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 corporations 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.

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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