Pros and cons of doing business in Delaware

Delaware gained independence from Great Britain on June 15, 1776, and thereby became independent of Pennsylvania, with whom it had been linked since 1682. Delaware was the first state to ratify the United States Constitution, earning it the title of "First State" among the 50 states that today make up the United States of America.

Today, Delaware ranks top among the 50 states in another category: corporate domicile. According to the Delaware Division of firms, million firms chose Delaware incorporation, including major Fortune 500 companies. So, what are the benefits and drawbacks of incorporating in the state?

Pros

1. Tax advantages

The state offers a number of tax breaks. The state of Delaware is particularly advantageous since there is no income tax for enterprises incorporated in the state that retain commercial activities outside of the state. Delaware companies does not pay any income taxes   as long as you do not conduct any business in the State.

Furthermore, shareholders who do not reside in Delaware are not obligated to pay taxes on shares held in the state. In particular, if you create a limited liability corporation in Delaware and do not conduct any business in the state throughout the year, you will not have to pay corporate income tax. But there is  a fixed annual franchise tax to consider. There will be no royalty payments or intangible assets.

Delaware LLCs can be taxed in a variety of ways. The default location will be treated as a C company for tax purposes. New businesses can also elect to be taxed as a pass-through organization, a S corporation, or the default option. If you are not doing business in the state, you do not need a business license. That is, you are not required to register with the Department of Revenue, nor are you required to pay tax on gross receipts.

Delaware is frequently referred to as a tax shelter for several reasons.

2. Prestige legal system

The court system in Delaware is well-established and well-respected. Delaware's Chancery Court focuses on corporate law. For commercial disputes, unlike in other states, courts utilize judges rather than juries to determine cases. Their knowledge, together with the availability of legal counsel who is knowledgeable with the legal system, helps to lessen the legal risk that the ordinary limited liability company suffers while conducting business. 

Court justices are knowledgeable in corporation law, and court judgements in this state are thought to be more accurate than those in other jurisdictions. This implies that the case will be handled by a judge who is conversant with the complicated commercial concerns at stake.

3. Flexible company structure:

Delaware provides a great deal of freedom in terms of corporation structure. Delaware's corporate regulations are quite flexible in terms of how you can organize your firm and board members. Shareholders, directors, and officers, for example, do not have to be Delaware residents. 

A business in Delaware can only have one director, shareholder, and officer. In some states, you may be required to have one worker in each alternate function. You will still be obliged to keep a registered agent with a Delaware address, but your overall staffing duties will be less restricted.

Cons

1. Out-of-state tax risk:

There are no significant tax breaks for small firms. Although Delaware does not tax firms formed in the state that do not conduct business in the state, your home state will tax your company, so you will not be exempt.

2. Dual compliance:

You must fulfill the standards of your own state. Even if you incorporate in Delaware, you must still comply with your state's filing and licensing requirements in order to conduct business in that state. You must also file yearly reports in both places. It takes twice as long and costs twice as much to achieve this.

3. Travel needed if legal dispute happen:

Travel is required for legal conflicts. Because matters involving your firm must be handled in Delaware courts, you will need to go to Delaware to settle any legal disagreements. You must be physically present as well as hire a different lawyer in Delaware to accept your case.

Conclusion

Every jurisdiction has its own disadvantages including Delaware. However, the benefits of forming companies in Delaware still outweigh its flaws. In Delaware, forming a business necessitates a plethora of sophisticated documentation and processes. It is also worth noting that foreigners are required by Delaware Company Law to engage the services of a licensed corporate service provider. CONTACT G.O.C RIGHT NOW to receive the greatest offer and save time. 

Disclaimer: While G.O.C endeavors to provide up-to-date and accurate information on this platform, the information serves solely as a reference. It is not a substitute for professional legal advice. For personalized advice, contact G.O.C's customer services.