Top 5 Reasons to Incorporate in Delaware

When you incorporate your startup company, two main decisions arise. First, what type of entity should your startup company be? Second, where should you incorporate?

Of the two, entrepreneurs focus primarily on choice of entity–LLC, Corporation, etc.–and usually just incorporate in their home state. And home state incorporation will make sense for most. But for a few startup companies, incorporating in a foreign state like Delaware, will be a better decision.

Delaware’s division of corporations lists 4 reasons to incorporate in Delaware on its website:

Why Choose Delaware as Your Corporate Home?

More than half a million business entities have their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 60% of the Fortune 500. Businesses choose Delaware because we provide a complete package of incorporation services including modern and flexible corporate laws, our highly-respected Court of Chancery, a business-friendly State Government, and the customer service oriented Staff of the Delaware Division of Corporations.

Talk about selling your state short. I’ll see their four reasons and raise them one. Thus, the following are my top five reasons to incorporate in Delaware:

1. Flexible Laws. Delaware’s General Corporation Law is the most advanced and flexible business formation statute in the United States. It is designed to provide maximum flexibility in the structuring of business entities and the allocation of rights and duties among founders and shareholders.

2. No Wildcard Juries. If you do end up going to court to settle a dispute, Delaware’s Court of Chancery uses judges instead of juries. I don’t know about you, but I’d rather place my startup company’s legal fate in the hands of a well-trained expert than people whose legal experience consists of The People’s Court and Law and Order re-runs.

3. Precedence = Less Litigation. Since judges are used, decisions are issued as written opinions that your startup company can rely on. Thus, most Delaware corporations do not end up litigating disputes because their professional advisers examine these published opinions and construct deals to avoid lawsuits.

4. It’s Free! (Well, almost). Delaware charges $89 to incorporate. A little bit cheaper than California ($100..but they nail you for $800 every year in franchise fees), New York ($125), and a lot cheaper than Texas ($300). [note: Even if you incorporate in a foreign state like Delaware, your startup company may still be subject to registration as a "foreign entity" and compliance with the laws of states you transact business in.]

5. Privacy. In a world where personal privacy is constantly eroding (the Google 3D Mapping truck should be driving by my house anyday now), Delaware does not require director or officer names to be listed in the formation documents. Thus, Delaware provides a level of anonymity from snoopers.

Even though this post makes a big push for incorporating in Delaware, you shouldn’t assume Delaware is the default choice for your startup company. The fact so many large, public companies choose Delaware should demonstrate that large, public companies tend to benefit the most from incorporating in Delaware.

So think about it and discuss incorporating in Delaware with your co-founders and professional advisers. But note that if you are planning to work with an investment bank or venture capital fund, you will likely have no choice but to become a Delaware entity. And for the five reasons above, that may not be such a bad thing.

Update: If you are looking for information about startup company incorporation, check out my “If I Launched a Startup” article.

Tags: delaware, incoporation

75 Responses to “Top 5 Reasons to Incorporate in Delaware”

  1. Michael December 27, 2007 at 10:11 pm #

    Though you do raise many positive notes regarding DE registration, several drawbacks that should also be pointed out include the fact that in many states such as Massachusetts, if you conduct business, you will still need to file a foreign certificate of state. To that end, you will still incur the standard financial burden of an LLC or Corporate-filing fee. You will also be required to designate a registered agent and incur their fee. Moreover, if your primary place of business is not in Delaware, but rather in another state, in your corporate filings, you will need to indicate your place of business, where business records are maintained, etc. As such, the privacy that is obtained pursuant to Delaware’s enhanced security may be lost with even a cursory investigation into another state's SEC site.

  2. Michael December 27, 2007 at 5:11 pm #

    Though you do raise many positive notes regarding DE registration, several drawbacks that should also be pointed out include the fact that in many states such as Massachusetts, if you conduct business, you will still need to file a foreign certificate of state. To that end, you will still incur the standard financial burden of an LLC or Corporate-filing fee. You will also be required to designate a registered agent and incur their fee. Moreover, if your primary place of business is not in Delaware, but rather in another state, in your corporate filings, you will need to indicate your place of business, where business records are maintained, etc. As such, the privacy that is obtained pursuant to Delaware’s enhanced security may be lost with even a cursory investigation into another state's SEC site.

  3. Ryan December 31, 2007 at 10:15 pm #

    Michael:

    You raise good points regarding the potential pitfalls of incorporating in Delaware when your startup operates anywhere else besides Delaware. And you also indirectly bring up another good point– a startup will never find the perfect entity/jurisdiction combination when incorporating. That is, you can find the best combination but the perfect combination is unattainable.

  4. Ryan December 31, 2007 at 5:15 pm #

    Michael:

    You raise good points regarding the potential pitfalls of incorporating in Delaware when your startup operates anywhere else besides Delaware. And you also indirectly bring up another good point– a startup will never find the perfect entity/jurisdiction combination when incorporating. That is, you can find the best combination but the perfect combination is unattainable.

  5. Sammy February 22, 2008 at 2:40 am #

    And how do you gentlemen feel about incorporating in Nevada? I attended an interesting briefing about incorporating in that state. Anonymity was a big topic in that briefing, along with others similar to what you have described for Delaware. Plus, it's closer since I'm in CA. : )

    Another question, what would be key determining factors on incorporating in a different state would be more beneficial?

    One last comment… Ryan, great blog!

  6. Sammy February 21, 2008 at 9:40 pm #

    And how do you gentlemen feel about incorporating in Nevada? I attended an interesting briefing about incorporating in that state. Anonymity was a big topic in that briefing, along with others similar to what you have described for Delaware. Plus, it's closer since I'm in CA. : )

    Another question, what would be key determining factors on incorporating in a different state would be more beneficial?

    One last comment… Ryan, great blog!

  7. Ryan March 5, 2008 at 2:32 pm #

    I once had a California CPA suggest Nevada incorporation for a project I was working on, with the reason of trying to escape California's franchise tax. The only problem, from my perspective, was that the entire business was being operated in California. So, I would imagine the California Franchise Tax Board (along with the Secretary of State) would have had a problem with that as well. (And I don't mean to imply that you can't incorporate in NV if 100% of your business is in CA.)

    Anyways, from what I understand, Nevada offers some tax and privacy benefits relative to Delaware. For example, Nevada does not share company information with the IRS. But these tax/privacy benefits are eroded since the IRS tends to audit Nevada corporations more frequently than other states' corporations.

    Thanks for the kind comments!

  8. Ryan March 5, 2008 at 9:32 am #

    I once had a California CPA suggest Nevada incorporation for a project I was working on, with the reason of trying to escape California's franchise tax. The only problem, from my perspective, was that the entire business was being operated in California. So, I would imagine the California Franchise Tax Board (along with the Secretary of State) would have had a problem with that as well. (And I don't mean to imply that you can't incorporate in NV if 100% of your business is in CA.)

    Anyways, from what I understand, Nevada offers some tax and privacy benefits relative to Delaware. For example, Nevada does not share company information with the IRS. But these tax/privacy benefits are eroded since the IRS tends to audit Nevada corporations more frequently than other states' corporations.

    Thanks for the kind comments!

  9. Josh April 23, 2008 at 10:56 am #

    The question I have is I just recently moved to Iowa from Wisconsin. I am in the process of disolving my S corp in WI. I recently looked at the iowa corporate tax rate and it is the highest in the nation! I do business in a couple of different states but my office and primary source of business is mostly generated from Iowa.

    Is it legal and possible to setup a corporation in another state like Nevada, but reside and do most of my business in Iowa. It is going to cost me an extra 3-6k which is double whatI paidin WI

    thanks

  10. carl estep April 23, 2008 at 9:40 pm #

    if delaware & nevada are equally compatible for incorporating any business, then what significant differences is there between the two ? And if every screen of privacy can be broken by the government one way or another , then what is the purpose of all the smoke screening ?

  11. carl estep April 23, 2008 at 4:40 pm #

    if delaware & nevada are equally compatible for incorporating any business, then what significant differences is there between the two ? And if every screen of privacy can be broken by the government one way or another , then what is the purpose of all the smoke screening ?

  12. Ryan April 24, 2008 at 11:41 am #

    @ Josh – You can incorporate your company in any state. But you must typically register as a "foreign entity" in the states that your company does business. Also, consult a CPA about your interstate/multi-state tax issues. I believe you have to apportion the taxes according to the amount of business (or amount of assets) you have in each state…but see the previous sentence.

    @ Carl – I get asked the Delaware vs. Nevada question frequently, so it will be the topic of a future blog post. And the "smoke screening" you refer to is usually for non-governmental entities.

  13. Ryan April 24, 2008 at 6:41 am #

    @ Josh – You can incorporate your company in any state. But you must typically register as a "foreign entity" in the states that your company does business. Also, consult a CPA about your interstate/multi-state tax issues. I believe you have to apportion the taxes according to the amount of business (or amount of assets) you have in each state…but see the previous sentence.

    @ Carl – I get asked the Delaware vs. Nevada question frequently, so it will be the topic of a future blog post. And the "smoke screening" you refer to is usually for non-governmental entities.

  14. ana May 28, 2008 at 12:07 pm #

    Does anybody know what is the franchise tax for delaware?? and if for example I icorporate in delaware but I want my office to be in NY would i have extra charges?

    Thanks!!

  15. ana May 28, 2008 at 7:07 am #

    Does anybody know what is the franchise tax for delaware?? and if for example I icorporate in delaware but I want my office to be in NY would i have extra charges?

    Thanks!!

  16. Ryan June 13, 2008 at 8:41 am #

    ana – Here is a link to how franchise taxes are calculated in Delaware: "http://corp.delaware.gov/frtaxcalc.shtml"

  17. Ryan June 13, 2008 at 3:41 am #

    ana – Here is a link to how franchise taxes are calculated in Delaware: "http://corp.delaware.gov/frtaxcalc.shtml"

  18. Michael July 18, 2008 at 9:11 am #

    Ryan — in the very beginnings of a startup with a partner in Virginia and thought of the LLC as a good fit for getting things in place. Is switching over to the C corp doable by year's end, or should I just bite the bullet and make it a corporation now anyway? Nothing has been signed yet, but coming up soon. Excellent and always helpfu blog — thanks!

  19. Michael July 18, 2008 at 4:11 am #

    Ryan — in the very beginnings of a startup with a partner in Virginia and thought of the LLC as a good fit for getting things in place. Is switching over to the C corp doable by year's end, or should I just bite the bullet and make it a corporation now anyway? Nothing has been signed yet, but coming up soon. Excellent and always helpfu blog — thanks!

  20. Ryan Roberts July 18, 2008 at 9:30 am #

    Michael-

    I don't think it's worth it if you plan to convert within 6 months.

  21. Ryan Roberts July 18, 2008 at 4:30 am #

    Michael-

    I don't think it's worth it if you plan to convert within 6 months.

  22. Jerry January 19, 2009 at 12:39 pm #

    I presently operate two schedule C corporations in Florida. The more active corporation handles a great deal of escrow funds, although we have historically used only one bank account for both customer obligations and our own obligations. This poses a concern for us in terms of protecting our customer's funds from legal issues. While this might be handled by managing funds using separate bank accounts, we feel it might be safer to handle escrow funds using a completely separate corporation. Would this offer us, and our customers better protection? The liability issue is a concern because we act as agents on behalf of overseas customers, and local vendors would generally look at us as an easier target when customers dispute or don't pay for a service provided.

  23. Jerry January 19, 2009 at 7:39 am #

    I presently operate two schedule C corporations in Florida. The more active corporation handles a great deal of escrow funds, although we have historically used only one bank account for both customer obligations and our own obligations. This poses a concern for us in terms of protecting our customer's funds from legal issues. While this might be handled by managing funds using separate bank accounts, we feel it might be safer to handle escrow funds using a completely separate corporation. Would this offer us, and our customers better protection? The liability issue is a concern because we act as agents on behalf of overseas customers, and local vendors would generally look at us as an easier target when customers dispute or don't pay for a service provided.

  24. DaJuan February 4, 2009 at 11:23 am #

    Ryan I would like to start a business that specializes raising capital for private equity and hedge funds. It is my understanding that many of these firms are set up in delaware but are completely ran in other states i.e. NY, CT. I’m assuming I should also do the same. In addition I understand that depending on the compensation agreement with Hedge Funds my business may have to be set up as or affiliated with a broker dealer is that tru for PE also? If so how will being set up in Delaware affect that situation.

  25. Ryan Roberts February 5, 2009 at 1:01 am #

    The requirements on having to register as a broker-dealer have more to do about you than the type of fund you are sourcing funds for. Check out the SEC's guidance here: http://www.sec.gov/divisions/marketreg/bdguide.ht… and also check out finra.org

  26. Ryan Roberts February 4, 2009 at 8:01 pm #

    The requirements on having to register as a broker-dealer have more to do about you than the type of fund you are sourcing funds for. Check out the SEC's guidance here: http://www.sec.gov/divisions/marketreg/bdguide.ht… and also check out finra.org

  27. Summer March 20, 2009 at 2:21 pm #

    I am starting up an LLC that will be a completely web based company but will be run out of my home in CA. We have been told that setting up in Delaware is the way to go but it seems that we will be forced to pay the franchise tax in CA. Is there any way to get around that? If we are going to be a small start up is it best just to stick with setting up the LLC in CA?

  28. Summer March 20, 2009 at 9:21 am #

    I am starting up an LLC that will be a completely web based company but will be run out of my home in CA. We have been told that setting up in Delaware is the way to go but it seems that we will be forced to pay the franchise tax in CA. Is there any way to get around that? If we are going to be a small start up is it best just to stick with setting up the LLC in CA?

  29. Ryan Roberts March 29, 2009 at 4:19 pm #

    Summer,

    I think the Delaware tax, on top of the California tax, is nominal. If you have sufficient contact with the state of California, you'll have to pay the min $800/year tax. Thus, I don't think the additional DE tax should prevent you from picking a DE entity.

    • Melissa May 23, 2010 at 1:21 pm #

      Ryan, In Summer's case what would be the advantage of filing in Delaware vs just filing in CA. Thanks

  30. Ryan Roberts March 29, 2009 at 11:19 am #

    Summer,

    I think the Delaware tax, on top of the California tax, is nominal. If you have sufficient contact with the state of California, you'll have to pay the min $800/year tax. Thus, I don't think the additional DE tax should prevent you from picking a DE entity.

    • Melissa May 23, 2010 at 8:21 am #

      Ryan, In Summer's case what would be the advantage of filing in Delaware vs just filing in CA. Thanks

  31. Parham June 23, 2009 at 9:24 pm #

    Hi,

    I am in the process of registering a LLC for my consulting business. I have done a lot of research but still haven't been able to figure out whether registering the company in Delaware or California. If all these good things about Delaware are right so why would somebody register in California then? I am searching for that single benefit of California vs. Delaware. I'm living in California and for consulting I can assume that my projects will be from all over the country so I can assume that my business is being conducted in Delaware as well. Is there a reason to register the company in California vs Delaware?

    Please advise,

    P.

  32. Parham June 23, 2009 at 4:24 pm #

    Hi,

    I am in the process of registering a LLC for my consulting business. I have done a lot of research but still haven't been able to figure out whether registering the company in Delaware or California. If all these good things about Delaware are right so why would somebody register in California then? I am searching for that single benefit of California vs. Delaware. I'm living in California and for consulting I can assume that my projects will be from all over the country so I can assume that my business is being conducted in Delaware as well. Is there a reason to register the company in California vs Delaware?

    Please advise,

    P.

  33. Kevin December 18, 2009 at 2:36 am #

    I recently incorporated in Delaware under the premise that my Internet retail business would not have to collect sales tax in CA (or any other state for that matter). After reading though tax codes and talking with accountants, I found that since I am the owner of the company and also a California resident, the BOE sees it that I will be making business decisions while in the state and therefore create a nexus. Yes, I should collect sales (use) tax in CA. After all I've been through, I'd recommend to anybody starting a new businesses that unless your investors insist upon registering in a certain state, there's no real reason to incorporate in a state other than the one you live in. On the other hand, if your business is making less that $1 million in revenue a year, registering in Delaware will cost you only an extra $75/year in franchise tax, granted you don't do business there (or $350 for every million).

  34. Kevin December 17, 2009 at 9:36 pm #

    I recently incorporated in Delaware under the premise that my Internet retail business would not have to collect sales tax in CA (or any other state for that matter). After reading though tax codes and talking with accountants, I found that since I am the owner of the company and also a California resident, the BOE sees it that I will be making business decisions while in the state and therefore create a nexus. Yes, I should collect sales (use) tax in CA. After all I've been through, I'd recommend to anybody starting a new businesses that unless your investors insist upon registering in a certain state, there's no real reason to incorporate in a state other than the one you live in. On the other hand, if your business is making less that $1 million in revenue a year, registering in Delaware will cost you only an extra $75/year in franchise tax, granted you don't do business there (or $350 for every million).

  35. Hillari February 5, 2010 at 6:50 pm #

    @Ryan – all my business is in CA, where our physical office is also located. I will have to pay the $800/yr to CA, so WHY pay the extra $89 to be incorporated in DE? We need to save costs everywhere and the extra time/confusion/$89 to be in DE doesn't make sense to me…am i missing something?

  36. Hillari February 5, 2010 at 1:50 pm #

    @Ryan – all my business is in CA, where our physical office is also located. I will have to pay the $800/yr to CA, so WHY pay the extra $89 to be incorporated in DE? We need to save costs everywhere and the extra time/confusion/$89 to be in DE doesn't make sense to me…am i missing something?

  37. Molly February 7, 2010 at 1:28 am #

    Ryan, could you please expand on Kevin's comments? I reside in California and plan to launch an Internet company (most likely incorporate as a LLC) that will be operated in California. (1) Other than the sales tax Kevin mentioned, how does California and Delaware tax on revenues generated through services and ads. (2) Is franchise tax the same as franchise fee? (3) If not, is my company subject to California's franchise fee and how much? (4) How is the state annual tax applied here – is it based on where the operation takes place, or based on the state that the company became incorporate at? Thank you!

  38. Molly February 6, 2010 at 8:28 pm #

    Ryan, could you please expand on Kevin's comments? I reside in California and plan to launch an Internet company (most likely incorporate as a LLC) that will be operated in California. (1) Other than the sales tax Kevin mentioned, how does California and Delaware tax on revenues generated through services and ads. (2) Is franchise tax the same as franchise fee? (3) If not, is my company subject to California's franchise fee and how much? (4) How is the state annual tax applied here – is it based on where the operation takes place, or based on the state that the company became incorporate at? Thank you!

  39. Ryan Roberts February 8, 2010 at 10:47 am #

    @Kevin- There are also some corporate governance issues (voting requirements, indemnifications) that might prompt a startup to consider DE. Although I do agree that DE isn't for every type of startup business.

    @Hillari- Some believe that the nominal additional costs to be a DE corporation are worth it for the benefits. But of course, some may not realize the benefits of being in DE. It depends on the type of business.

    @Molly- You need to speak with an accountant/cpa/tax attorney re those issues.

  40. Ryan Roberts February 8, 2010 at 5:47 am #

    @Kevin- There are also some corporate governance issues (voting requirements, indemnifications) that might prompt a startup to consider DE. Although I do agree that DE isn't for every type of startup business.

    @Hillari- Some believe that the nominal additional costs to be a DE corporation are worth it for the benefits. But of course, some may not realize the benefits of being in DE. It depends on the type of business.

    @Molly- You need to speak with an accountant/cpa/tax attorney re those issues.

  41. Josh February 8, 2010 at 10:24 pm #

    My business is 100% over the Internet.

    100% of the sales come from Latin America through PayPal.

    No service is provided in my home state (Massachusetts). Neither any sale is reported to be in my state.

    I manage and control the business 100% from my home. I want to incorporate as an S-corp ands the best state to do so is Delaware.

    I have few questions:

    1. Do I need to register the company in Massachusetts and assume all the MA excise tax, annual report, foreign registration and any other MA fees?

    2. Can I still keep managing the business from my home with out going to the registration process in my home state?

    3. I will be in payroll (direct deposit) coming from the company in Delaware. Do I need to pay taxes to Massachusetts in that income?

    Many thanks in advance,

    Josh

  42. Josh February 8, 2010 at 5:24 pm #

    My business is 100% over the Internet.

    100% of the sales come from Latin America through PayPal.

    No service is provided in my home state (Massachusetts). Neither any sale is reported to be in my state.

    I manage and control the business 100% from my home. I want to incorporate as an S-corp ands the best state to do so is Delaware.

    I have few questions:

    1. Do I need to register the company in Massachusetts and assume all the MA excise tax, annual report, foreign registration and any other MA fees?

    2. Can I still keep managing the business from my home with out going to the registration process in my home state?

    3. I will be in payroll (direct deposit) coming from the company in Delaware. Do I need to pay taxes to Massachusetts in that income?

    Many thanks in advance,

    Josh

  43. Debbie Lovrich February 10, 2010 at 4:01 pm #

    It sounds as if most of you are talking about single member LLCs? Because of the pass-thru taxation, you have to report the income on your personal tax return, so would be taxed in the state where you reside, regardless of where you do business. . .(right?) I had the same question. . .what's the benefit of forming in another state such as NV or DE when you have to register in CA anyway? The only plus I see is if you have assets of the company such as vehicles, office equipment or the like you'll save a lot of money in state fees if they are purchased and registered by a NV corporation rather than a CA corporation. Since the LLC itself does not pay any taxes, per se, it seems more important to choose where you legally reside. . .am I interpreting this incorrectly? Someone please set me straight!

    Thanks,

    Debbie

  44. Debbie Lovrich February 10, 2010 at 11:01 am #

    It sounds as if most of you are talking about single member LLCs? Because of the pass-thru taxation, you have to report the income on your personal tax return, so would be taxed in the state where you reside, regardless of where you do business. . .(right?) I had the same question. . .what's the benefit of forming in another state such as NV or DE when you have to register in CA anyway? The only plus I see is if you have assets of the company such as vehicles, office equipment or the like you'll save a lot of money in state fees if they are purchased and registered by a NV corporation rather than a CA corporation. Since the LLC itself does not pay any taxes, per se, it seems more important to choose where you legally reside. . .am I interpreting this incorrectly? Someone please set me straight!

    Thanks,

    Debbie

  45. Rachael February 28, 2010 at 4:51 pm #

    Dear Ryan,

    I am a new startup fashion retail & wholesale company in CA. I initially registered the company as a Sole Proprietor, but was advised to incorporate my company.

    A business attorney has advised me to incorporate my company in DE. I have spent an entire week researching about incorporating in DE and CA.

    However, I would like to know by incorporating in DE, what are the paperwork and legal works that I need to be aware of, since the company will be conducted in CA.

    Do I also need to incorporate again in CA? Because if I need to do that, I will be double paying. Also, what is a registered agent?

    Thank you!

    Rachael

  46. Rachael February 28, 2010 at 11:51 am #

    Dear Ryan,

    I am a new startup fashion retail & wholesale company in CA. I initially registered the company as a Sole Proprietor, but was advised to incorporate my company.

    A business attorney has advised me to incorporate my company in DE. I have spent an entire week researching about incorporating in DE and CA.

    However, I would like to know by incorporating in DE, what are the paperwork and legal works that I need to be aware of, since the company will be conducted in CA.

    Do I also need to incorporate again in CA? Because if I need to do that, I will be double paying. Also, what is a registered agent?

    Thank you!

    Rachael

  47. Maria May 25, 2010 at 1:30 am #

    Like Josh all of my business is done 100% over the Internet with sales coming from anyone around the world. I have not provided any service in my home state of Massachusetts to anyone thus far. I manage and control my business 100% from my home myself. I operated as an unincorporated sole proprietor for the last 13 months and would like to incorporate. I have also been informed that DE is a great state to incorporate but from what I am reading this seems true for large corporations and not solo folks like myself.

    So where would I find information on MA and DE that I can compare and make an informed decision on incorporating my company?

    • Jin, May 27, 2010 at 4:47 pm #

      Hi josh,

      can you please reply to Maria and Josh, I kind a have the same issue with business 100% on the net but I function out of FL thou

  48. Maria May 24, 2010 at 8:30 pm #

    Like Josh all of my business is done 100% over the Internet with sales coming from anyone around the world. I have not provided any service in my home state of Massachusetts to anyone thus far. I manage and control my business 100% from my home myself. I operated as an unincorporated sole proprietor for the last 13 months and would like to incorporate. I have also been informed that DE is a great state to incorporate but from what I am reading this seems true for large corporations and not solo folks like myself.

    So where would I find information on MA and DE that I can compare and make an informed decision on incorporating my company?

    • Jin, May 27, 2010 at 11:47 am #

      Hi josh,

      can you please reply to Maria and Josh, I kind a have the same issue with business 100% on the net but I function out of FL thou

  49. Martin June 21, 2010 at 7:07 am #

    Hello,

    I am starting a software business (LLC) with a friend of mine. He lives in Texas and I live in California. What would be the best option for incorporating?:

    1) Incorporate in CA
    2) Incorporate in TX
    3) Incorporate in a different state, such as Nevada or Delaware.

    I am looking for the best option that minimizes the total annual cost of running the business. We don’t expect to make a lot of money, at least for the first few years, so it is very important for us to minimize the annual costs (fees, taxes, etc.).

    Thanks,
    Martin.

  50. Martin June 21, 2010 at 2:07 am #

    Hello,

    I am starting a software business (LLC) with a friend of mine. He lives in Texas and I live in California. What would be the best option for incorporating?:

    1) Incorporate in CA
    2) Incorporate in TX
    3) Incorporate in a different state, such as Nevada or Delaware.

    I am looking for the best option that minimizes the total annual cost of running the business. We don’t expect to make a lot of money, at least for the first few years, so it is very important for us to minimize the annual costs (fees, taxes, etc.).

    Thanks,
    Martin.

  51. lawinc August 10, 2010 at 12:50 am #

    Incorporating in Delaware is becoming more and more popular for entrepreneurs and business-minded individuals looking to increase their company's worth and ability to attract investors while decreasing their exposure to liability. This is because incorporating in Delaware offers shareholders protection from business debts and lawsuits, potential taxation benefits, and increased confidentiality. It should be noted that there are a number of factors that must be considered before deciding that a Delaware corporation is the best suited for a company.

  52. lawinc August 9, 2010 at 7:50 pm #

    Incorporating in Delaware is becoming more and more popular for entrepreneurs and business-minded individuals looking to increase their company's worth and ability to attract investors while decreasing their exposure to liability. This is because incorporating in Delaware offers shareholders protection from business debts and lawsuits, potential taxation benefits, and increased confidentiality. It should be noted that there are a number of factors that must be considered before deciding that a Delaware corporation is the best suited for a company.

  53. Meg November 22, 2010 at 2:18 am #

    Hi Ryan. I am seeking to do a Subchapter S corporation, for my small start up business, but I hear that it should be incorporated in Delaware. Can I incorporate in Delaware if my business is in California, and will that hurt my chances of doing an S-Corp?

    Thanks
    Meggy

  54. Meg November 22, 2010 at 2:18 am #

    Hi Ryan. I am seeking to do a Subchapter S corporation, for my small start up business, but I hear that it should be incorporated in Delaware. Can I incorporate in Delaware if my business is in California, and will that hurt my chances of doing an S-Corp?

    Thanks
    Meggy

  55. Alex December 17, 2011 at 12:36 am #

    Can an online marketing services business operate a Delaware Corporation w/o paying CA franchise tax of $800 a year if the principals only have a primary residence in California but most or all of your business is done on-site or virtually in other States?

  56. Pete March 15, 2012 at 1:10 pm #

    Hi Ryan,

    Congrat for your article, Is excellent!
    What’s your advice on incorporating in DE a company that is going to run a consultancy biz in Europe and have the company bank in malta/Gibraltar or BVI? what taxes I would be paying and where? Could I avoid to have my name in the DE Co.?

    Thanks,
    P

  57. Mike April 11, 2012 at 1:27 pm #

    Hello. I will be starting a Internet company as sole owner. I will be based in CA. If I register the company (and not sure if a corp or LLC) in one of Nevada, Del, or Calif. and later decide (or if later investors want to change) that the other state would be better, how difficult to change? Would it be relatively routine to close or transfer the existing corp/LLC to the new state? Thanks.

  58. Edwin Cordero June 20, 2012 at 10:28 am #

    Ryan, I’m an contractor that offer professional services to medical device and bio pharm industry. Lately all the big companies want to do a Corp to Corp contracts (all inclusive) and they recomend to use or create a new company “LLC”. The issue is that are short term proyects so I go and work and that’s it. Do I have to make a LLC to continue offering my services but if I’m all over US I have to file for a foreigh company?
    Thanks,

  59. Justin September 10, 2012 at 10:04 pm #

    I currently operate an LLC in the state of Michigan. We are looking at opening up a second retail location with another private investor. We are doing a 51/49 split on second location. We want to convert to a C Corp registered in NV or DE, but only want to split stock on the second location. Both locations will be doing business in MI. Do I need to create 2 separate legal entities or are we able to have 1 legal entity with two DBA’s and split the stock on the second DBA?

Trackbacks/Pingbacks

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  5. Quora - February 8, 2011

    Which is the best state to form a web startup for a company with three founders in three different states: DE, NJ or NY?…

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  6. The Checklist Every Entrepreneur Should Read Before Launching a Startup - September 12, 2011

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    [...] Why Incorporate in Delaware? | Startup LawyerWhy incorporate in Delaware? One of the best reasons for incorporating, or forming a Delaware limited liability company, is to separate your personal assets … [...]

  10. Quora - September 14, 2012

    What state in the US offers the most benefits for starting a new tech business?…

    I am not a credible source of information here, but I will let others elaborate on this. Aside from financial benefits- there is a very good reason most tech companies are in NYC or San Francisco and surrounding areas. These areas have extremely high c…

  11. Why Incorporate In Deleware - December 13, 2012

    [...] Why Incorporate in Delaware? | Startup Lawyer But for a few startup companies, incorporating in a foreign state like Delaware, will be a better decision. Delaware's division of corporations lists 4 reasons to incorporate in Delaware on its website: Why Choose Delaware as . [...]

  12. 11.19.2012///NYC Technology Startups: Everything You Wanted To Know About Startup Law @ Pivotal Labs | StartUpSay! - January 28, 2013

    [...] incorporating in New York or Delaware, Fichman sided with Delaware as it has a “pre-developed body of law and laws that benefit [...]

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