Why Do So Many Companies Incorporate in Delaware?
Have you ever wondered why so many businesses are formed in Delaware? It seems like every day we’re hearing about huge corporations and exciting new LLCs that have chosen Delaware as their home state, and for a good reason. Companies incorporate in Delaware because of its corporate-friendly environment, which offers numerous benefits in terms of convenience, tax liability, and legal protection for businesses. Delaware's extensive body of business-friendly laws is a result of a long-standing strategic decision to position itself as the premier state for corporate growth in the U.S. Now, according to the state of Delaware, over two-thirds of all Fortune 500 companies are incorporated in Delaware.
Harvard Business Services, Inc. goes into great detail to answer the question of "Why incorporate in Delaware?" throughout our website, but we want to simplify our answers down to a short list of bullet points. If you’re planning to form a company and want to know why everyone incorporates in Delaware, this is a great place to start.
Why Companies Incorporate in Delaware
- In Delaware, one person can hold the title of each of the officers of the business. This can help streamline decision-making and will allow the business to move more quickly in the early stages. This structure also allows a founder to maintain complete control over the company's direction without having to defer to other officers. As the company grows, the roles can be divided and new officers can be appointed.
- Delaware has no minimum bank account requirement for a company’s bank account. This is in contrast to a number of states that require a $1,000.00 minimum bank balance. For new companies, especially those in the very early stages, cash flow is often tight. A state-mandated minimum balance would tie up capital that could be used for other essential operations.
- You are not required to have a physical business address in Delaware to form a corporation there. However, Delaware law mandates that every business entity must maintain a registered agent with a physical address in the state. Your Delaware Registered agent must be available during normal business hours to accept various legal documents and official state correspondence, like franchise tax notices. For most businesses, this is far more affordable than maintaining a physical office in Delaware.
- Delaware does not require business owners to list their names when filing business formation papers; therefore, no names appear on the public record. Some business owners may want to protect their personal information from being easily accessed by the public. The ability to maintain privacy is a major reason why companies register in Delaware.
- Delaware does not impose state income tax on businesses that do not operate within the state. Delaware has a corporate income tax, but it only applies to income that is earned from business activities conducted within the state of Delaware. Without this rule, a company incorporated in Delaware but operating in another state would be subject to paying corporate income tax in both states.
- When you form a company in Delaware, Delaware is the domicile of your company. This means that the rules and regulations your company follows are the Delaware corporate laws as applied by the Delaware Court of Chancery. Delaware is famous for its fair and flexible corporate laws and its case law, as dispensed by the most respected business court in the United States, the Delaware Court of Chancery.
- Incorporating in Delaware gives investors comfort and confidence when investing in your business. Many venture capitalists and angel investors have a strong preference for companies they fund to be incorporated in Delaware. The extensive body of case law and established corporate governance helps investors feel more secure about their investments and the company's internal operations.
- Directors are free to set any price on shares of stock they wish to sell, as long as they act in the best interests of the corporation and its stockholders. This legal framework gives directors the flexibility to raise capital without having to get stockholder approval for every transaction.
- You do not need to visit Delaware in order to form a business in the state. Delaware's Division of Corporations is one of the best in the world at processing business formation filings quickly, and it encourages entrepreneurs from across the country and around the world to form their businesses here.
- The process to register a business in Delaware is relatively straightforward. Plus, if you decide to do so online, by phone, or by mail through Harvard Business Services, Inc., we’ll make the formation process even easier, faster, and affordable for you.
So, why does everyone incorporate in Delaware? As you can see, the list of reasons goes on and on, but demonstrates the robust nature of Delaware’s corporate laws as well as its specialized court system for business disputes. With countless companies registered in Delaware every single day, your business will be among many.
Incorporate with Harvard Business Services, Inc.
If you're still looking for one more reason to incorporate in Delaware, Harvard Business Services, Inc. will happily take care of all the necessary paperwork for you. All you’ll need to provide is your name, contact information, the type of company that you want to form, and the name of your new business. From there, our team will streamline the formation process, and you’ll get to join Delaware’s ranks of new business owners in no time.
Form an LLC or a Corporation on our website to start enjoying the benefits of a Delaware company today.
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*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
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There are 7 comments left for Why Do So Many Companies Incorporate in Delaware?
Alain said: Wednesday, August 16, 2017So why did have to provide my name and SS to do the SS4 form and they had to link that to my SS?
HBS Staff replied: Thursday, August 17, 2017The IRS requires the SS number if the member or officer has a SSN; this is the policy of the IRS.
Steve clark said: Monday, June 22, 2015This was very helpful as I navigate the path foru new start up.
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