Your startup’s incorporation location will play a role throughout the entire lifespan of your business. Different states and countries have different tax structures, reporting requirements, and compliance guidelines.
Delaware is considered the “gold standard” for business incorporation.
In 2024, the state saw nearly 290,000 business entity formations. During the same year, more than 81% of U.S-based IPOs chose Delaware as their corporate headquarters. In total, Delaware is home to more than 2.1 million legal entities — nearly double the amount of the residential population!
Here, we’ll take a look at what makes Delaware the most popular for startup incorporation, and what founders should consider throughout their own incorporation decision-making process.
Why Is Delaware a Popular Incorporation State?
Delaware is often chosen as the state of incorporation due to its advanced and flexible General Corporation Law. Statutes here are designed to best accommodate corporate goals and objectives.
There is also a bi-partisan concurrence among lawmakers in Delaware to keep their corporate law modern and up-to-date. As a result, lawyers across the country study Delaware law, and it is thus the common denominator for corporate lawyers and businesses nationwide.
Business also moves more quickly in Delaware. The state’s Division of Corporations offers a variety of virtual business services, and can process most filings in as little as 30 minutes. The Division is also known for its friendly service, and has earned a trusted reputation from business planners and counsel.
Considerations for Delaware Incorporation
Corporate Income Tax
Corporations are required to pay corporate income tax in most states. However, some states are trending away from collecting corporate income tax, minimizing percentages or completely phasing out this structure. If your startup projects significant income and wants to avoid taxes, incorporation location could play a huge role in revenue over time.
Delaware’s tax law gives corporations several legal ways to minimize their tax bills. For example, companies who are only incorporated in Delaware but do business elsewhere are not required to pay state corporate income tax. Additionally, companies incorporated in Delaware do not have to pay taxes on profits from royalty payments, trademarks, or copyrights, nor are they taxed on stock ownership.
However, Delaware does charge a franchise tax while other states like Nevada do not. Several states do not charge personal income tax, so those could be another consideration depending on the organization of your corporation and payouts.
Legal Process
Delaware boasts their unique Court of Chancery which rules on corporate law disputes without juries. This special court ensures that corporate law cases do not get slowed down by non-corporate cases clogging up the docket. As a result of the court’s procedure and pace, judges sitting on the Court of Chancery have unique competence and a deep understanding of the law.
Though Delaware is touted as the gold standard for corporate legal proceedings, states including New York, North Carolina, Georgia, Texas, and Utah have developed similar specialized courts. Other states are also piloting similar programs.
Investor Perception
Your incorporation location plays an even greater role if your startup plans to raise venture capital and/or eventually go public. Venture capitalists and angel investors typically prefer companies that incorporate in Delaware. This state of incorporation demonstrates a mature business rationale and an understanding of investor considerations.
Privacy Laws
Some states require corporations to disclose the personal information of founders, leadership, or even investors in annual filings. In Delaware, the names of stockholders or directors may be kept private. Nevada and Wyoming also tout limited reporting and disclosure requirements which facilitate personal anonymity.
Business Operations
Several states have strict requirements for how corporations structure their governance. In Delaware, corporations maintain flexibility in allocating governance rights, board management, establishing stock structures, and merger or reorganization transactions. The state’s personal liability protections also make corporate participation more attractive.
What Are Other Business-Friendly States of Incorporation?
Other states are learning from Delaware’s reputable business-friendly environment, expanding their own corporate tax-friendly programs, legal structures, or privacy protections. Operations in the hospitality or entertainment industries may consider Nevada. Privacy-focused startups may consider Wyoming, or those for whom asset protection is a must may consider South Dakota.
If your startup will operate a brick-and-mortar location and plans to hire employees, it may be a good idea to incorporate in your home state. If you do incorporate outside of your home state, you may still pay taxes on in-state revenue. All corporations without a physical location in their state of incorporation must hire a registered agent in order to receive service of process, which may be another location consideration.
Ensure Proper Startup Incorporation
No matter where in the world you live or conduct business, founders have the right to incorporate their startup anywhere they choose. Many founders choose to incorporate their business in the U.S. — particularly in states like Delaware, Wyoming, or Nevada — and can complete the entire process remotely and without a visa.
U.S. citizens are at liberty to choose any state they’d like for their business incorporation. While a founder’s home state may be best for a local brick-and-mortar bakery or retail store, businesses interested in scaling, privacy, and asset protection may choose to look elsewhere.
HJF Law’s team of expert startup attorneys can help advise you on what startup location makes the most sense for your business. We can also help guide you through the required documentation and formation process, ensuring your startup is protected throughout the life of your business.
Visit us at hjflaw.com and schedule a free consultation to see if we’re a good fit for your startup.