Why Companies Incorporate in Delaware

Form a Delaware Corporation Now Form a Delaware LLC Now

More than 65 percent of all Fortune 500 companies and more than half of all U.S. publicly-traded companies are incorporated in the state of Delaware, and more startups are incorporating in Delaware every day. But have you ever wondered why so many companies incorporate in Delaware? Delaware has established a reputation around the world as the most business-friendly state to incorporate. In fact, Delaware's corporation laws and statutes serve as a model for business laws in other states across the country.

Benefits of Incorporating in Delaware

With several legal advantages and tax incentives, Delaware offers a range of benefits that appeal to businesses of all sizes. Let’s explore some of the key reasons behind Delaware’s lasting popularity in the business world.

Delaware Corporate Law

One of the primary advantages of incorporating in Delaware is the legal and liability protections afforded by the state’s established corporate laws. Delaware's business-friendly legal framework is designed to provide a clear and flexible environment for businesses to operate. Major companies from around the globe choose to register in Delaware specifically for this predictability and stability. These protections are simply incomparable to what is offered by any other state or country, making Delaware the Incorporation Capital of the World.

The Delaware Court of Chancery is a dedicated business court system that handles only corporate and business disputes. Instead of a jury, this court uses judges who are experts in business law, providing fast and predictable rulings. As the oldest business court in America, the Court of Chancery maintains the most advanced and up-to-date case law, which corporate lawyers in Delaware rely on and refer to. With a wealth of reliable case law to draw upon, Delaware business owners and shareholders can rest assured that their company is in good hands.

Delaware Corporate Taxes

Another reason why companies incorporate in Delaware is the incomparable tax savings. Delaware is considered a tax-friendly state for businesses, which attracts a wide range of entrepreneurs and large corporations. Some of the key corporate tax benefits of incorporating in Delaware include:

No Corporate Income Tax on Out-of-State Revenue: Delaware does not impose a corporate income tax on revenue earned outside the state, as long as the company does not conduct business in the state. This is a key benefit for businesses that operate entirely out of state.
No State Sales Tax: Delaware does not charge tax on the sale of goods or services to consumers. This means that Delaware businesses don’t need to collect or remit sales tax to the state, simplifying accounting and compliance.
No Personal Income Tax for Non-Residents: Owners and shareholders who do not reside in Delaware do not pay Delaware personal income tax on their share of the company’s profits, provided the company doesn’t operate in Delaware.
No Inheritance Tax: Delaware does not have an inheritance or estate tax, and stock in a Delaware corporation owned by non-residents is not subject to Delaware taxation upon death.

Additionally, Delaware corporations not operating in the state of Delaware are exempt from acquiring a business license in Delaware. This is another one of the reasons why Delaware is so popular for holding companies and out-of-state businesses.

Over 65 percent of Fortune 500 companies and over half of all U.S. publicly traded companies are incorporated in Delaware.

The fact that Delaware ranks number one overall as the most corporate-friendly state proves, once again, that no other state in America has a corporate court system as powerful, as experienced, or as respected as Delaware's Court of Chancery.

Delaware Corporation Privacy

Delaware's corporate privacy laws offer a high level of confidentiality for businesses, making it an ideal state for those who value discretion. For starters, the state of Delaware allows you to file your company without listing the names of the owners, which protects the owners' identities and personal information. The only people publicly disclosed for corporations are directors and officers. For LLCs, no public disclosure of members or managers is required at all.

Furthermore, Delaware annual reports typically only require basic information about the corporation, such as the company name, principal office address, names and addresses of all directors, and the name and address of at least one officer.

Delaware Registered Agents provides a physical address for service of process. This allows business owners to keep their personal or office address off the public record. There are only two circumstances in which a Delaware Registered Agent would be compelled to reveal this information: in the event of a legal proceeding or at the request of law enforcement.

Appealing to Investors

Another advantage of incorporating in Delaware is that a Delaware corporation, in and of itself, instills confidence in investing parties. Venture capitalists, angel investors, and other investors often prefer investing in Delaware companies due to the state’s investor-friendly laws and legal predictability. The state’s highly developed body of corporate case law, combined with the Court of Chancery, reduces legal risk and makes investment decisions more confident.

Delaware also allows corporations to issue multiple classes of stock. This allows them to customize their rights and protections, often giving them more downside protection compared to common shareholders.

To top it all off, a great number of startups and public companies are formed in Delaware, meaning many investors will already be familiar with the legal environment. This can further streamline deal execution.

Other Reasons to Incorporate in Delaware

In addition to corporate law, privacy, and tax advantages, there are several other reasons why companies incorporate in Delaware. Here’s a list of other reasons to form a corporation in Delaware:

GEOGRAPHY

You do not have to live in Delaware in order to incorporate a company in Delaware. You can live anywhere in the U.S. or abroad and still form a Delaware business
You do not need a physical address in Delaware. As long as you retain a Delaware Registered Agent, you can have them receive legal documents and government notices on your behalf

STARTUP COSTS

The initial filing fee for a Delaware corporation or LLC is one of the lowest in the country

STRUCTURE

One person can hold all the positions and function as the sole owner of a corporation or LLC. For a corporation, one person can serve as the sole director, officer, and shareholder
Delaware General Corporation Law is widely regarded as the most advanced and business-friendly in the country, and infuses both predictability and dependability into your Delaware general corporation

CONVENIENCE

The Delaware Division of Corporations allows certain Delaware Registered Agents, including Harvard Business Services, Inc., to maintain a direct online connection to its electronic database, which allows us to file every company on a same-day basis. This also enables us to offer the fastest document retrieval service in the country

INTERNATIONAL RECOGNITION

Delaware is widely recognized as a corporate-friendly jurisdiction. Choosing to incorporate in Delaware can enhance a company's credibility and reputation, particularly for businesses seeking to attract customers or investors

RAISING CAPITAL

A Delaware corporation's Board of Directors can set the price on shares of stock it wishes to sell, allowing the board to raise capital on its own terms

ACCESS TO EXPERTS

Delaware has countless legal experts, with many local attorneys and law firms specializing in Delaware corporate law. Businesses seeking legal advice will have plenty of options

Looking for more reasons to consider a Delaware company over one formed in your home state? Read this article about what kind of company benefits most from choosing Delaware.

Before you initiate the business formation process, be sure to check out our list of resources that will show you how to incorporate in Delaware. Contact us today to get started.

Form a Delaware Company Now

Why Incorporate in Delaware?

Have you ever wondered why so many companies incorporate in Delaware, and why you should think about doing so as well?

In this video, our founder and CEO, Rick Bell, tells you some of the benefits of incorporating in Delaware and how Delaware's Court of Chancery is different from courts in other states. With the Delaware Court of Chancery being run by judges, having the most complete body of case laws, and how anyone can form a Delaware LLC or corporation, regardless of where a company does business, there are plenty of reasons why companies incorporate in Delaware.