Delaware, USA: Advantages of Company Incorporation

The necessity to pay taxes is hardly pleasant, yet ultimately inevitable. However, those in the know suggest that companies registered in Delaware may enjoy tax flexibility and lucrative options. Since the early 1900s, Delaware has attracted businesses with its flexible tax regime, efficient corporate laws, and minimal constraints, establishing itself as a premier U.S. business destination. It is home to top corporations like Google, Tesla, Amazon, American Express, and Disney. In this article, we outline the crucial benefits of registering a company in Delaware.

Why Choose Delaware? 

Despite being the second smallest state and only sixth in population, Delaware is a corporate hub, with 68% of Fortune 500 companies and 93% of all U.S. IPOs incorporated there. In 2022 alone, Delaware saw the registration of over 230,000 new businesses, boosting its corporate community to over 1.9 million. In 2021, the state earned USD 1.38 billion from legal entity formation fees, franchise taxes, and Secretary of State filings, continuing to attract global business owners and investors. 

Company incorporation in the state of Delaware offers the following advantages:

• Laws and Regulations: Delaware’s corporate laws, especially the Delaware General Corporation Law (DGCL) and the Limited Liability Company Act (LLCA), offer solid legal protection. Delaware’s transparent and flexible corporate legislation, refined for the global business stage, is ideal for international companies, allowing for making significant changes without waiting for government approval.

• Business Taxes: Tax savings are another attraction for companies registering in Delaware. Some potential tax benefits include:

• Companies outside Delaware do not pay state income tax.
• Non-residents inheriting shares of a Delaware company are free from inheritance tax if the new owners reside outside Delaware.
• There is no sales tax on intangible assets like royalties.
• The state does not tax foreign owners of shares living outside Delaware.
• A Delaware company that does no business in the state does not need a Delaware business license.

• Confidentiality for Delaware Company Members: Delaware is committed to owner privacy. Incorporation does not require publicly disclosing the names of the people behind the company. The identities and addresses of those involved in Delaware LLCs (typically its owners or managers) are disclosed only if required by legal action or law enforcement.

• Flexible Bylaws: Unlike other U.S. states, Delaware offers a simplified process of company formation. A single person can hold all the positions, even without being a resident. Delaware-incorporated companies enjoy a favorable business environment:

• Simplified corporate framework.
• No obligation for a physical presence in Delaware.
• Non-residents can establish and run Delaware companies.
• The ease of document preparation for setting up a company.

• Simple Registration Procedures: Starting an LLC in Delaware is appealing due to its uncomplicated and affordable setup process. The state has minimal requirements for LLC founders. To incorporate in Delaware, follow these steps (using an LLC as an example):

1. Naming Your LLC: Choose a name with “LLC” or “Limited Liability Company” and check its availability online.
2. Member Number: Decide the number of members your LLC will have.
3. Operating Agreement: Optional but recommended for internal clarity.
4. Registered Agent Selection: Appoint a registered agent, which can be a person or company.
5. Documentation: Complete forms, compile documents, pay fees, and submit everything to the state’s registration authority.

• Low Business Costs: Delaware offers a cost-effective business environment, with operational expenses about 25% below the national average, making it the national leader with the lowest administrative costs. Mandatory corporate expenses include fees for preparing and submitting annual reports, registered agent fees, and a franchise tax of USD 300.

• Delaware Court of Chancery: The oldest U.S. business court offers a judge-driven approach, efficient legal judgments, and promotes out-of-court resolutions. Delaware’s experienced legal community and rich collection of precedents allow for quick issue resolution. Consistent legislation and favorable usury laws benefit corporations with flexible loan interest rates.

• No Foreign Ownership Restrictions: Delaware’s policy has no citizenship or residency requirements, fostering global ownership. It allows businesses to form strong entities with international partners, attracting worldwide talent and investment.

• Smooth Corporatization: Delaware allows LLCs to transition smoothly into corporations, benefiting startups and growing businesses needing to alter their legal structure. This adaptability helps businesses quickly seize new market opportunities.

• Reliable Asset Protection: Delaware offers vigorous liability and asset protection measures, ensuring owners’ assets are protected from corporate debts. Legal claims are directed at the LLC, not individual owners, effectively shielding personal assets.

• Perpetual Existence of LLCs: An LLC’s existence in Delaware is not dependent on its members, ensuring continuity even if original owners sell their interests or withdraw. Smooth ownership transitions allow control to transfer without disrupting operations, benefiting estate planning.

Disadvantages of Delaware Incorporation 

While Delaware is an attractive place to register a company, it comes with some limitations:

• Companies not operating within Delaware are exempt from state taxes but are subject to taxes in the states where they conduct business.
• The cost of registering a company in Delaware is higher than in many other states.
• Delaware imposes a franchise tax based on the number of shares and the assumed par value of total issued shares applied to the company’s gross assets. This tax is due even if the company does not generate a profit.
• Companies must prepare and submit annual reports.
• Companies need to appoint a registered agent in Delaware to handle corporate correspondence, incurring additional expenses.

In case of legal disputes, company owners must personally attend court proceedings in Delaware. The state requires business-related disputes to be settled in its courts, necessitating the in-person participation of key personnel and the services of a local lawyer. These requirements mainly affect companies registered in Delaware but operating in other U.S. states. For businesses operating internationally, the benefits of Delaware registration often outweigh these legal stipulations.

Summing Up 

Delaware’s well-functioning legal system, business-friendly environment, and flexible corporate laws attract numerous investors worldwide. If you want to incorporate your business there, reach out to International Wealth, and our experts will eagerly help you achieve your goal!