13 facts to know before incorporating a Delaware company
November 18th, 2016
Wilmington skyline. Wilmington is the largest city in the state of Delaware.
Incorporating your company surely comes with some benefits. Forming a corporation will help you generate a good amount of revenue through the sale of company shares.
Delaware will definitely be the first choice that will cross your mind. The state is so far the leading jurisdiction for public traded corporations appearing on the US stock exchange, with more than half of these companies being incorporated there. Therefore, it is quite understandable if you choose Delaware for the incorporation of your company.
However, before making that move, it is important to know some crucial facts concerning Delaware company incorporation. Here are some of the facts you should keep in your mind.
Delaware’s Court of Chancery uses judges and not juries
Once you choose Delaware and you find yourself in a compromising situation (may be caused by internal disputes in your organization) and the need to go to court arises, it is important to note that Delaware's Court of Chancery uses judges and not juries. This means that your company's legal fate will lie in the hands of a well-trained legal expert. There is no hoping and praying, just the facts examined through the clear glasses of the law.
Delaware's General Corporation Law is perhaps one of the most flexible and advanced business formation statutes available in the United States. The law is designed for maximum flexibility in the formation of business entities. It accords equal rights and duty allocations for its founders and shareholders. This means that Delaware only allows one person to be the director as compared to other states where three to four people will be required to fill in the officer and director positions.
Cost effective incorporation
Delaware will charge you around $89 for the incorporation process. This is far cheaper than what you would be charged in California, New York or Texas. Please note that even if you choose to incorporate in a foreign state, you will still be subjected to a provision that requires you to register your startup company as a foreign entity' and comply with the laws of the states you do business in.
Delaware will not ask for any names to be included in the formation documents, thus providing your company with a sense of anonymity that will protect you from any unwanted scrutiny. There are better and more convenient privacy protections in Delaware as compared to any other state.
Newark, the third largest municipality in Delaware.
There is less Litigation
The fact that judges are used means that any decisions made are handed over as written opinions that your company can rely on. This is why most Delaware corporations do not end litigating disputes. The reason is that those involved examine these published opinions keenly and come up with deals to avoid lawsuits. Corporate case Law in Delaware is far more extensive as compared to other states due to the high number of corporate scenarios that pop up from time to time.
There is a comprehensive and statutory regime to protect the public
Delaware protects the public from any inappropriate behavior by business entities through a comprehensive statutory and regulatory regime. This regulatory regime is however, not related to Delaware's corporate laws. This means that a company that decides to incorporate in Delaware is choosing to have its internal affairs governed by this law. This company will also be subjected to regulation whenever it conducts business and the normal company charter will not be able to immunize it from any regulations that do not relate to its internal affairs.
Delaware provides a developed body of corporate law
The reason many businesses choose to incorporate in Delaware is because the state provides a well-developed body of corporate law that increases the value of all Delaware corporations. Delaware achieves this by allowing managers as well as directors to make good business decisions of their own volition. The corporate law here is well balanced and provides a middle ground between firms that have set up their corporate law to stay protective of their officers, directors and its stakeholders
Delaware has been referred as a tax haven
The reason Delaware has been referred to a tax haven is because it does not collect corporate taxes from Delaware corporations that do not carry out their business in the state. The state also does not tax royalty payments. These tax policies allow some corporations to make substantial savings. However, it is advisable to consult a tax professional to determine whether incorporating in Delaware will have any tax benefits for your business.
Riverfront at night, Wilmington.
The requirement to name a registered agent
If you decide to incorporate in Delaware, you will be required to name a registered agent. This agent should be located in Delaware and will receive any legal documentation on behalf of your business. If you do not know anyone in Delaware ready to act as your registered agent, you will be forced to hire a company to provide this service for you.
The inclusion of annual Franchise taxes
All Delaware corporations will be required to pay franchise taxes every year based on the shares of the firm. The tax usually starts at $75 with a $50 filing fee included and that can shoot up to $180,000, depending of course on dynamics such as the size as well as nature of operations.
Annual reporting requirements
In addition to making required reports in your state, you will be required to comply with Delaware's annual reporting requirements, and a break from that will attract serious penalties.
You will be required to pay registration and incorporating fees
You will be required to pay the registration fee to allow you to do business in your state and any other states you wish to conduct your business in. You will also have to come up with the incorporating fees.
Turnaround is pretty fast
Over the years, the office of the Delaware Secretary of State has consistently sought to rush along the process of making filings. When it comes to places like California, you have to wait something north of 24 hours. In Delaware, you can have your request processed in just under an hour, and this puts Delaware top of the list of the states offering the fastest turnaround when it comes to incorporation.
Incorporating in Delaware surely has some benefits, but it also important to note that it might not be the best choice for a startup company. If your company is just starting out, then chances are that you will experience some hitches. The fact that large companies choose Delaware clearly points to the fact that it is only large public companies that tend to benefit the most by incorporating in the state. It is, therefore, advisable to think about it and make sure you consult your company co-founders on whether you should incorporate in Delaware or move along to another state. Keep in mind that if you are planning on working with an investment bank or venture capital fund, you will likely be forced to incorporate in Delaware which may not be a bad thing most of the time.