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We’ve formed and filed Delaware LLCs and corporations since 1981, but we’re always interested to learn how other experts approach our industry. Many business owners, for example, choose to consult an attorney or accountant before incorporating a company. Curious to know what these experts typically advise, we asked several accountants and attorneys the question, "When would you recommend that your client use a Delaware corporation or LLC instead of their home state?"
Here are some of the answers we received:
“Delaware LLCs offer legal advantages that other states don't. If the entity is multinational, we do recommend Delaware as the state of formation over others (like CA or NY which are popular but impose minimum taxes even if there's no activity or even losses).”
— Belfint, Lyons & Shuman, P.A., http://www.belfint.com/
“We tend to recommend a Delaware incorporation when minority interest can cause management issues for owner managers as Delaware has some of the best law on takeovers.”
— David Banerjee, CPA, http://www.davebanerjee.com/
“We generally recommend Delaware if the person has an online company or a company with no brick and mortar office/store in their home state. Having what the IRS refers to as ‘permanent establishment’ in a state will likely make you taxable in that state, so setting up a Delaware company has a minimal effect on the taxes. However, if the company is online, Delaware being a no tax jurisdiction can essentially prevent personal income tax owed. We also recommend Nevada and Wyoming for this strategy, however Delaware has the most case law which would be of help in outlining precedent if there was eventual litigation.”
— Vincenzo Villamena, CPA, Online Taxman, www.onlinetaxman.com
“…If [a] client anticipates a need for a speedy judicial process. Delaware courts are corporate-friendly and have a well-developed body of corporate case law.”
—Chris Wojcicki, attorney and CPA http://www.wojco.com/
“Incorporating in Delaware makes sense if the client will be seeking venture capital from larger [venture capital] firms who require DE organization, or, perhaps too, if the client has extreme dramatic growth trajectory that is known in advance of entity formation (not mere projections).”
—Barry Wormser, attorney, www.wormserlegal.com
“Lawyers typically choose Delaware entities for a number of reasons. The first reason is that Delaware has a rich and well developed body of law with respect to business entities. Accordingly, if, during the life of the entity, an issue pops-up, it is more likely that you will find guidance in Delaware on how to handle the issue. Second, it provides a great compromise for people from different jurisdictions forming a company together. It is perceived as a "neutral" jurisdiction in many circumstances. Finally, if the company's plan is to go public within 5 years or so, it is my understanding that most venture capital and other investors prefer to work with a Delaware corporation as a vehicle for investment or public offering.” —Kurt E. Anderson, Esq., http://www.ghclaw.com
This information is not be construed as legal or accounting advice. If you have more questions and how they apply to your business, please feel free to reach out to any of the listed experts for more information.
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.