If you are ready to incorporate your business, you have almost certainly heard that Delaware is the ideal place to do so. If you ultimately choose to incorporate in “The First State” you will be in good company. More than a million business entities have incorporated in Delaware, including roughly 66 percent of Fortune 500 companies. Let’s review the question of why do companies incorporate in Delaware?
There are many benefits of incorporating in Delaware. The advantages of incorporating in Delaware are numerous for certain types of corporations. They include flexible corporate structuring, a business-friendly legal system, generous tax laws and a reputation of being trusted by investors. But these advantages aren’t uniformly positive for all corporations.
Should You Incorporate in Delaware?
Before reading about how to incorporate in Delaware, it is important to ask yourself if you should. If your business is relatively small, the costs associated with Delaware incorporation may outweigh the benefits. If you’re not headquartered or doing business in the state, you could be needlessly paying certain taxes in both your home state and in Delaware.
There are also time-related and financial costs associated with navigating the incorporation process outside of your own state. Please take the time to weigh the pros and cons before deciding to take the leap with your own business. Delaware may be the best state to incorporate but it may not be for everyone.
Choosing Delaware? Here’s How to Incorporate
The process of incorporation begins by choosing a name and a business structure. The name you choose must be available for use in Delaware. You can check your preferred business name against a statewide list. You will also need to decide whether to form a corporation or a limited liability company. Your attorney can help you decide which structure best meets your company’s needs.
The next steps are filing paperwork and applying for permits/licenses. You’ll need to file paperwork with the Department of State registering your business. It will be either a Certificate of Formation (for LLCs) or a Certificate of Incorporation. Depending on what your business offers, you’ll also need to obtain necessary licenses and permits at the local and state levels.
Finally, be ready to submit an annual report and pay state taxes, particularly the franchise tax. While these taxes are relatively minimal, it is surprisingly easy to forget your tax obligations when you aren’t located or doing business in the state imposing the taxes.
Working with a Business Attorney and Other Considerations
To be sure, the steps listed above are just the beginning. Operating a corporation or LLC in multiple states requires compliance with each state’s laws, licensing requirements, tax structures and reporting mandates. A mistake or oversight in any state could be financially costly, time-consuming and detrimental to business.
For these reasons and more, it is a good idea to rely on an experienced business law attorney. When budgeting for business expansion, hiring a lawyer might seem like an unreasonable or unnecessary expense. But as the old saying goes, an ounce of prevention is worth a pound of cure. The right attorney can actually save you money by catching and fixing problems before they occur.
Moreover, if you are still unsure about whether to incorporate in Delaware or your home state, this is a great topic to discuss with your attorney. There is no substitute for business-specific advice and forming a long-term relationship with a good attorney might be one of the best business investments you’ll ever make. Whether you need extensive legal guidance for your startup launch or simply need some tips on how to effectively incorporate, the experienced team at LawTrades is ready to assist you.