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The Delaware Secretary of State has finally released its much-anticipated Annual Report for 2020. The report highlights the accomplishments of the Delaware Division of Corporations, and the State’s record-breaking statistics for the past year. It illustrates Delaware’s continued status as the preeminent jurisdiction for business formation and domicile, as well as the continued and growing popularity of the Limited Liability Company (LLC).
Certain statistics stood out, including a record-breaking 249,427 in new formations, up more than 10% over last year’s 226,589 new entities. As of the end of 2020, over 1.6 million entities are currently incorporated in Delaware, far surpassing the State’s population of about 1 million persons.
The LLC’s popularity continued to outpace all other entity types with 180,376, representing 72% of new formations in the State. The LLC’s popularity is due, in large part, to 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 (4) ability to have different Series or internal classes within the LLC and (5) the recent addition of the Public Benefit LLC. Since the LLC eliminates many of the 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 business persons to choose the LLC.
The corporate form, on the other hand, is still used by many people who are looking to raise capital by selling shares of stock, to court venture capital investors and fund investment, or to eventually go public or seek acquisition by a larger financial or strategic buyer. The corporation accounted for 20.7% of the new formations in Delaware in 2020
The Annual Report reflects Delaware’s continued dominance as the domicile of choice for publicly traded companies, accounting for 67.6% of all Fortune 500 companies in 2020. Over 93% of all companies that held an Initial Public Offering (IPO) in 2020 were Delaware corporations. Snowflake Inc., Airbnb, Inc., DoorDash, Inc are just a few of the Delaware companies that engaged in high-profile IPOs during 2020.
The State of Delaware strives to keep its corporate and business entity laws on the cutting edge, embracing innovation and fintech solutions so that Delaware remains a trailblazer among jurisdictions worldwide. Business entity formation and the resulting franchise tax and filing revenues are an integral part of Delaware’s economy. A whooping $1,455,400,000 of the State’s revenue in 2020 came from fees paid to form entities, annual franchise taxes, and filings made with the Secretary of State in connection with business entities.
Delaware’s predominant place in entity formation benefits the people of Delaware. Currently, Delaware is one of the few states without a sales tax. In large part, this is made possible because of the revenue that is attracted to Delaware by its strong legal system, cutting-edge corporate laws, and forward-thinking approach to business law. Business founders and investors around the world continue to select Delaware for its demonstrated excellence as an equitable, but business-friendly domicile for companies.
For any questions about forming Delaware business entities, feel free to reach out to me at 800 345 2677 ext. 6131, or by email at email@example.com.
The complete 2020 Delaware Secretary of State Annual Report can be viewed here
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