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Tax Benefits Of Incorporating In Delaware

Choose A Name For Your Llc

eMinutes – What is the benefit of incorporating in Delaware?

The first step to starting an LLC in Delaware is choosing a name.

As in most states, Delaware law requires you to select a unique name for your LLC. In other words, it has to be different from the names of other businesses that have filed with the Division of Corporations, so the public wont get confused.

Names for Delaware LLCs must end with Limited Liability Company, LLC, or L.L.C. You cannot use the word bank or any variation of it, but most other words are allowed in your businesss name, including: company, association, club, foundation, fund, institute, society, union, syndicate, limited and trust.

Additionally, your business name can contain the name of a manager or member of your LLC as well.

In order to ensure that the business name youve chosen isnt already in use in Delaware, you can use the Division of Corporations name availability search tool .

If your name is available, you have the option to reserve the name online for up to 120 days. You also can fax or mail a name reservation form to the Division of Corporations. Reserving a name, however, has a $75 filing fee, which is on the high side compared to other states.

This being said, youll want to keep in mind that a name reservation isnt required to form your LLC, but it does guarantee that your name will be available for 120 days.

Using a DBA in Delaware

Select A Registered Agent

After youve chosen an appropriate business name, the next step to starting an LLC in Delaware is designating a registered agent.

A registered agent is a person or company that accepts legal and official mail on your businesss behalf. This individual will be the first to notify you if your business is sued or receives a legal or tax notice from the government.

In Delaware, your registered agent must be a resident of the state. However, unlike many other states, Delaware doesnt impose too many other restrictions on who can serve as a registered agent for your LLC.

If your business is physically located in the state, it can act as its own registered agent . Additionally, a member or manager of your LLC could serve as the registered agent, as can any other individual resident or business entity authorized to do business in Delaware. Again, the only restriction is that your registered agent must have a physical street address in Delaware.

This being said, the Division of Corporations provides a list of registered agents on its website, but you might instead opt to use a third-party registered agent service, such as Incfile. If you do form your LLC on Incfile, one year of free registered agent service will be included.

Delaware Companies Are Great For Virtual Or Mobile Companies

With the advent of cloud computing, mobile internet and easy file-sharing, many companies are spread around the country or around the world. For a company with high mobility, the best place to incorporate is in a jurisdiction where there are few entangling requirements, such as complicated, compulsory annual franchise tax reports to file even if no business is done in that state. Because Delaware does not tax companies that operate outside of its borders, it is easier for a Delaware company to register and unregister from other states as needed.

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Raising Funding & Going Public Is Easier

Venture capitalists and angel investors usually prefer to invest in those companies that have been incorporated in Delaware. Hence, in case you genuinely want to get investments from these kinds of investors, then it is advised that you incorporate your business in Delaware.

Moreover, there are a lot of investment bankers who require the company to be incorporated in Delaware before they take that company public. So, in case you are planning to make your company go public by having an initial public offering , it would be much easier if your business was Delaware incorporated.

Reasons Not To Incorporate In Delaware

Top Benefits and Drawbacks of Incorporating in Delaware

1) Your business is not going to be funded by venture capital. Yes, venture capitalists love investing in Delaware C corporations, but youre realistically not ever going to get venture capital unless youre in the extreme minority. According to this article in Entrepreneur.com, only about .06 percent of businesses will ever get venture capital funding. Consider those odds.

2) Your business is not actually located in Delaware. Instead, you have an office or business address in another stateyour home state. If thats the case, then youll need to pay someone to act as your registered agent in Delaware, and youll still need to register your business as a foreign entity in your home state. Youll need to pay taxes on any revenues that originate in your home state, and youll be subject to annual reporting requirements both in Delaware and your home state.

3) Delaware has a franchise tax. Not all states have franchise taxes. Oregon, for example, does not.

4) By incorporating in Delaware, youll be consenting to the jurisdiction of its courts. This means that if someone wants to sue your business, even over a simple matter, they can sue your business in Delaware, and youll be stuck having to hire Delaware licensed lawyers and possibly travel there to defend your business in the lawsuit. For businesses located far away from Delaware , this could be a significant burden.

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Cost To Incorporate In Delaware

The cost of incorporating in Delaware is less than you might think. Its less than $100 for the formation fee and any service fee you must pay.

The exact cost of the Certificate of Formation, as of today, is $70. But keep in mind that you will also have to pay a service fee on top of that.

Do remember that if you decide to file the long-form Certificate of Formation the fee can be significantly higher.

Delaware: Home To Many Fortune 500 Companies

In the corporate world, all roads seem to lead to Delaware. Recent state data shows that, presently, more than two-thirds of Fortune 500 companies are incorporated in Delaware. By the end of 2019, the latest year for which data is available, close to 1.5 million legal entities had chosen the state as their registered location. It was a year that saw about a quarter of million business entities being formed in the First State. Delaware also seems to be a good place for companies going public. In 2019, about 90% of US companies that had IPOs chose Delaware as their headquarters.

It wasnt always that way. Up until the early 1900s, the favored state for companies that wished to incorporate was New Jersey. Among them was the Delaware company DuPont. This prompted the Delaware legislature to entice DuPont to reincorporate where it was founded by passing laws similar to the Garden States. DuPont did reincorporate in Delaware and, within two decades, Delaware had established a reputation as a haven of corporate formation, which it has retained to this day.

How did Delaware achieve such a dominant position and stature in the market for corporate formations? The tiny state has less than a million residents, placing it in 45th position in a population ranking of US states. Delawares economy is not that big either it is the nations 42nd largest.

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Your Small Business Still Needs To Qualify In Your Home State

A second consideration is that although the fees to incorporate a business in Delaware may be lower than in your home state, you will still have to qualify to do business in your home state if you choose to incorporate in Delaware. Going through both of these processes at once and in different states will probably cost you just as much, if not more, than if you had just incorporated in your home state in the first place. In addition, if you choose to incorporate in Delaware over your home state, you will have to find an “agent of register” in Delaware. If you do not already have someone in mind that lives in Delaware, you will end up paying more to hire such an agent.

Major Benefits Of Incorporating In Delaware

6 Reasons Why You Shouldnt Form an LLC in Delaware (for U.S. residents)

Planning to incorporate your business is not something easy since there are many things that need to be weighed to before you can move ahead and incorporate your company. Some factors include state statutes, location, and tax requirements. It is very important to think about the benefits that a state can offer when you incorporate your business so that you can have the ease of moving ahead easily. Talking about such benefits, there is only one state that comes in mind time and again: Delaware.

Due to the many benefits of incorporating in Delaware, it has established a reputation all over the world as one of the most business-friendly and best states to incorporate your business in. There are millions of companies that have been incorporated in Delaware due to the benefits. More than half of all the U.S. publicly-traded companies and about 65% of the Fortune 500 companies have been incorporated here. But it has not ended here many more startups are still incorporating in Delaware every day.

To understand better as to why you need to incorporate your company in Delaware, below shared are the top 7 benefits of incorporating in Delaware:

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Best State To Incorporate In

The best state is always your home state so you dont get classified as a foreign corporation. But states like Delaware, Wyoming, and Nevada are all strong contenders for non-resident business owners.

Weve already talked about Delaware, so well discuss these two states. First, lets talk about Nevada.

Nevada The first advantage of Nevada is that it shares Delawares view on taxes.

Nevada doesnt have any state corporate income taxes. It also doesnt have a personal income tax or a franchise tax.

Another advantage is when trading corporate shares there are no additional fees to pay. There are no costs involved with trading.

Finally, shareholders, officers, and directors dont need to be resident in Nevada.

Wyoming The cost of starting a company in Wyoming is one of the lowest in the country. The average incorporation costs are less than $100.

Another advantage is that Wyoming only taxes the entities and businesses within the state of Wyoming. Assets held in other states have no exposure here.

Finally, you have complete anonymity in Wyoming. Only the incorporator and the registered agent must be disclosed. In both cases this can be a third-party that takes no part in the business.

Email me at to discuss the best option for your business. A business lawyer like me can show you what will give you the best protection for your business.

Delaware Incorporation: Advantages And Disadvantages

During the high-tech bubble in the late 1990s and early 2000s, the idea of a quick path to an initial public offering became so entrenched that startups began skipping the step of incorporating in their own states and moved directly to a Delaware incorporation to speed up the process of going public. Although the bubble eventually burst, this practice has persisted.

Sometimes, founders want to incorporate in Delaware because they believe that the venture capitalists who will be funding the company later will insist on it. Some venture capitalists do, but many do not, and many startups will never seek venture capital funding.

For the typical California-based early-stage startup, Delaware does not offer any practical advantages over a California incorporation. Perhaps the only near-term advantage is that Delaware allows for a single-member board of directors, regardless of the number of shareholders in the company. This can facilitate corporate governance in an early-stage startup. Apart from this, however, a Delaware domicile simply adds administrative burdens for an early-stage startup based in California. These burdens include the difference in the way franchise taxes are handled and the need to qualify as a foreign corporation in California. In general, there is more administrative hassle. The burdens can be dealt with, but the question is whether the burdens are worth the minor advantages, if any, afforded by a Delaware domicile in the early stage.

Do Delaware Llcs Pay Taxes

Yes, like all LLCs, Delaware LLCs pay business taxes. LLCs in Delaware do have a few unique tax requirements:

  • Alternative entity tax: LLCs formed in Delaware are required to pay a $300 tax to the state by June 1 every year.

  • Gross receipts tax: Again, even though Delaware does not have a sales tax, as a business that sells goods or has employees, youll need to register with the Delaware Division of Revenue and pay a gross receipts tax. The specific amount youll pay for this tax will vary based on your business type.

  • Federal and state income taxes: Your LLC will be required to pay both federal and state income taxes. The way you pay these taxes will vary based on whether or not youve elected to be taxed as a corporation. LLC members will also be required to pay self-employment taxes.

  • Payroll taxes: If you have employees, youll need to withhold and pay payroll taxes, as well as pay unemployment taxes.

Contact An Experienced Corporate Attorney

Should I Incorporate in Delaware?

There is a lot that goes into making the best decision on incorporating in Florida vs Delaware. Each business is unique. Seek counsel from an experienced business attorney who understands the intricacies of incorporating in both states.

The team at BrewerLong can guide you through the entire incorporation process, including deciding the best corporate structure for your business and how to comply with all relevant business laws. Contact us to set up a consultation and learn more about what we can do to help your business succeed.

Draft An Llc Operating Agreement

Once youve received approval from the Division of Corporations, youve officially formed an LLC in Delaware. This being said, however, there are a few additional steps youll need to take.

First, youll need to create an LLC operating agreement. Delaware is, in fact, one of the five U.S. states that require members of an LLC to adopt an operating agreement. The law doesnt specify, however, exactly when you have to enter into the agreement, but its a good idea to do so soon after filing your certificate of formation. Although a verbal agreement is allowed, its best to have a formal, written operating agreement.

At a minimum, youll want to include the following information in your operating agreement:

  • The LLCs purpose, including products or services offered.

  • The names and addresses of the members .

  • Each members contributions of value to the LLC.

  • Each members ownership interest in the company, voting rights, and share of the profits and losses.

  • Procedure for admitting new members.

  • Procedure for electing a manager if the LLC is manager-managed.

  • Meeting schedule and voting procedures.

  • Dissolution process.

After youve created your agreement, it should be reviewed and signed by each member of the LLC.

Even though Delaware requires that you adopt an operating agreement, you’re not required to file it with the state. Therefore, youll simply want to store it with other important business records.

Why Incorporate With A Registered Agent Inc

Because its fast, simple, and inexpensive, and when you hire us to form your Delaware corporation, youre hiring experts in Delaware corporation and business filings. Think about it: when you hire a national company to track and keep your personal information and complete your filing, how well do they know Delaware and how will they treat your confidential information? If you even have to think about that answer, its not worth hiring them. We only do filings where we live, and thats in Delaware. Its all we do. We know the folks at the Division of Corporations and they know us. Well complete your corporation filing fast, and keep your information secure. At A Registered Agent Inc., we respect your privacy and do all we can to maintain it.

Potential Disadvantages Of Incorporating In Delaware

There are many reasons why to incorporate in Delaware. There are also a few possible disadvantages.

  • Additional filing costs

  • Delaware requires you to file annual reports even if you already have in your home state.

  • Registering in multiple states

  • You’ll have to register the business in more than one state if you’ll do business outside of Delaware.

  • Extra foreign qualification costs

  • You may need to register to transact business in another state if you have a physical location and employees outside of Delaware. Foreign qualification registers a company to do business in a state other than the state of incorporation. There may be foreign qualification costs and ongoing fees in other states where you transact business.

  • Should You Incorporate In Delaware

    Incorporating in Delaware WON’T Save You Taxes

    With all these advantages it would seem like incorporating your business in Delaware is a no-brainer. And in fact, venture capitalists and angel investors usually prefer that you incorporate your business in Delaware.

    But most small businesses arent vying for venture capital. For the typical small business owner, it likely makes more sense for you to file your business in your home state. The many benefits of incorporation in Delaware may not apply to your type of business or may be unable to actually save you significant money. There are, after all, disadvantages as well.

    Are Delaware Corporations Advantageous For Small Businesses

    Yes, Delawares laws create similar advantages for small businesses as they do for large corporations. Most notably, laws in Delaware allows a clear separation between personal and business assets. Therefore, any business liabilities will not result in the seizure or forfeiture of personal assets.

    Additionally, holding companies in Delaware are not obligated to pay sales taxes or require any sort of license. While corporations must file an annual report, there is no requirement for LLCs.

    Should I Incorporate In Delaware Or Start An Llc

    Although several variables can influence this decision, the main difference is that corporations have more obligations to meet than LLCs. Corporations require formal resolutions and shareholder meetings in addition to the recording and filing of forms. LLCs are much more casual with less formality. There are no similar requirements and forms can be simply filed with the IRS.

    However, for larger companies, incorporation is the better option since it comes with prestige and allows companies to sell stock and raise large sums of money.

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