Delaware is known to be ‘the first state’ of the United States of America(USA) because it was the first state to ratify the US constitution. 

Thomas Jefferson also called it a diamond state as he described it as a “jewel” among states due to its strategic location on the Eastern Seaboard.

But that is not why it is special for today’s topic. 

Delaware is special because of the likelihood of a company in the USA to be incorporated in that state. 

The USA is a federal structure hence the tax and legal requirements may vary from one state to another. 

Some states have higher taxes or more legal impediments to undertake business. 

If one or more states dominate the product or service you offer to sell then it makes less sense to avoid obligations by registering in low burden states like Delaware.

But if your business is not concentrated in any one particular state then it is recommended to incorporate in more ‘business-friendly’ and ‘international-friendly’ states like Delaware. 

5 reasons why Delaware is the most preferred state to undertake business?

Many choose Delaware to incorporate (or form) their LLC or corporation. Here are a five reasons why:

Tax shelter

Delaware is considered a Tax Shelter state for domestic and foreign companies wanting to start business in the USA. 

Delaware does not have sales tax, value added tax (VAT), inventory or unitary tax and very low capital and income tax as compared to other states in the USA making it more attractive for businesses to set up their base in Delaware. 

Even the excise, corporate income tax, property taxes are significantly lower than other states in the USA. 

Also if the business does not conduct its operations in Delaware, the state’s corporate income tax (8.7%) does not apply and instead the business can pay a much lower franchise tax (flat US$100).  

No minimum capital requirements

There is no minimum capital requirement. While other states may require at least $1,000.00 in capital, a Delaware corporation or LLC requires no initial investment.

Anonymity/Privacy 

Delaware incorporated businesses are not required to list their members on the public record. Some Members of an LLC corporate may not want to reveal the business they conduct. This is to protect them from personal liabilities.  

Business-friendly banks

About half of the domestic credit business in the U.S. market is conducted by companies that are incorporated in Delaware, though they may maintain their operational headquarters in other states.

The banks of these states are more familiar with dealing with corporate clients which can make opening and operating a bank account much easier. 

Corporate disputes 

Delaware is the only state which maintains a special court system dedicated to addressing the concerns of the corporate/business community.

Delaware Court of Chancery is a “pro-business” court system that employs a judge rather than a jury, for determination in cases. It is a well-respected court of equity that resolves disputes between Delaware corporations and has an extensive set of precedents, statutes and case studies from their 200-plus years of operation. 

This Court is internationally recognized for its long-established body of case law, predictability, and expertise in rendering sound decisions. 

Some of the best business attorneys in the country become judges on Delaware’s Court of Chancery. 

Decisions from the Court of Chancery have routinely set the benchmark for U.S. corporate law; the court’s experience can be very beneficial to Delaware-incorporated companies that seek guidance on particular issues.

Why is it relevant for you?

More than 60% of Fortune 500 companies are incorporated in Delaware. The state is the domicile for many major corporations and LLCs, including Facebook, Yelp, Twitter, and Google.

Law students at every law school in the United States study the Delaware corporation statute and the decisions of Delaware courts interpreting that law.

Many foreign entities wanting to start a business in the USA prefer Delaware as the state to incorporate their business in. You may not even need a physical office but just an agent’s address to start your business in that state which makes it a favourable destination for corporations across the world.  

If you want to undertake work for foreign clients, especially from the USA, knowing corporate work of the Delaware state will take you a long way in your career. 

You will not only be able to start your freelance legal consultancy for foreign clients but also pitch for jobs at international law firms in your home country and abroad. 

If you plan to do LL.M. from the USA, knowing the commercial work of America will go a long way in securing jobs while you are studying. The local law firms prefer candidates who know US laws better and can help them take new projects from corporate clients. 

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