Why is Delaware a popular state for incorporation?

Despite its size, Delaware has a huge reputation for having created a business-friendly environment for corporations. The years of favorable treatment have created a large body of statutory and case law providing many protections for business owners and a level of predictability that makes many investors see the state as a major benefit.

Delaware has a separate court, called the Court of Chancery, which only hears corporate law cases. Because the judges are so well versed in such issues, they can often decide cases quickly, without the need for a jury. This can go a long way to saving valuable time and legal expenses.

Delaware also does not collect taxes from businesses that do not transact business within the state and does not tax royalty payments or intangible assets. It also does not collect state or local sales taxes on businesses that do operate within the state, but does tax gross receipts on sellers of goods and providers of services. These policies as a whole may result in significant tax savings for some businesses.

Note that if you incorporate in Delaware and it is not your home state, then you will still be required to pay an annual franchise tax based on the value of the corporation. You will also still be subject to your home state’s annual reporting requirements in addition to fulfilling Delaware’s reporting requirements.

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