Why Do So Many Companies Incorporate in Delaware?

Why Incorporate in Delaware?Date Added: June 8th, 2005

By Chris Stallman  |  E-mail

Why do so many companies incorporate in Delaware?-Mark Webb, Georgia Tech

That's actually a great question because more than half of the Fortune 500 companies are incorporated in Delaware.  In fact, many companies will incorporate elsewhere and then later reincorporate in Delaware.  So what's so appealing about Delaware?  Certainly, not all of these companies are located in such a small state, so why are they incorporating their businesses there?  Well, here are five reasons:

Reason #1: It's Cheap

The costs to incorporate in Delaware are some of the cheapest in the country.  Currently, only eight states have cheaper incorporation fees than Delaware and even that is a rather recent development.  In attempts to attract more business filings, many states have made their filing fees more competitive with Delaware.  Even still, Delaware remains one of the cheapest states in the country to incorporate a business in.

Reason #2: You Don't Need to be a Resident of Delaware

When incorporating a business in Delaware, you don't have to worry about any residency requirement, as it's not required for you to be a Delaware resident.  This applies to shareholders, officers, and directors.

Reason #3: Non-Delaware Businesses don't pay Delaware Corporate Taxes

If your business doesn't conduct business in Delaware, you're not obligated to pay Delaware corporate taxes.  However, it will be required to pay a franchise tax each year.

Reason #4: One Person can Hold all Officer Positions and Serve as Sole Director

This is actually a big benefit because many states require that you name separate people as officers and directors.  If your business is relatively small and you're the only person who runs it, this is a big advantage.  This was one of the big draws for TeenAnalyst.com to form an LLC in Delaware.

Reason #5: Separate Court System

Delaware has a separate court system for corporate law that doesn't involve juries.  The advantage of this is that companies don't have to worry about juries deciding corporate cases.  Instead, a judge who is familiar with corporate law overseas the case.

So with this in mind, you can see why Delaware is such an attractive state to incorporate in.  However, there are many things to consider when deciding where to incorporate your business.  These include where you're physically located, the costs to do so, and the corporate legal structure that best suits your needs.

Dani said:

How current is this information? Doing my research and wondering if there are any updates I should know about.

John said:

The "overseas" in the last paragaph should be "oversees" - this is one of the cutest typos I've seen in a long time!