Incorporating in the State of Delaware

Practice Areas

By: Kapil Handa

Many businesses are incorporating in the state of Delaware, even if they are based somewhere else. But should you do it? For most companies, it makes more sense to incorporate in the state where the business operates, where the corporate office is located, or where the key employees are based. However, for larger companies, there can be numerous benefits to incorporating in the state of Delaware.

Delaware’s Business-friendly Laws

More than 50% of publicly traded US companies are incorporated in Delaware, and for good reason. Delaware laws are business-friendly. For starters, Delaware’s Court of Chancery resolves corporate disputes more quickly with just a judge and no appointed jury. Judges are specialized because they only handle corporate cases, and they base their decisions on precedent. This simplified process can be helpful for large corporations with many shareholders.

Additionally, if a business is incorporated in Delaware but does not do business in Delaware, it does not have to pay state income tax. Certain loopholes allow businesses to claim revenue in Delaware, even if it was generated elsewhere. Franchise tax still applies, however.

Further, Delaware can be a good choice for acquiring capital. Because so many large companies are incorporated in Delaware, banks and venture capitalists are often familiar with the state’s laws and prefer to work with Delaware-based companies.

Which Business Should Not Incorporate in Delaware

There are numerous advantages for many large businesses to incorporating in Delaware. However, smaller businesses may never benefit, and in fact, it may be more difficult for them. Incorporating your business in its home state is often easier from an operations, administration, cost, and litigation perspective.

Conclusion

Incorporating your business is an exciting and pivotal step. For help incorporating, choosing an entity type, or deciding where to incorporate, contact a Chugh CPAs, LLP tax expert.