Business in Delaware: Pros and Cons
The USA is a land of opportunity, and many aspire to start a business here. The key is choosing a state that’s friendly to business owners. Delaware is among the most popular options, known for its favorable tax climate and supportive environment for entrepreneurs, which has driven extensive business growth in the state.
In Kazakhstan and Ukraine, Delaware companies were marketed as "American offshore companies" for advertising purposes, though this isn’t accurate. Delaware-based companies pay both federal corporate tax (21%) and Delaware’s state income tax (8.7%) on profits.
However, not everything is as smooth as it might seem. Let’s examine whether Delaware is worth it and what the potential drawbacks are.
Advantages of Registering in Delaware
Flexible Tax System: The legislation allows local businesses to operate without sacrificing all profits to taxes.
- No income tax on businesses conducted outside the state;
- No tax on stocks if the shareholders don’t reside in Delaware;
- No intangible tax and other non-material asset taxes;
- No state income tax for non-residents of Delaware.
Judicial System: Delaware courts handle such a high volume of business disputes that there is practically a precedent for any issue. Additionally, Delaware lawyers are highly experienced, and many corporate law disputes are resolved without a jury, ensuring efficiency.
Quick Processing: Applications in Delaware can be processed in less than an hour, whereas other states may take significantly longer or require additional fees for expedited service.
Ability to Relocate Your Company: If you already have a business in another state, you can move it to Delaware. However, you’ll need to pay an annual franchise tax, and Wyoming and Nevada offer better conditions for this service.
While running a business in Delaware is feasible, it’s essential to note that other states have also improved their tax and business laws to provide even more favorable conditions for startups and established businesses alike. Before deciding, consider Delaware’s potential disadvantages.
Disadvantages of Registering in Delaware
Average Registration Cost: Starting a corporation in Delaware can be somewhat more expensive than in states like Wyoming, though cheaper than many others.
Agent Requirement for Legal Correspondence: If your business is outside Delaware, you’ll need a registered agent in the state to receive mail, adding to your operating costs.
Corporate Attorney Costs: Legal services are expensive, with Delaware attorney fees averaging around $650 an hour due to high demand and limited availability.
Additional Franchise Taxes: If your business is outside Delaware, you may have to pay franchise taxes both in Delaware and in your operating state.
Mandatory Annual Reports: Required even if your business has relocated to another state.
Registration in Multiple States: Operating outside Delaware may require registration in the other states where you conduct business, with associated fees as defined by their laws.
Delaware laws are largely designed for large corporations, meaning small to mid-sized businesses could face unexpected expenses to stay compliant with local regulations.
Laws: Delaware has unique business laws that differ from other states. For instance, shareholders are often favored over management in disputes. If a disagreement arises between company leaders and minor shareholders, Delaware courts will typically side with the shareholders, not management. Remember this if your investor insists on Delaware registration, as laws favor shareholders.
Delaware State Taxes
Over 30 years ago, Delaware made a bold move by eliminating state taxes, creating a record influx of companies. In record years, up to 12% of all companies registered in the USA were in Delaware. However, when Nevada and other states abolished their own corporate taxes in 2004, Delaware legislators introduced relatively high taxes, now at 8.7%, making Delaware one of the states with the highest tax burden.
For more details, you can read about Delaware's tax information on the official state website.
https://revenue.delaware.gov/frequently-asked-questions/corporate-income-tax-faqs/
What’s the Right Choice?
Delaware has a strong reputation for business registration, but other states have been catching up, offering competitive options. We are familiar with the laws across multiple U.S. states, monitor changes, and can suggest alternatives suited to both startups and established businesses.
Choose any state in the U.S., and our team will help you navigate the formalities, obtain necessary documents, and understand the nuances of operating there. Just contact our representative to get the information you need and find the best conditions for your business.
