Delaware has earned a reputation as one of, if not the best, state in the union to incorporate and register your business. With more than one million business entities incorporated in the state, it is clearly a good place to do business with attractive tax breaks, friendly legal system, and flexible business structuring.
Read on to see if Delaware is right for you and your business.
What Makes Delaware so Good for Business?
Delaware has nurtured a number of advantages that make it favorable to US businesses. Chief among them are the tax advantages granted. Even for businesses that do not conduct their business within the state (but are formed in Delaware) pay no state corporation tax. The same goes for out-of-state shareholders, who are not subject to Delaware taxes if they reside outside its state lines. There is however a state franchise tax to be paid for Delaware businesses.
Delaware also has a corporate friendly state judicial system that functions with experienced judges instead of juries and streamlines legal issues for fast resolutions that benefit business. The judicial process is cut by months in comparison to other states. Delaware businesses are also not required to disclose as much information as other states, such as names of directors, and allows for a very flexible structuring of companies and corporations. Neither does Delaware require businesses to maintain bank accounts within the state.
Delaware is not perfect for everyone however. Although business friendly, benefits may not apply as evenly to smaller businesses or sole proprietors. In particular, some companies may benefit far less when their operations are based largely out-of-state and requires them to pay the franchise taxes of both Delaware and their state of residence.
Creating a Delaware Business
First of all, it is necessary to decide upon the type of business entity you will incorporate and attach the relevant suffix to your business title such as Inc. and Corp. for Corporation, Co. for Company, Ltd for Limited, and LLC for Limited Liability Company. Your name cannot include the words: college, university, trust, insurance, or bank. You should review the tax benefits involved with each and decide which suit your business best. (two-thirds registered in Delaware each year are LLCs).
Next you will need to obtain and pay for the required business licenses specific to your company. You can also obtain a Business License Package that helps determine everything necessary for Federal, State, County, and Municipal law with step-by-step filing instructions and forms. The State of Delaware also requires you to obtain a Delaware Registered Agent with a physical address in Delaware. Businesses physically located in Delaware can act as their own registered agents.
You will need to register your business with the Delaware Division of Corporations, which will collect your franchise tax fees. Your business will also need to satisfy federal requirements for any necessary licenses and by applying for and registering an Employer Identification Number (EIN) with the IRS.
Finding an Office
Delaware isn’t home to a major US city, and its nearest metropolitan region is Baltimore in Maryland. Washington DC. is not far away either, so businesses with operations in those regions can operate comfortably from within Delaware. The office market in Delaware at the moment varies in leasing activity which creates opportunities for renters in some areas.
Wilmington is the largest center for office location and has recently seen a decrease in vacancy rates after years of negative growth. Office space throughout the state is plentiful and for those headquartered out of the state, a large amount of registered agents service the large numbers of out-of-state companies seeking the financial benefits of incorporating in Delaware.