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Delaware is a major player when it comes
to the formation of corporations or LLCs. In fact, out of
50 U.S. states, Delaware has the largest number of public
businesses, as well as the largest number of Fortune 500 companies.
Many groups and individuals see valuable trading opportunities
in this business-minded state, but future Delaware based incorporations
should be aware of the success rate for their type of business
there.
The bottom line is, if you are running a small-scale business,
Delaware may not be the best place for you - but if yours
is a large corporation or LLC, it may be a smart move to either
form or transact your business in Delaware. Let’s take
a look at some of the potential advantages and disadvantages
of doing business in this state.
What are the advantages?
- Out of the whole country, the business law of Delaware
is the most flexible.
- Except for franchise tax, there is no additional
state corporate income tax if your company is formed
in Delaware. If you want to transact your business
here from some outside state, this doesn’t apply.
- When the companies have a good number of authorized
shares of stock, the taxation requirements are pretty
favorable. Also, for companies with complex capitalization
structures, the taxation levels are notably relatively
low in Delaware.
- The court of chancery in Delaware is concerned
mainly with business law. It utilizes the service
of judges and not juries. So, the courts of Delaware
are primarily helpful for larger corporations with
thousands of shareholders. The Delaware court of chancery
is therefore an important destination for filing lawsuits
by the shareholders.
- Non-residents of Delaware are exempted from personal
income tax.
- A certain level of anonymity is allowed in Delaware
because it is not mandatory to enter the names and
addresses of members’ or managers’ names
in the documents of formation.
- It is not compulsory for the shareholders and members
or managers and officers to be legal residents of
Delaware.
- If a person owns a certain share of stocks outside
the province of Delaware, they are not subjected to
Delaware taxes.
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However, if you own a small-scale business,
it’s not advisable to file a lawsuit in a bigger province
such as Delaware. But considering the fact that smaller businesses
are unlikely to have shareholders’ suits, this is not
a major disadvantage.
While evaluating the total cost of your business venture,
as formed in Delaware, you must careful to include any transactions
with other states. For transacting with other states, you
need a foreign qualification for the company in each respective
state of transaction. It’s a sort of registration required
to start any kind of business in a state other than the state
of formation. If your employees are located in Delaware, and
you want trade in some other state, the company still needs
foreign qualifications in that state.
So, if you’re thinking of Delaware as the state of formation
of your business, then do chalk out the over-all cost of transacting
the business in states other than Delaware, prior to starting
your business.
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