Reap the Advantages of Incorporating in Delaware
The State of Delaware is best known for one thing: corporations. Why? Because Delaware basically gave birth to the modern corporation. In the early 1900s, before Delaware restructured its corporate laws, if you wanted to form a corporation it had to be enacted by Congress (yes, the federal government once decided whether or not you could own a corporation). Delaware changed all that. It was one of the first states where an individual could follow a simple process and incorporate their business. To this day, Delaware remains the incorporation capital of America. Consistently, Delaware ranks as the best place to incorporate a business and more than half of the nation’s Fortune 500 companies choose to make Delaware their home. This is why companies register in Delaware:
Delaware Corporation Advantages
Corporate laws and the Court of Chancery
The main reason large corporations choose to incorporate in Delaware is because of our state’s reliable business laws. Because of Delaware corporation history, nearly every type of lawsuit for or against a corporation has already been argued in front of a judge and ruled on by a judge. In fact, Delaware even has its own court system for businesses—it’s called the Court of Chancery. Business law is argued and ruled upon by judges not juries. And our business laws and rulings are so well known that it’s what most lawyers study in law school, so at one point or another, every lawyer in the US has had to study Delaware business law. This system and history has numerous advantages for businesses, but the main one is that prior to going to court, a corporation will already know the likely outcome based on previous cases, so they’ll know whether to settle or keep fighting. If you have a huge Delaware corporation and are routinely involved in lawsuits this could be extremely advantageous.
Delaware corporations offer a unique tax savings strategy. In our state’s tax code, (1902(b), Title 30), holding companies are exempt from paying Delaware’s corporate tax. In a simplified way, it works like this: Say you own a corporation that does business throughout the US. You want a tax savings. To receive a tax benefit, you can form what’s called a holding company in Delaware. You assign the holding company all of your corporation’s “intangible investments” (patents, trademarks, trade names, etc.). The holding company “holds” these assets. The corporation doing business throughout the US can then lease the use of the trademarks, trade names, and patents from the newly formed holding company (a Delaware corporation). On the profits the Delaware holding company makes from the leases, it will pay no Delaware corporate income tax because Delaware doesn’t tax income from intangible assets. You’re basically creating an expense which you pay to yourself and don’t have to pay taxes on. For larger corporations, this Delaware corporate tax benefit can equal a large savings.
Corporation filing fees bring in massive amounts of money for Delaware, so the Division of Corporations has a vested interest in making the incorporation process as simple as possible to encourage more corporate filings. Delaware corporations, compared to other state corporations, requires little personal information on its corporate filings, so directors and shareholders can keep their personal information secure.
A Delaware corporation’s annual reports can be filed online, they’re due on the same day year after year, and our state requires a minimal amount of information. These reports can be filed quickly and with little effort.
A Delaware corporation is like a name brand suit. It looks professional and investors tend to take you more seriously if you have one. Investors, bankers, and other professionals feel comfortable with Delaware corporations—they know how a business incorporated in Delaware works, the responsibilities of its shareholders. It’s familiar, which to many means security.
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Are Delaware Corporations Advantageous for Small Businesses?
The most simple answer is yes. The primary reason for business to incorporate, in Delaware or anywhere else, is asset protection. Delaware corporations provide small businesses the exact same limited liability afforded to large businesses. A Delaware corporation allows for a separation of personal assets from business assets, and if your business is sued, your corporation should, ideally, keep your personal assets safe from the lawsuit.
Delaware corporations can give small businesses other benefits, as listed below:
- No business license required
Most holding companies in Delaware, according to our state’s General Service License requirement (Section 2301(b) and (d), Title 30), are not required to obtain an occupational business license or pay Delaware’s gross receipts tax.
Delaware Articles of Incorporation (the document that forms your corporation) require minimal amounts of personal information. This helps to secure your private information against identity theft, and it makes filings really simple.
- Less expensive than an LLC
Delaware corporations only have a slightly smaller filing fee than LLCs in Delaware (the difference is $1) if you authorize 1500 shares or less. But in the long run, small business corporations can be less expensive to maintain than an LLC. LLCs do not file an annual report, they pay an annual tax of $300. Corporations, however, are required to file an annual report and pay the Delaware Franchise Tax. However, annual reports fees cost $50, and if your small business has authorized 1500 shares or less, you could qualify for the minimum franchise tax payment of $175, bringing your total annual payment to $225, annually saving $75 you would have spent if you’d formed an LLC.
- Corporate tax exemptions
According to § 1902, a corporation that maintains a corporate office in our state, but doesn’t do business in Delaware is exempt from paying the state corporate tax. Corporations in Delaware that elect with the IRS to be taxed as an S corporation are also not required to pay the state’s corporate income tax.
Can I incorporate in Delaware if I live in a different country or state?
Yes. The only physical requirement Delaware corporations have is that the corporation must have a registered agent in Delaware. A person doesn’t need to live in Delaware to incorporate in Delaware. In fact, some advantages of Delaware corporations are available only to nonresidents. The benefits of incorporating in Delaware as a nonresident are listed below:
- No inheritance tax
Delaware does not impose a state inheritance tax on nonresidents, according to § 1502, Title 30. If the heir of your Delaware corporation and its intangible assets (stock) is not a resident of our state and the corporation does no business in Delaware, they will not have to pay the inheritance tax. Residents could pay up to a 16 percent tax.
- No sales tax
Delaware does not have a sales tax, which means your corporation in Delaware can make purchases without paying sales tax.
- No state income tax
Delaware corporations that do no business in Delaware do not pay state corporate income taxes. Residents of other states and other countries may be obligated to pay their home state’s income taxes, but they will not have to pay Delaware’s income tax.
- No ad valorem tax
Our state doesn’t have an intangible personal property tax. If the state or country in which you live doesn’t have one either, you shouldn’t have to pay any intangible personal property taxes.
Should I incorporate in Delaware or start an LLC?
The main differences you’ll notice between running a corporation or LLC in Delaware won’t be the difference between stocks and ownership percentage. What you’ll most likely notice is that corporations are much more formal than LLCs. Corporations require resolutions and shareholder meetings, and the recording and filing of forms showing meetings were held and voting majorities made the decisions. LLCs are much more flexible. They don’t require annual shareholder’s meeting, and you can file forms with the IRS to be taxed as an S corporation or a C corporation. Corporations are by default taxed as “C corps” and can register with the IRS to be taxed as an “S corp.” To some investors, however, a Delaware corporation does carry some prestige, and if you want to raise money, some investors will feel more comfortable with stock agreements as opposed to buying a percentage of ownership in the LLC. The final decision, of course, as whether you should incorporate in Delaware or start an LLC will best be decided by you.
How to Incorporate in Delaware
File Certificate of Incorporation
Delaware corporations are formed by filing a formation document called a Certificate of Incorporation with the Delaware Division of Corporations. A blank form can be obtained on the Division of Corporations website.
Enter the required information on the Delaware Certificate of Incorporation:
- Name of corporation in Delaware
- Delaware registered agent and registered office address
- Amount of stock authorized and the par value per share (you aren’t required to set a par value)
- Name and mailing address of the incorporator
- Date of formation, name and signature of the incorporator
- Filing fee
Mail or fax the completed Certificate of Incorporation to the Delaware Division of Corporations
After completing the Certificate of Incorporation to form a Delaware corporation, you can either mail your filing to the Division of Corporations or fax it (include Division of Corporation cover sheet). The filing fee for a Delaware corporation is $89. Normal filing times for individuals is about 3 weeks. If you hire us to form your corporation, it will be active in 1 to 3 days (the timing depends on state filing times), however, if you need the corporation the same day, Delaware charges a $50 expedite fee.
If you don’t want to deal with any of this, you can hire us to form your corporation in Delaware for $180. You can sign up online with us and avoid fax and paper filings all together.
Delaware corporation costs and fees?
Delaware incorporation costs:
- Corporation filing fee — The minimum fee is $89, however, you may be charged more based how much stock is authorized and/or the stock’s par value.
- Stock fees — If you authorize more than 1500 shares with no par value, your filing fee will increase, sometimes dramatically. If you authorize more than 1500 shares but not more than 20,000 shares, the filing fee will increase $0.01 per share. If you authorize more than 20,000 but less than 2 million, the filing fee will increase at $0.005 per share. And if you authorize more than 2 million shares, the filing fee will be calculated at $0.004 per share. These rates are without assigned par values.If you assign par value to the authorized stock, the filing fee is calculated at a rate of $0.20 per $1,000 of stock, up to $2 million. From $2 million to $20 million, the fee is calculated at $0.10 per $1,000 of stock. More than $20 million, the fee is calculated at $0.04 per $1000 of stock.The Division of Corporation offers fee calculators on its website.
Delaware corporation maintenance costs:
- Annual report costs – Delaware charges domestic corporations $50 for an annual report. Foreign corporations registered in Delaware pay a $125 report fee.
- Franchise Tax – Filed in concert with your annual report is Delaware’s Franchise Tax. This tax has a minimum payment of $175 and is due on March 1 each year. However, there are two methods for calculating this tax: Authorized Shares and Par Value Capital. The par value capital method has a $350 minimum tax. For assistance calculating the franchise tax, see our Delaware Corporation Franchise Tax Help page.
Are Delaware corporations required to have bylaws?
There is no Delaware statute proclaiming that a corporation must have bylaws, but it would be more than useful to have some. Bylaws govern the internal functions of the corporation, the responsibilities of the directors, how the corporation operates. Your Delaware corporation’s bylaws may also be required to open a bank account. In short, bylaws make your corporation seem legitimate. Some people hire attorneys and spend thousands of dollar drafting bylaws. When you hire us to form your Delaware corporation, you will be provided with bylaws, so you can run your corporation on day one.
Why incorporate with A Registered Agent Inc.?
Because it’s fast, simple, and inexpensive, and when you hire us to form your Delaware corporation, you’re 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, it’s not worth hiring them. We only do filings where we live, and that’s in Delaware. It’s all we do. We know the folks at the Division of Corporations and they know us. We’ll 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. Plus, when we form your corporation, you’ll also be hiring the best registered agent service in Delaware. Included in the cost of forming your corporation, our Delaware registered agent service will track your corporation’s maintenance needs, accept service of process on your behalf, and make sure your corporation continues to meet Delaware’s corporate requirements. We are always here to take your calls, assist you and answer any questions you may have about forming and maintaining your corporation.
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