Jennifer Simonson at Forbes Advisor wrote an explainer on why so many companies incorporate in Delaware, and asked me to weigh in on the benefits and the fine print.
Delaware is the popular choice for starting an LLC or corporation because it is one of the most predictable places in the United States to resolve corporate disputes. The Court of Chancery hears business cases without juries, decades of case law give lawyers and investors a clear sense of how questions will be decided, and the General Corporation Law offers real flexibility in how a company is governed. Filings are processed faster than almost anywhere, and there is no corporate income tax on revenue earned outside the state. That combination is why venture investors often expect a Delaware entity before they write a check.
The part small business owners miss is that incorporating in Delaware does not exempt you from your home state. To operate in another state, you will need to register there as a foreign corporation, which means a second set of filings, a registered agent in both states, franchise taxes in Delaware and full tax obligations where the business actually operates. For a local business with no plans to raise outside capital, that is extra paperwork and cost with no offsetting benefit.
My rule of thumb: if you plan to raise venture money or have investors in several states, Delaware usually earns its cost. If you run a dental practice in Maryland, incorporate in Maryland.
Read the full article at Forbes →
