More than 250,000 new firms registered in Delaware in 2020, bringing the state’s total number of businesses to over 1.6 million. With companies like Amazon, Google, Tesla, Walmart, American Express, and Disney, Delaware has earned a reputation as a corporate paradise on a global scale. The Delaware Division of Corporations reports that 67.8% of Fortune 500 companies were founded in the First State. The question: why do companies go to Delaware to start a company?
Delaware’s rise to prominence as a commercial hub while being the second-smallest state (by area) and one of the least populous may seem strange, but from the early 1900s, the state has encouraged enterprises to stay because of favorable tax rules, fewer regulations, and streamlined corporate statutes.
The advantages of starting a company in Delaware
Tax Benefits
The state’s low taxes are the most well-known reason Delaware has drawn the attention of corporations to start a company there. Franchise taxes are required for businesses to register in Delaware; however, these fees are minimal compared to the income taxes other states would impose.
Intangible assets, such as leases, copyrights, and trademarks, are tax-exempt in Delaware. The rights to exploit these assets are frequently purchased by companies from their own company and transferred to a Delaware subsidiary. Both parties benefit financially from this:
- By deducting these contributions from its state taxes, the corporation significantly reduces its tax liability.
- Delaware does not impose taxes on business transactions in the state.
Additional tax benefits of incorporating in Delaware include:
- No state corporate income tax
- No sales tax
- No interest/other investment income tax
- No value-added taxes
- No personal property taxes
- No inheritance taxes
However, most businesses choose to start a company in Delaware for its courts and secrecy, not for its tax advantages.
Privacy is protected
Companies must choose a registered agent with a physical address. The agent serves as the business’ official address. Its other functions are to receive mail and gather documents, just like when a company registers in most states. However, unlike most states, Delaware simply requires the registered agent’s name to be disclosed in connection with the corporation. There is still further anonymity because other officials and directors are not compelled to give their names. Officers, directors, and stockholders are also exempt from maintaining a Delaware residence.
Efficiency and Simple Structure
Business filings can be done on the same day in Delaware. Frequently, you can complete the incorporation procedure in under an hour. Even more conveniently, Delaware law only permits one person to hold multiple corporate roles, including an officer, director, and shareholder. In other states, sole proprietorships or LLCs are typically required to accomplish this.
Corporation Court
The Court of Chancery handles corporate cases in Delaware. The court judges specialize in corporate law, as opposed to those in the trial system. Because of this system, Delaware has established dependable legal precedents, which allow for timely issue resolution.
Delaware attracts investors
Most angel investors and venture capitalists prefer that you start a company or incorporate in Delaware if you’re looking for funding.
The state certainly has advantages for businesses that incorporate there, but the biggest winners are typically big enterprises. Before deciding to start your company in Delaware, small enterprises should carefully consider the advantages vs the higher costs required.
Process of Registration
Delaware makes company formation relatively simple. Its official website provides a step-by-step guide, and it also acts as a one-stop shop for registering a new business or submitting paperwork for an already-existing one. To register:
- Select your preferred business structure.
- Get a registered agent
- Reserve your entity name (optional)
- Present papers, such as a certificate of incorporation
- Following incorporation, submit a yearly tax return and pay franchise taxes by March 1st.
We can assist you
Bolder Launch is always available to accommodate your filing requests and formation process in the country. We specialize in company formation in the state of Delaware. If you are interested to start your company in Delaware, please don’t hesitate to reach out to our Launch Crew so we can further assist you.
This guide is part of Company Formation in our Launch Guide.
