Incorporating in Delaware has many advantages over incorporating a business in your home state. Before explaining the advantages of incorporating in Delaware, it is important to know you are eligible to run your business as a Delaware corporation or a Delaware LLC no matter where you live. A business operating almost anywhere can be incorporated in Delaware. Neither a Delaware LLC, nor a Delaware corporation, are required to have an office or business address in Delaware. For an address, Delaware only requires the appointment of a Registered Agent with a physical address within Delaware to receive service of process and notices from Delaware Secretary of State. Choosing a reliable Registered Agent will ensure it is available for the full life of your company in order to maintain good standing with Delaware Secretary of State’s Division of Corporations.
Why Incorporate in Delaware?
There is no better testament to Delaware as a great corporate home than the successful businesses incorporated in Delaware. The main reason to incorporate in Delaware is the favorable and fair legal climate. In eight separate studies conducted by the US Chamber of Commerce, Delaware continues to be ranked #1 for state legal systems. This is because Delaware business owners are protected by a corporate veil protecting owners from personal liability for business debts and judgements. A Delaware business owner is more likely to be struck by lightning than have this corporate veil pierced. The Delaware LLC also has protections against a reverse-pierce where Delaware limits the judgement rights of creditors of LLC members to “charging orders”, which means the creditors of a member can at best obtain a judgement to receive that member’s distributions from the LLC but cannot become a member or cause the LLC to foreclose or liquidate. This protects you from the personal problems of other members of the LLC.
Protection of company liability shields may be the most enticing reason to incorporate within Delaware, but also Delaware laws have been time-tested, allowing for predictability for companies. Delaware updates these laws to remain at the cutting edge for corporate governance. The legal decisions are made by sophisticated judges who were previously sharp business lawyers selected to serve by the governor in a separate court of equity, the Court of Chancery, which handles business disputes promptly and effectively. The Court of Chancery is not a jury court, and decisions are made by judges (called “Chancellors”) who are very experienced in business law.
Lastly, the cost to form a Delaware company is affordable, even for a start-up. The annual franchise tax for a Delaware corporation is $175 minimum based upon the number of authorized shares, with a filing fee of $50. Additionally, the Delaware LLC annual fee is only $300, regardless of capitalization or size of a company. Therefore when comparing forums in which to incorporate, Delaware is sought out for protection and predictability above all.