Delaware Secretary of State 2022 Annual Report
The Delaware Secretary of State released their much-anticipated 2022 Annual Report highlighting the accomplishments of the Delaware Division of Corporations and the State’s entity formation statistics for the past year. The Report illustrates Delaware’s continued status as the preeminent jurisdiction for business formation and domicile, as well as the sustained popularity of the limited liability company (LLC) business form.
Once again, certain statistics stood out, including 313,650 new formations, slightly down over 2021’s 336,407 new entities. At the end of 2022, over 1.9 million entities are currently incorporated in Delaware, far surpassing the State’s population.
The LLC’s popularity continued to outpace all other entity types, with 231,196 representing 73.7% of new formations in the State. The LLC’s popularity comes in large part from the combination of (1) near-total flexibility to structure the governance, ownership, operation, and administration of the company to fit the founders’ and investors’ needs, (2) the lack of structural formalities, such as board resolutions and meetings, board minutes, annual meetings of shareholders, and complex bylaw provisions, among other things, (3) default pass-through taxation and (4) the ability to have different Series or internal classes within the LLC. Since the LLC eliminates many of these formalities applicable to corporations and allows freedom of contract in structuring the working of the company, the LLC can be used to operate everything from a simple, closely held business to a complex operating company or investment fund. This entices all types of clients to choose the LLC.
The corporate form, on the other hand, is still used by many clients looking to raise capital by selling shares of stock, to court venture capital investors and fund investment, or ultimately to go public or seek to be acquired by a larger financial or strategic buyer (with acquisition being the more common route for an exit presently). The corporation accounted for 18.7% of the new formations in Delaware in 2022.
The Secretary of State’s Annual Report reflects Delaware’s continued dominance as the domicile of choice for publicly traded companies, accounting for 68.2% of Fortune 500 companies in 2022. Although the number of IPOs was down drastically, 79% of all companies that held an Initial Public Offering (IPO) in 2022 were Delaware corporations.
The State of Delaware strives to keep its corporate and business entity laws on the cutting edge, embracing innovation and fintech solutions to keep Delaware a leader and trailblazer among jurisdictions worldwide. Business entity formation and the resulting franchise tax and filing revenues are an integral part of Delaware’s economy. Amazingly, $1,966,110,000 of the State’s revenue in 2022 came from fees paid to form entities, annual franchise taxes and filings made with the Secretary of State in connection with business entities (e.g., amendment, correction, amendment, domestication, merger and related filings).
The benefits of Delaware’s predominant place in corporate and other business entity formations benefit the people of Delaware. Currently, Delaware is one of the few states without a sales tax, mainly because of the income generated by the relationships between a strong legal and judicial system, cutting-edge corporate laws and experimentation in business entity law and regulation. The direct result fuels the desire of business founders and investors globally to select an equitable but business-friendly domicile for their companies.
The complete 2022 Annual Report from Delaware can be viewed here
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.