Why Incorporate Your Startup In Delaware?

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Why Incorporate Your Startup In Delaware

You might be wondering why do more than 50% of the U.S. traded companies and 60% of the Fortune 500 companies incorporate in Delaware when they are based elsewhere. There are many reasons why you should incorporate your startup in Delaware. These reasons include tax benefits, investor requirements, cheaper licenses, law benefits and many more. Most accredited investors won’t invest in your company unless you incorporate your startup in Delaware. Let’s take a more in depth look at why investors require you to incorporate your startup in Delaware.

incorporate your startup in delaware

Incorporate Your Startup In Delaware Benefits

Law Benefits

Delaware has one of the best and most flexible laws for businesses. It is designed to provide maximum flexibility in the structuring of business entities and the allocation of rights and duties among founders and shareholders. In Delaware, the law system uses an actual judge whereas in California juries are called upon. This allows for a better decision and this ensures that your business case is resolved by a professional in the field and not a wild card. If your startup ever runs into a lawsuit, a good decision maker might be the key difference between a win or a loss.

Tax Benefits

Business and startups hate taxes, but Delaware has one of the most beneficial tax requirements.

No state income tax for Delaware corporations that operate out of state
No business license required for Delaware corporations not operating in Delaware
No inheritance tax on stock held by non-residents of Delaware
No state sales tax on intangible personal property
Shares of stock owned by non-resident aliens are not subject to Delaware taxes

Cheap and Fast Incorporation 

Another reason to incorporate your startup in Delaware is the small amount of time and money it takes to incorporate. The saying goes, “Time is money”. Delaware can incorporate your startup in as little as half hour, but normally the standard is within 24 hours. That’s quite fast if you compare it to other states. In addition to that it only cost $89 dollars to incorporate. California is $100, but there’s a yearly fee of $800, so being a startup on bootstring, it might be smart to save some money and incorporate your startup in Delaware.

Privacy For Investors

This is important to the investor and is one of the main reasons why investors require that your startup gets incorporated in Delaware. Delaware doesn’t require startups to list directors and officials in their documentations. Not all investors want to be known to the public and Delaware does a great job doing that.

The fact so many large, public companies choose Delaware should demonstrate that large, public companies tend to benefit the most from incorporating in Delaware. If you are just planning to start a small business or a local business then there is no need to get out of your way to incorporate in Delaware, but keep in mind if you plan on growing your business and drawing in investors, Delaware might be a good choice.

Another offshore options startup tend to use is to incorporate in Hong Kong, which has a similar system to Delaware.

 

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