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Learning Center Menu. Avoiding Hidden Delaware Incorporation Fees. Why Form a Delaware Corporation? What is a General Corporation? What is a Close Corporation? What is a C Corporation? Additionally, other states collect less tax revenue because so many businesses choose to incorporate in Delaware rather than nearby states such as Pennsylvania and New York.
Why Are the Majority of U. Companies Incorporated in Delaware? When a company wants to incorporate in Delaware, it works through a registered agent — a person in the state who acts as a middleman, collecting paperwork and providing the company with a physical address.
Delaware has the most secret companies in the world and the easiest to form. This expediency, coupled with the allure of anonymity, has attracted a slew of shady enterprises to Delaware in recent years:. Of course, the vast majority of Delaware corporations and LLCs are legit enterprises. And for these firms, the courts are a major draw.
Delaware has what is called a Court of Chancery. Many legal experts claim that these courts are overwhelmingly favorable to corporations — particularly when it comes to shareholder disputes.
But there is no denying that the state is part of a broader trend that has seen the US shift away from financial transparency in recent decades. According to the Tax Justice Network, an advocacy group that tracks tax avoidance, the US is now the second-largest tax haven in the world, trailing only the Cayman Islands. A new federal law passed in late banned anonymous shell companies in the US. But the full picture of how this might affect Delaware remains unclear. Privacy policy.
Generic filters Hidden label. Hidden label. Why Delaware is the sexiest place in America to incorporate a company Nearly 1.
How did this tiny state become a mecca for corporate activity? By: Zachary Crockett zzcrockett. Among them: How did Delaware become an unlikely mecca for corporate America? But New Jersey saw an opportunity to cater to industry. Enjoying this article? Thank you for subscribing. Your submission failed. Please try again! Business and tech news in 5 minutes or less.
Delaware law allows just one person to hold the role of officer, director, and shareholder, which is attractive to small businesses. Investors prefer Delaware. If you're going to look for angel investors or venture capital, know that most of these prefer you incorporate in Delaware. Disadvantages of Registering in Delaware While Delaware offers distinct benefits, there are also significant drawbacks to incorporating there. Here are other factors to consider: There are no real tax savings for small businesses.
Although Delaware doesn't tax companies incorporated in the state that don't do business there, your home state will tax your company, so you do not avoid taxation. Filing is more expensive. Delaware's filing fees are significantly higher than other states'. You will pay a franchise tax. Although your company won't pay income tax in Delaware, it will have to pay the Delaware franchise tax based on the shares' value.
This is generally minimal for small businesses, but it will increase as the number of shares increases, and as your share value goes up. You may also need to pay a franchise tax in your home state. You must meet your own state's requirements. Even though you incorporate in Delaware, you still need to meet your state's filing and licensing requirements for conducting business there.
You also have to file annual reports in both locations. It's twice the work and twice the expense to do this. A Delaware registered agent is required. When you file, you'll need to provide your registered agent's name within Delaware, a person or company located in-state, who can accept legal filings on your behalf. If you hire someone to handle this, it's an additional cost for your business.
Legal disputes require travel. Because cases involving your company must be heard in the Delaware court, you'll need to travel to Delaware to handle any legal disputes. You'll also have to retain a Delaware attorney to handle the case instead of the attorney you use in your home state.
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