The Delaware state in the USA is a hub for corporate registrations in the country for major multinationals and start-ups. This can be seen from the fact that over 60% of the Fortune 500 companies today are registered in Delaware, and almost all major IPOs in the country over the past few years are from companies with operations in this state. Here's evaluating the major reasons why companies choose to have Delaware entities.
Investor Friendliness
Non-Disclosure of Shareholder Details: The annual filing requirements in the state do not require disclosure of all list of shareholders with their identifying details, which helps the companies maintain opacity with respect to multi-level holding structures and beneficial ownerships, which may be preferable to investors who wish to maintain secrecy around them.
Preference by VC and Angel Networks: Owing to the state's long history of being focused on attracting businesses to register here and how all major companies with global ambitions tend to prefer the tax structure offered by Delaware, such as tech giants who have scalable models and high growth potential, the VCs and Angel Investors prefer LLCs and C-Corps registered in the state of Delaware as a business decision for tax optimization and access to robust legal settlement in case of disputes. As an example, Facebook, Amazon, Alphabet (Google), Ford, Coca Cola... all have their registered offices in Delaware.
Easy Registration: Companies can be registered in less than 24 hours, as well as within 2 hours if really urgent. Set up process is swift, online and bureaucracy free.
Legal Landscape
Judges over Jury: Delaware has a system of Courts of Chancery, which means decisions on matters presented to the Court are taken by a Judge and not by a Jury, which may have a collection of people who are not experts in legal and new age business problems.
Robust Case Library: With all major companies registered in Delaware, the library of case laws in the state is the most expansive and robust, with judgements on matters available for reference by the judges. As all tech giants prefer to register here, the issues of conflict brought to the state are dynamic and new age, relevant to today's times and not archaic. This ensures swifter dispute resolution.
Knowledge of Lawyers and CPAs: All CPAs and Lawyers in the US study the laws of their state and of the state of Delaware. Thus, professionals across the USA are aware of Delaware business laws.
Tax Structure Benefits
No State Tax if Operating Outside: USA has a Federal Tax Rate of ~21% and a State Tax Rate of ~9%. Companies registered in Delaware but operating outside the state are not liable to pay the State Tax in Delaware. They register as foreign entities in other states and pay the State Taxes in the host states.
Franchise Tax: However, the States in which the companies operate, they pay royalties to the entities in the state of Delaware for right to use the Franchisee. Such Franchise payments are taxed in Delaware between the range of USD 200 to 20,000 at a flat fee applicable to the company, and the royalty payments are allowed as expense in the host states, thus saving the company taxes in the host states due to booking of business expense payable to the entity in Delaware.
Suitability: Such Delaware entities are suitable only to companies with ambitions and operations of high scale with heavy investments from VC funds and Angels expected, and a planned exit IPO in a few years. Registering in Delaware does not suit small business enterprises with local markets.
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This piece has been prepared solely based on our research and interest in the topic and should not be taken as legal advice. You may contact us separately for a detailed analysis on your suitability for registration in Delaware or any other place in the world.
