Why do Business in Delaware?
The Complete Package: Why You Should Choose to Incorporate in Delaware
The State of Delaware offers the complete package of incorporation services for companies looking for unparalleled flexibility and prestige. The state’s rich corporate tradition allows it to flourish as the favored state of incorporation for both national and international businesses. Nearly one-million business entities currently recognize Delaware as their corporate home, representing 64 percent of the Fortune 500 companies and half of all United States firms traded on the New York Stock Exchange and NASDAQ. In addition, over 90 percent of United States public offerings in 2007 were of companies incorporated in Delaware. Accordingly, a wide array of benefits can be achieved by incorporating your business in Delaware.
A Dynamic Corporation Statute
The Delaware General Corporation Law (the “DGCL”) is widely accepted as the gold standard in United States corporate practice. The statute is taught in most law schools and strongly supported by Delaware’s citizens and businesses, resulting in exceptional predictability and integrity. Over the years, the DGCL evolved to permit corporations and shareholders maximum flexibility in organizing their affairs. In addition, Delaware’s legislature regularly interacts with the state’s lawyers and corporate professionals in an effort to utilize the invaluable experience of sophisticated practitioners who deal with corporation law matters on a daily basis.
A Highly Developed Court System for Corporate Matters
In addition, many businesses choose to incorporate in Delaware because of the state’s reputable courts and developed case law. Delaware’s Court of Chancery dates back to 1792 and has developed into the premier venue for corporate litigation in the United States. The Court of Chancery has no jurisdiction over criminal and tort cases, allowing it to avoid backlog and focus on processing corporate matters quickly and effectively. Further, the court operates without juries, enhancing the predictability of cases while allowing the judges to issue written opinions to explain the reasoning behind their holdings. Often described as the common currency of corporations, the Court of Chancery has interpreted nearly every provision of the state’s corporate law statute through a wealth of precedent. Together, experienced courts and refined case law allow Delaware business planners to effectively plan their affairs to avoid lawsuits, taking advantage of valuable predictability and trustworthiness.
Separating Myth from Fact: the Benefits of Delaware Incorporation
While the corporate world’s recognition of Delaware as an efficient and convenient corporate haven can be measured by the vast number of successful companies that choose to incorporate in the state, some common misconceptions concerning Delaware corporate law sometimes arise:
Myth: You need to maintain an office with employees in Delaware to be incorporated within the state.
Fact: Delaware corporate law provides the flexibility and convenience ideal for non-Delaware based businesses. While a corporation needs to maintain a registered office within Delaware, that office does not need to be its principal place of business. A Delaware corporation must also appoint and maintain a Registered Agent, though the position may be filled by an individual resident, a domestic corporation or an appropriately authorized foreign corporation. Further, you can incorporate a business in Delaware even if you are not a Delaware resident. In fact, a Delaware corporation need not even carry on business operations in the state or hire Delaware employees in a Delaware office.
Myth: You need to travel to Delaware and physically file incorporation documents with the Secretary of State of Delaware in order to be incorporated within the state.
Fact: A select number of organizations that offer registered agent services also have a direct electronic link to the Secretary of State’s office and can rapidly file incorporation formation documents. The Delaware Counsel Group is one such organization and, in conjunction with the Secretary of State, offers state-of-the-art electronic filing options for prospective Delaware entities. These options include 1-hour, 2-hour, and 24-hour guaranteed service, with a new technology platform in the works to continue expansion in this area. Comparatively, other jurisdictions may take multiple days to service such transaction filings. In addition, Delaware’s Division of Corporations has implemented a live chat service that allows direct online access to corporate information specialists. Forming an entity in Delaware is only a few mouse clicks away.
Myth: You need to open and maintain company bank accounts within the State of Delaware in order to ensure the formation of your business entity.
Fact: Bank accounts may be located anywhere and do not need to be maintained in Delaware.
Myth: You need to hold annual shareholder meetings in Delaware.
Fact: Shareholder meetings may be held anywhere in the world and can even be conducted by utilizing remote communication, which affords shareholders the opportunity to attend meetings without being physically present.
Myth: Members of the board of directors must also be shareholders of the company and/or residents of Delaware.
Fact: An officer or director of a corporation does not need to own shares in the company or be a resident in Delaware. Further, an advantage especially pertinent to small businesses is that the same director can hold all officer positions (President, Treasurer, Secretary) within the corporation. This allows a single owner to retain complete control of the company. Many other states require separate individuals to serve as officers and directors and require that at least some directors be residents of the state of incorporation.
Myth: You will have to pay hefty taxes in order to form an entity in Delaware.
Fact: When compared to other states, the costs associated with incorporating in Delaware are among the lowest in the country. The initial charge for incorporating in Delaware can be as low as $89.00 and the annual franchise tax as low as $75.00. In addition, Delaware corporations that do not transact business in the state are not subject to Delaware corporate income tax, providing further cost savings.