Why should I incorporate my business or form my LLC in Delaware?

This is a straightforward question with a less than straightforward answer.

First let us tell you what Delaware is not, Delaware is not a tax haven. A corporation or LLC formed in Delaware will pay the same federal taxes as a corporation or LLC formed in any other state. Delaware will not, however, impose an income tax on a company formed or incorporated in Delaware that does not do business in Delaware. Having a registered agent or a mailing address in Delaware is not “doing business” for tax purposes. That being said, a “Delaware Investment Holding Company” which holds only intangible property which it licenses to other companies, is not subject to Delaware income taxes on its income. (The DIHC holds patents which it licenses to third parties or affiliates, the licensing income is not subject to Delaware tax.)

Then why should you form or incorporate your company in Delaware? Here are a few short answers.

    • Delaware permits a single person to form or incorporate a company.
    • A Delaware LLC need only have a single member and Delaware affords that single member the same limitation of liability protection as it affords a LLC with multiple members.
    • A company can be formed quickly in Delaware, in as little as one hour.
    • Delaware is business friendly, usually ranked first in the nation for business-friendly states.
    • Delaware’s business laws give deference to the decisions of management.
    • Delaware’s Court of Chancery is generally considered the finest, fairest and the quickest business court in the nation. The Court of Chancery hears business disputes almost exclusively. It does not hear criminal cases or civil cases seeking only monetary damages.
    • The judges of the Court of Chancery (the Chancellor is the Chief Judge and the associate judges are referred to a Vice Chancellors) serve a 12-year term and are nominated by the Judicial Nominating Commission, a non-partisan commission which includes both lawyers and non-lawyers. Delaware does not elect judges so that non-lawyer appearing before the Court of Chancery is beholding to a judge for a campaign contribution.
    • Delaware has 200 years of judicial precedent for its corporation laws and was one of the first states to adopt a limited liability company act. This history permits Delaware attorneys to advise their clients with certainty which does not exist in other states.
    • Delaware considers flexibility in its corporate and LLC laws to be important. This flexibility permits companies to construct transactions without the concern that it has to meet rigid corporate or LLC structures imposed by statute.
    • Taken as a whole, investors, bankers and ordinary business people prefer dealing with a Delaware corporation of LLC. These people know and are generally familiar with Delaware Law and know that if they must enforce their agreements in a Delaware court that they will receive a fair and impartial hearing with no home court advantage for any party.
    • Privacy. There is no annual filing for a LLC which requires public disclosure of the names of members or managers. Corporations must annually disclose the name and business address of an officer and the names and business addresses of directors, there is no requirement that the names of stockholders be publicly disclosed. Officers and directors need not be stockholders.

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