Because of all the legal benefits given by the state’s regulations, many early-stage, fast-growing tech startups in the United States chose to form or declare their company as a Delaware incorporation.
Not only new startups, but a large percentage of Fortune 500 firms have opted to incorporate in the tiny state of Delaware. Why is this happening? Read below to know 8 reasons why you should choose Delaware for startup’s incorporation.
Reasons why startups choose Delaware for incorporation
The tale began in New Jersey over a century ago. Back in the early nineteenth century, any corporation had to be incorporated in the state where they did business.
And, in 1891, New Jersey passed an extraordinarily generous business tax law that allowed businesses to do whatever they wanted. A business headquartered in another jurisdiction could save a lot of money on taxation and reap benefits like unrestricted market growth by incorporating there.
This bid was accepted by a wave of conglomerates, and New Jersey received so much money from taxes that it was able to repay the entire state debt.
Other states, under pressure to keep corporations in their states, proposed their own permissive business tax schemes. And, in this so-called “race,” Delaware came out on top.
Today, the region is still the preferred location for corporate registration. The environment is so pleasant that even multinational corporations take refuge there.
- Business-friendly laws, thanks to the state’s statuses
Delaware’s statutes are revised on a regular basis in conjunction with licensed corporate attorneys to guarantee that the state is at the core of business trends. These statuses serve as the basis for business-friendly regulations, making the state perfect for incorporating and developing businesses.
When other states write their corporation laws, Delaware’s regulations are frequently used as a framework. When evaluating their own state’s rules, law schools, prosecutors, and judges throughout the United States often review Delaware’s business organization laws first.
In addition, because of the flexibility and certainty of the regulations, many corporations that go public are usually founded in Delaware.
- Efficient business disputes in court
The Court of Chancery in Delaware is a special court that rules on company law cases without the use of juries. Delaware companies should expect their legal issues to be resolved quickly and professionally by judges who specialize in corporate law as a result of this unique court format.
Some states may have tried a similar court format for settling business conflicts. They, however, do not have all the complete elements of Delaware court rulings, which have been developed for over several years to offer specific guidelines and rules for the firms, prosecutors, and judges involved.
- Legal certainty for business owners
Delaware rules are mostly on the business owner’s side and protect board members from fraudulent litigation. Under Delaware rule, a stockholder must take into account a number of basic requirements in order to be eligible to pursue the civil lawsuit in any way.
- Liability protection for business owners
The liability protection is one of the most compelling benefits of incorporating in Delaware. By becoming a Delaware company, you protect your personal assets by creating a boundary separating them and your corporate liabilities.
When you run a company in Delaware, even if someone wins a verdict against your corporation, the responsibilities are imposed against the company’s property, not your personal property.
- Tax flexibility
In Delaware, you can choose how you want your company to be taxed by the IRS. You can choose one between disregarded, partnership, S corporation, and C corporation taxation systems.
For the Delaware state tax, you have three available options: no income tax, no sales tax, and no tax on intangible income. Each will have its own terms and conditions, but it is undeniably beneficial to businesses.
In fact, all a company needs to pay in Delaware is a franchise tax as well as small agent, annual report, and registration fees.
- Flexible company management structure
Company owners in Delaware have the choice of managing their businesses themselves or appointing managers to do so for them. Whatever they decide, Delaware law provides them with flexibility in describing the rights and responsibilities of the management team.
- Ensured privacy for business owners
The name and address of the company’s board members or management are not required to be specified in the certificate of incorporation in Delaware. To receive a certificate of incorporation, what you need to do is include the name of your company as well as the contact details of your Delaware legal representative.
- Ability to create series LLC
A series LLC is similar to a single company with several miniature LLCs, called “series”, added in. It has many benefits, including the ability for each series to have separate members from the others, and the land held by one series is excluded from the liability of all the other series.
Amid its generous tax climate, Delaware’s position as a multinational tax haven is highly debated. However, there is no doubt that the state is part of a bigger picture in which the United States has shifted away from monetary transparency in the past few years.
Making the decision to incorporate in Delaware has considerable advantages for both you and your business. We believe that this article can greatly help you make the right choices for your future company