So you have decided to start your own business. You have done your research, created your business plan and have some money to get started. Great! Now what? Well, the first thing you need to do is create a legal entity so you can request a federal tax id, setup a bank account and so on. For small businesses that intend to stay small that usually means incorporating with the state in which you currently reside. However, if you plan on building the next monster company you should contemplate incorporating in Delaware instead of your home state.
Many institutional investors prefer Delaware corporations and some may even require you to reincorporate in Delaware prior to an investment. Why? Because Delaware has a separate Court of Chancery, a business court. The Court of Chancery does not use juries and the judges are appointed based on merit, not public election. Because there are no juries, decisions issued from the Chancery Court are done so as written opinions. The opinions create a large body of legal precedent for the investors to rely on, making it the most business friendly state to incorporate in from a legal standpoint. Investors like that.
There are a few other benefits to incorporating in Delaware:
- You don’t need to be a resident of Delaware.
- Non-Delaware Businesses don’t pay Delaware Corporate Taxes.
- Different kinds of business can be transacted under one corporate roof.
- Shareholders can act in writing instead of holding meetings.
- You can add people to the board who are not shareholders.
- One person can act as the only officer, director and shareholder of a corporation.
The state of Delaware has a booklet dedicated to the subject if you want more details. Corporations and LLCs of Delaware are permitted to run their businesses in all 50 states and foreign countries. You can incorporate for as little as $79.00 (no, I have never used these guys) and the ongoing cost of operations are relatively low.
Please note: I am not an attorney, financial advisor or tax expert. You should consult your own counsel prior to making any business decisions.
Thanks for the info. I’ll take a look at that booklet. Where is IZEA incorporated, Delaware? You’ve made many companies I was wondering if this is the route you’ve gone with each?
IZEA is incorporated in Delaware. All of my other companies were incorporated in Florida (before I knew any better).
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@tedmurphy Thanks Ted. I had a follow up ? on the post in the comments.
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About 80% of businesses incorporated in DE for the tax benefit plus DE is an awesome state. I have lived in DE for about 15 years but moved away for a while and are now moving back to DE.
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