There’s a reason why over 67.8% of Fortune 500 companies in the country have made Delaware their home base. The state has worked tirelessly to create an environment conducive to productivity and growth. Because of this, more and more corporations are moving to the First State.
In 2021 alone, Delaware had 1.8 million newly formed businesses join its market, with 20.8% being corporations. This number shows how popular Delaware has become to businesses of all sizes.
If you’re curious as to why more and more companies are incorporated in Delaware, you’ve come to the right place. This blog will discuss what makes First State the perfect home for your corporation.
Why Do Corporations Incorporate in Delaware?
There are ten major reasons why Fortune 500 companies are choosing to move to Delaware. These factors are the following:
One of the major reasons corporations prefer to incorporate in Delaware is the business-friendly nature of the state.
The state has two of the country’s most pro-entrepreneurship laws: the Delaware General Corporation Law (DGCL) and the Limited Liability Company Act (LLCA).
The DGCL is a specialized contract law for the formation, management, and governance of corporations in Delaware. Simply put, it governs a corporation’s internal affairs, including the relationship between owners and managers. However, the DGCL doesn’t include other aspects of operating a corporation.
Meanwhile, the LLCA governs the country’s second most popular legal entity, the LLCs. The LLCA allows parties to define their business relationship within their LLC agreement. It also allows LLCs to enjoy several tax advantages corporations cannot use.
Delaware created more business-friendly laws by using these two statutes as their foundation. And to ensure that the state remains at the forefront of transformative business laws, they regularly update them with the help of the state’s leading corporate attorneys.
Efficient Business Courts
Delaware’s commercial court is called the Court of Chancery. Unlike its other courts, the Court of Chancery is run by judges specializing in corporate laws, not juries.
These judges handle more than a thousand civil lawsuits yearly. Despite this, they solve these disputes efficiently. They prioritize corporate-related cases and use predictable legal precedents to close similar cases quickly.
Additionally, Delaware is constantly developing its body of case law so that corporations can future-proof their plans.
Robust Asset & Liability Protections
Debt is among the most common risks people face when starting a business. If their home state of operations has little to no liability and asset protections, they’re constantly putting themselves in danger.
Luckily, Delaware has created strong asset and liability protection for business owners. Suppose you incorporate your business into a Delaware LLC, and someone decides to sue your partner. In that case, the state will protect your assets from creditors.
The plaintiff can’t access any portion of your company’s assets, protecting you and everyone else. Additionally, the state has statutory limitations on personal liability for LLC members. This means they can’t be held responsible for repaying the company’s debts. Delaware ensures that you and your LLCs are treated as separate legal entities.
Access to More Investors
If you want to capture the attention of angel investors and venture capitalists, you should be a Delaware C-corporation.
Delaware corporations are extremely popular among investors primarily because of the state’s laws around stock classes. The legal code allows for two or more classes of stock. Ventures who want to fund the corporation can have several classes of their preferred stocks.
The state also allows corporations to distribute their stock options. They can use it to incentivize their innovative employees and board members.
Excellent Tax Benefits
Delaware is called a tax haven for a reason, as it offers some of the best tax benefits in the country, including:
No sales taxes
No investment income taxes
No corporate taxes for Delaware corporations operating outside the state.
No taxes for intangible assets.
It’s also worth noting that the state has flat fee taxes. Since corporations are not pass-through entities, they still have to pay their taxes. However, they are taxed based on their number of shares, with a minimum of $175 to $400.
Same-day Business Filings
The state takes pride in the fact that they process filings within the same day. Delaware’s incorporation process can be done in under an hour. You also have the option to complete them online.
Low Annual Fees
If Delaware’s incorporation process, its maintenance policies are even easier. Corporations only need to pay $300 for their annual franchise taxes.
Unlike other states, Delaware doesn’t require you to disclose your and your members’ identities. If you decide to incorporate in Delaware, you can submit an initial list of members without submitting an initial list. The state provides you with enough privacy so that you can run your corporation in anonymity.
The only name you need to disclose with Delaware’s Secretary of the State is the name of your registered agent. Since your registered agent will be responsible for receiving and processing your corporation’s paperwork, they must be enlisted.
No Residency Restrictions
Delaware opens its doors to all entrepreneurs, including those who don’t live within the state. You don’t have to be a resident to be appointed as an offer, director, or shareholder of a Delaware corporation.
Relaxed Corporate Structure
Some states require corporations to have at least three employees to hold the position of officers and directors, which can be a problem for smaller businesses.
Meanwhile, Delaware allows one person to be a corporation’s director, shareholder, and officer. This regulation can be a big advantage for people planning to start their corporations independently.
Kickstart Your Delaware Corporation Today
Now that you know why corporations incorporate in Delaware, now’s the right time to kickstart your business. Join today’s Fortune 500 companies and let NCH help you incorporate in one of the country’s most pro-business states.
NCH’s business specialists are here to help you with our business formation services. From business entity formation to tax planning, we’ll provide all the support you need to build your Delaware corporation.
Visit our website here or call us at 800-508-1729 for more information.
*The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.