • Royalty taxes are disregarded
  • There’s no state corporate income tax on goods and services for Delaware corporations operating outside of the state
  • No property tax

* Delaware computes taxes based on the revenues of a company, reducing corporate income tax

Court of Chancery

Unlike most states, when you incorporate in Delaware, they have a separate court to handle corporate cases. All cases are presided over by judges who are experts in corporate law. There is also no jury involved, making outcomes more unbiased and predictable.

Privacy protection

Companies don’t need to disclose the names of their directors and officers to the state when filing documents. This ensures your identity stays private, and lends further protection to your assets. 

Simple startup requirements

Compared to other states, Delaware is committed to being a corporate-friendly state. Delaware has one of the most advanced formation statutes in the country. In fact, businesses can be incorporated in Delaware in less than 24 hours. 

Flexible corporate structure

When you incorporate in Delaware, directors and officers don’t need to be residents of the state. This gives you more freedom to attract the best talent and investors for your business.   

Better chance to attract investors

Startups can benefit immensely from incorporating a startup business in Delaware. Venture capitalists and angel investors prefer to invest in businesses in Delaware over any other state. This is because they’re more familiar with Delaware corporate laws. Moreover, company formation in Delaware also offers ‘preferred stocks’ – stocks that can result in higher dividends and reduce investment risk in a company. 

photograph of a startup entrepreneur seated on the floor in an empty office using his laptop to do research on company formation in Delaware
Image source: Pexels

Steps to incorporating your business in Delaware

The steps to incorporate in Delaware are similar to most states. To give you a better grasp of how to incorporate in Delaware, here are some of the steps to help you launch your startup:

  1. Choose your business entity type
  2. Hire a registered business agent
  3. Reserve your business name (can be reserved for a period of 120 days)
  4. Submit articles of organization
  5. Submit forms such as a certificate of incorporation or formation forms
  6. Acquire an Employer Identification Number (EIN)
  7. Request for a certificate of good standing
  8. Open a business bank account
  9. Acquire business insurance

Final thoughts

When you incorporate your business, Delaware is the best place to do so. You get to enjoy a multitude of tax benefits and have the best chance to attract foreign investors. But before you start a business in Delaware, think about your short and long term goals. 

If you’re not familiar with laws and need help setting up your business, it’s best to hire company formation agents. These legal professionals have the experience and expertise necessary to ensure your business becomes successful. Aside from ensuring your business stays legally compliant, they can also help you in the following ways:

  • Submit and file important business paperwork in a timely manner
  • Knowledgeable in handling different business setups
  • Save time and money
  • Offer legal services
  • Provide a legitimate business address
  • Apostille services

“To build a successful business, you must start small and dream big.” – Aliko Dangote

Featured image source: Pexels

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