Which Businesses Should Not Incorporate in Delaware?

Legal Q + A

Oct 23

Written By Graham Settleman

What you need to know before you incorporate in Delaware

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Which businesses should not incorporate in Delaware?

Delaware is the most popular state in the United States to incorporate a business. In fact, over 60% of Fortune 500 companies are incorporated in Delaware. There are many reasons for this popularity, including Delaware's business-friendly laws, its well-developed court system, and its central location on the East Coast.

However, not all businesses should incorporate in Delaware. There are a few specific types of businesses that may be better off incorporating in another state.

Businesses that do not plan to raise venture capital

One of the main reasons why businesses choose to incorporate in Delaware is because venture capitalists prefer to invest in Delaware corporations. This is because Delaware has a well-established body of corporate law that is favorable to investors.

However, if you do not plan to raise venture capital, there is no need to incorporate in Delaware. In fact, incorporating in Delaware can actually be more expensive and time-consuming for businesses that do not plan to raise venture capital.

Businesses that are not headquartered in Delaware

Another reason why businesses choose to incorporate in Delaware is because it is a central location on the East Coast. This makes it convenient for businesses to have their principal place of business in Delaware, even if they do business in other states.

However, if your business is not headquartered in Delaware, there is no need to incorporate in Delaware. In fact, incorporating in Delaware can actually be more expensive and time-consuming for businesses that are not headquartered in Delaware.

Businesses that are subject to specific state regulations

There are certain types of businesses that are subject to specific state regulations. For example, insurance companies, banks, and public utilities are all subject to state regulation.

If your business is subject to specific state regulations, you may need to incorporate in the state where your business is headquartered. This is because the state where your business is headquartered will have jurisdiction over your business and its operations.

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Businesses that are small and local

If you own a small, local business, you may not need to incorporate in Delaware. In fact, incorporating in Delaware can actually be more expensive and time-consuming for small, local businesses.

Instead of incorporating in Delaware, you may want to consider incorporating in the state where your business is headquartered. This will make it easier for you to comply with state laws and regulations.

Here are some additional factors to consider when deciding whether or not to incorporate in Delaware:

Cost: The cost of incorporating in Delaware varies depending on the type of business entity you choose and the complexity of your incorporation. However, generally speaking, incorporating in Delaware is more expensive than incorporating in other states.
Time: The time it takes to incorporate in Delaware also varies depending on the type of business entity you choose and the complexity of your incorporation. However, generally speaking, incorporating in Delaware takes longer than incorporating in other states.
State taxes: Delaware does not have a corporate income tax for corporations that do not do business in the state. However, if your business does business in Delaware, you will be subject to Delaware's corporate income tax.
Federal taxes: All corporations, regardless of where they are incorporated, are subject to federal income tax.

Conclusion

Delaware is a great state to incorporate a business for many businesses. However, there are a few specific types of businesses that may be better off incorporating in another state.

If you are unsure whether or not to incorporate in Delaware, you should consult with an attorney or accountant. They can help you assess your specific situation and make the best decision for your business.

Here are some specific examples of businesses that may be better off incorporating in a state other than Delaware:

Small, local businesses
Businesses that are not headquartered in Delaware
Businesses that are not planning to raise venture capital
Businesses that are subject to specific state regulations
Businesses that are owned by individuals who do not want to disclose their personal information

If you own a business that falls into one of these categories, you should carefully consider whether or not to incorporate in Delaware. There are many other states that offer business-friendly laws and regulations. You may be able to find a state that is a better fit for your business needs and budget.

Information published to or by The Industry Leader will never constitute legal, financial or business advice of any kind, nor should it ever be misconstrued or relied on as such. For individualized support for yourself or your business, we strongly encourage you to seek appropriate counsel.