Why the World Registers Businesses in Delaware — And Should You Do the Same?

When quick-witted folks from many parts of the world relish a thought of starting their own business in America, they often choose Delaware as a place for their undertaking. That’s a small American state, but you can hardly find a more influential area for many firms than Delaware. Approximately, over a million business entities often label it their home. It’s also true for about two-thirds of Fortune 500 enterprises as well as thousands of international startups. Certainly, you are very intrigued to find it out. From this particular article, you can learn what exactly made this US state such a strong magnet for various startups. What’s more, you’ll be given a straight answer as to whether you should consider that place as a place of registration for your firm or not.

Delaware’s Legal and Tax Advantages

Undoubtedly, Delaware’s extremely attractive legal and tax environment is the strongest point of this area. If your firm is registered there but provides services in another place, then you can forget about the necessity to have corporate income levy paid to this state. This area simply doesn’t tax income generated outside of its borders. That’s a great thing for those operating in other regions or having the bulk of customers outside Delaware. If you belong to this lucky group, feel free to benefit from this lucrative advantage.

Furthermore, in case of registering your firm in this American state, you will not face sales, inventory, and personal property taxes. Besides this, a franchise levy is quite modest in Delaware. That’s another reason to start your money-making machine in this area.

As for the legal side benefit, one can point to the state’s so-called Chancery Court. It handles corporate disputes expertly and rapidly, and the process flows without juries. What’s more, judges there have a deep knowledge of corporate law. Therefore, they resolve issues efficiently and in turn it gives firms great legal predictability. Perhaps, you don’t clearly realize the whole value of this advantage. Let’s assume a stockholder sues your firm, or there’s a clash between founders. In this case, the court system of this area comes up with a ruling generally friendly for firms.

Privacy and Asset Protection

There’s another motivation why so many entrepreneurs rush to that area. When registering a firm in most regions of America, one requires listing the names of officers and top managers in public docs. You don’t need to do that if you choose Delaware.

Perhaps, you still don’t realize the whole significance of this unique benefit. Delaware allows business owners and stockholders to stay anonymous. Of course, it makes this area an extremely attractive place for wealthy individuals, and investors, not to mention international business founders putting much value on confidentiality. That’s not about hiding something illegal, but elementary privacy many businessmen find crucial.

In addition to privacy, substantial protection for business owners is provided by the state’s business laws. For instance, in Delaware, limited liability firms are structured in a way to ensure ultimate protection for members’ personal assets from the business’s legal issues and debts. Even firms have an option of restricting directors’ liability by means of special clauses in their bylaws and the state’s laws generally welcome this. If you need a corporate law expert, don’t hesitate, since most probably he already has a good expertise in the business law of this state since Delaware attracts many firms for registration.

Ease of Incorporation and Maintenance

In this American state, everything caters to setting up and maintaining businesses. As a rule, in this area, it takes about several hours to complete all the necessary paperwork online. By the way, for many businessmen from outside America, it is not necessary to visit Delaware or even the country to have the process completed. Stockholders, officers, and top-managers don’t need to meet the residency criterion in this state.

As for the costs, they are low as well. If you intend to register a firm there, the registration procedure will cost you about $90. Meanwhile, annual maintenance is simple too. You are expected to file a simple annual report and also pay a small franchise levy.

In Delaware, you can find various agents and intermediaries helping foreign businessmen to cope with paperwork. Such experts can receive the required docs on your behalf and help keep your enterprise in good standing, while for you this service will not be expensive.

To be short, this state is extremely business-friendly for foreign entrepreneurs. Therefore, you can give up your hesitation and try to start a firm exactly in this state.

Why Startups and Fortune 500 Companies Choose Delaware

Perhaps, you have never been interested in the fact that many top-notch firms of the world, including Tesla, Google, Coca-Cola, and Amazon are registered exactly in Delaware. That’s not a coincidence, but a definite choice of people who know for sure that a good place really makes a difference.

If a firm is based in Delaware, then one can say for sure that it’s very scalable and flexible. As a firm grows, raises funds, goes public, or even acquires other companies, it still enjoys a local registration. It is because this area makes doing things much smoother than in other regions. Today, a great number of investors, in particular, institutional investors as well as venture fund enterprises, often opt for Delaware registration. They usually have deep knowledge of the state’s legal structure and they don’t doubt a good protection of their rights.

As for startups, they derive huge gains as well. As a matter of fact, Delaware companies welcome different classes of stock, tried and tested governance models, and clear founder agreements. It’s crucial when it comes to attracting co-founders, so-called angel investors, or merely preparing for funding rounds. If you belong to a group of ambitious entrepreneurs geared up towards fundraising and high growth, then you have no alternative to incorporating in this state.

Even if your firm is not based in America, it still makes sense to have the enterprise registered in Delaware. Thus, your firm will become trustworthy in the eyes of US partners, while you will access American capital.

Who Should (and Shouldn’t) Incorporate in Delaware

Despite Delaware provides a slew of bonuses, it doesn’t automatically mean that it can suit anyone. It really makes sense for you to have your enterprise incorporated in this American state on the condition:

• You intend to raise venture funds or attract investors.
• You are on the verge of building a high-growth and scalable company.
• You require strong legal protection for founders and directors
• Your enterprise will operate across several states or even overseas
• You put much value on privacy as well as limited reporting criteria

On the other hand, Delaware mightn’t be a good option on the condition:

• You operate solely in a single American state (for example, you may run a small local business and have no plans for expansion)
• You work as a freelancer or solo entrepreneur and don’t have any plans for outside investment.
• You are eager to avoid the cost and hassle of registering in several American states.

The suggestions mentioned above are very crucial. Even if your firm has a Delaware registration, while physically functioning in Texas or California, there’s still a necessity to have your enterprise registered as a foreign entity in that US state. Moreover, you require adhering to the state’s regulations and taxes. As follows from this, you will face greater fees, more paperwork, and in general everything will be more complicated. So, if you’re running a local enterprise, you would better register in your native state. For you, it will be cheaper for you and less troublesome.

So, what should you do?

It’s not a secret why so many firms tend to register in Delaware. They value its tax bonuses, and privacy bonuses, not to mention its reliable legal framework. So, this US state ensures the most favorable conditions for building enterprises, especially if you’re creating something with national or even global reach. Even if you are merely eager to have your enterprise future-proofed, that would be a very smart move of yours.

You need to realize that registration can’t be a panacea and much depends on your objectives, and your business model, to say nothing of your stage of growth. International firms looking for an American base, startups alongside enterprises planning to scale often opt for Delaware. However, your situation may be different. For a small and local firm, it would be better to have it incorporated in a native land. It makes things simple and also saves your hard-earned money.

So, before making your choice, you should realize your priorities. Perhaps, it makes sense to take advantage of tax or legal advisors. They may help you to choose an optimal area that meets your scale.