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Top 4 Delaware Corporation Benefits You Should Know

Content Team4 minute read21 Oct 2021

Top 4 Delaware Corporation Benefits You Should Know

Delaware has become the ideal domicile for corporations with numerous perks and opportunities. Particularly, there were 67,8% of all Fortune 500 companies incorporated in this state of the US.

There are also a variety of business entity types in Delaware so you can choose the one that suits your business needs. Corporations were the entity constituting 20% of new formations in 2019 for Delaware corporation benefits. Below are main reasons why you should consider Delaware corporations.

1. Delaware as a top trend for incorporation in the US

According to IBISWorld, Delaware’s population growth ranks 14 out of all 50 US states, which offers abundant labor resources at lower costs compared to other states. The state also holds number sixth among states in terms of business environment that boosts the development of corporations.

Low business cost is an outstanding aspect of Delaware that encourages businesses to incorporate in the state. The cost is 25% lower than the national average, which makes Delaware hold the lowest operating expenses.

In the matter of tax, Delaware is one of the most friendly taxation systems among other states in the US with 8.7% of federal taxable income, for example.

Choosing Delaware for corporate setup enables the companies to hold financial advantages at the starting point and more add-on benefits further.

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2. Advantages of corporation formation in Delaware

The popularity of Delaware regarding business incorporation comes from a tax-advantage system, favorable legal process, privacy protection, flexible stock system attracting Venture Capitalists to corporation investment, and more.

To better understand why Delaware is one of the best choices for incorporation, let’s explore corporate merits in the state as follows:

2.1 Favorable taxation imposed on Delaware corporation

The taxation system is the key factor leading to the state’s dominance in incorporating businesses. Delaware offers some significant advantages for corporations by imposing business-friendly tax laws.

No state income tax. The state offers big benefits to corporations by levying no state corporate income tax on those companies conducting business outside Delaware. There might be a small amount required for franchise taxes based on the number of the company’s authorized shares, but still at the preferred rate compared to other states.

Those who own stock shares but reside outside the state are also exempted from Delaware personal income tax under certain conditions.

No sales tax. Corporations in Delaware also gain benefits from no sales tax subjected to goods and services provided by the corporations, even physically located in the state or not. With this figure, tax burdens for corporations are scaled-down.

a man with a calculator

Favorable tax policies on investment income and property. Forming corporations in Delaware also helps the companies to be free from a corporate tax on investment income or interest. Earnings from fixed investment or equity capital on the state level are not subjected to tax.

Furthermore, personal property is not taxable or taxed at a very low rate if it is county-level property. The corporations can gain tax advantage by owning their own offices to minimize property tax in Delaware.

Other tax benefits. Besides those tax advantages, corporations operating in Delaware are free from some other taxes including inventory, unitary tax, value-added taxes on business transactions, inheritance tax and capital shares or stock transfer taxes.

Forming corporations in Delaware helps to solve thorny tax-related problems as compared to other states of the US.

2.2 Superior legal process

A hammer on the table

One fact that makes Delaware benefit corporations more than other states is the separate court called the Court of Chancery. The court uses judges, who are competent and experienced in tackling corporate issues, instead of juries like other states.

Delaware also has an extensive set of precedents, statutes, business cases over decades, which helps to review corporate cases fastly and efficiently. Due to the predictability and stability of Delaware business laws, the legal process will be smooth, which facilitates corporations in addressing current issues and minimizing negative effects on business operations.

The state is also known for its corporation-friendly usury laws. This is a big plus for banks and credit card companies to charge interests at any wanted rate on loans.

2.3 Anonymity maintained in Delaware

One plus point as forming a corporation in Delaware is the privacy protection of business. The State doesn’t require companies to publicize shareholders’ personal information such as names and addresses, but not for directors unfortunately. Only the name and address of the registered agent are required in filing corporate papers.

2.4 Investment attraction from Venture Capitalists

There are two main types of corporations in Delaware which are S-corporations and C-corporation. These corporations are not taxed at the federal level. Plus, all income and losses will pass through the shareholders.

However, Delaware C-corps are preferable to Venture Capitalists due to preferred stock offerings, thus preferred shareholders can get higher dividends and vote. And because of the flexibility of preferred stock, investment bankers can minimize investment risk in corporations.

3. Disadvantages of Delaware corporations

Besides many benefits for Delaware corporations, there are some difficulties that corporations have to be faced with. The disadvantages are more subjected to the corporations incorporated in the state but physically operated elsewhere.

In terms of franchise tax, it could be disadvantageous to big corporations with more complicated structures. The filing fee could be more expensive and more complex to be settled. For companies formed in Delaware but do business in another state, it is compulsory to register for a foreign qualification to conduct its operations there.

Additionally, the corporations have to pay extra expenses for registered agents annually and the attorney retaining as the case may be.

Cost is the main factor affected by those disadvantages, but Delaware still gives the greatest benefits to corporations. When it comes to the decision about choosing Delaware for the incorporation, think carefully if it suits your business situation.

4. Conclusion

With all these characteristics, Delaware offers the bulk of benefits for corporations operating there. Forming corporations in Delaware has become popular but requires businesses to have a comprehensive understanding of Delaware corporate issues, taxation system, business laws, and much more. These findings help you to answer why you should form corporations in Delaware.

In addition to corporation, LLC is also one of the most widely-selected entity types in Delaware. You can learn more about Delaware LLC with its benefits and drawbacks to see which one may better match your business.

Consult us to form a prosperous business in Delaware.

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