Most entrepreneurs tend to focus on the type of entity they will become when they incorporate. There is another question to ask as well: Where should you incorporate? Incorporating in the home state of a business is a natural choice, but not the most cost-effective one.
Why Incorporate in Delaware?
You can obviously incorporate in the state where your business exists. However, there are valid reasons why you might want to incorporate in Delaware.
Over 50% of all publicly traded companies in the United States chose Delaware for their state of incorporation. The reasons include flexible and modern corporate laws and a state government that is very business-friendly. In addition, companies choose Delaware for their Court of Chancery and their Delaware Division of Corporations, which is very customer oriented.
Flexible Laws Attract Businesses
The General Corporation Law of Delaware is more flexible and advanced than that of any other state. It provides a great deal of flexibility for business entities to structure themselves. It is also flexible in the areas of duties and rights among shareholders and founders.
Privacy Is Vital
Privacy is subject to constant erosion in today’s world, but Delaware will not require you to list your directors or officers in the documents of formation, whether you are starting an S corporation or a C corporation. This provides a high level of anonymity, which is in your best interest.
Inexpensive Incorporating Fees
It’s almost free to incorporate in Delaware – the state charges you $89 to incorporate. California comes in a close second in initial fees but they charge $800 per year in state franchise fees. It is important to note, however, that even if you incorporate your business in Delaware as a foreign state to you, your company may have to be registered as a foreign entity, and comply with the state laws of the states in which you do business.
Precedence Means Less Litigation
In Delaware, judges are used, so decisions are issued in written opinion on which your company can rely. A Delaware corporation rarely litigates disputes, since their advisors examine the opinions and draw up deals that will avoid lawsuits.
No Wildcard Juries in Delaware
If your company does go to court in Delaware, the Court of Chancery depends on judges, rather than juries, to settle cases. Most entrepreneurs would much rather leave their company’s fate to an expert, rather than “the people”.
Delaware Is not the Default Company Choice
Don’t assume that Delaware is right for every business. Larger, public companies benefit a great deal more when they incorporate in Delaware than smaller companies do.
Professional advisors can let you know if your company will benefit from becoming a Delaware corporation. If your company will be working with a venture capital fund or an investment bank, becoming a Delaware entity may be your only choice. That doesn’t seem like a bad thing, when you think of all the benefits.
