Why Incorporate in Delaware?

Corporations like to incorporate in Delaware for two main reasons: Delaware is known to have the most modern, up-to-date corporate statute, and it has the corporation-friendly Court of Chancery. There are other advantages of incorporating in Delaware; however, there are a few disadvantages as well.

Recommended: Learn how to start and run a corporation with our Delaware corporation guide.

Advantages of Incorporating in Delaware

Companies from around the United States — and even the world — have incorporated in Delaware, which has developed a reputation as arguably the most business-friendly of all the US states. Below are some reasons why so many companies choose to incorporate in Delaware — regardless of whether or not the business entity will conduct business in the state.

1. The Delaware Court of Chancery

The State of Delaware has a unique court called the Court of Chancery that is composed of judges who are well-versed in corporate law, rather than juries consisting of lay people who probably aren’t. Both parties in the state’s legislature are committed to appointing highly qualified judges to this court, and it is considered an honor to serve there.

The upshot is that business disputes before the Court of Chancery are heard and resolved quickly based on a lengthy and well-established body of Delaware law that makes outcomes more predictable. This cuts down on litigation because everyone knows how many potential disputes are likely to turn out. 

Although some other states have established similar courts whose sole purpose is to adjudicate business disputes, they lack Delaware’s massive body of corporate law in this area. Thus, because predictability is so important to the business community, including in corporate law – Delaware retains an advantage.

2. A Modern Corporate Statute

Along the same lines, the State of Delaware has a modern and up-to-date corporate statute. Companies find this highly attractive because it makes the rules clear. 

Of course, some other states have tried to emulate Delaware’s corporate statute with varying degrees of success. However, Delaware law remains the gold standard.

3. Tax Benefits

Delaware’s tax structure offers significant financial advantages for corporations, making it a compelling choice for businesses of all sizes. Companies that incorporate in Delaware, but operate elsewhere don’t pay corporate income tax on revenue generated outside the state. Moreover, Delaware has no sales tax on intangible assets like trademarks, patents, and leases. Holding companies stationed in Delaware can manage these intangible assets without incurring state taxes on the related income.

The state also exempts shares of stock owned by nonresident stockholders from personal property taxes. While corporations must pay an annual franchise tax, the rates are often lower than corporate income taxes in other states — especially for larger businesses. This favorable tax environment, combined with the state’s sophisticated business court system, has made Delaware the incorporation choice for more than 60% of Fortune 500 companies.

4. The Ease of Raising Capital

Often, venture capital firms, angel investors, and other investors prefer Delaware corporations due to the state’s well-established legal precedents and investor-friendly corporate laws. Delaware’s extensive body of business case law provides predictability in corporate governance matters while its Court of Chancery offers specialized expertise in resolving business disputes efficiently. The state’s corporate structure allows for flexible stock classifications and shareholder agreements, making it easier to create different classes of stock for various funding rounds.

Additionally, Delaware’s strong privacy protections for shareholders and directors — combined with simplified filing requirements and standardized investment documents — create an environment that institutional investors trust and understand. This streamlines the due diligence process and reduces legal costs during fundraising rounds.

5. Privacy

Delaware corporations enjoy substantial privacy benefits that protect sensitive business information and ownership details. When filing incorporation documents, companies need only disclose minimal information about their internal structure. The names of the registered agent and the corporation are sufficient with no requirement to list officers, directors, or shareholders publicly. The state doesn’t mandate disclosure of ownership percentages or financial statements in public records, and Delaware corporations may hold their stockholder meetings anywhere in the world.

6. Geographic Flexibility

One of Delaware’s most practical benefits is that you don’t need to be a resident — or even set foot in the state — to incorporate your business there. All that’s required is a Delaware registered agent with a physical address in the state to receive legal documents — a service easily obtained through numerous registered agent companies. You can manage your Delaware corporation from anywhere in the world, hold meetings virtually or in any location, and maintain your principal business operations in any state or country. That makes Delaware an ideal choice for entrepreneurs and businesses regardless of their physical location.

7. Incorporation Efficiency

Delaware’s Division of Corporations operates with remarkable efficiency, offering some of the fastest incorporation processing times in the nation. This means incorporating in Delaware is relatively simple. Delaware makes an effort to process corporate filings quickly – usually on the same day you file them. 

The incorporation process often takes less than an hour. Additionally, the state’s advanced online filing system allows for quick submission of documents, immediate access to certificates and copies, and streamlined annual report filing.

8. A Simplified Corporate Structure

Delaware’s simplified corporate structure requirements provide businesses with exceptional operational flexibility while maintaining clear legal protections. The state requires only one person to serve as both director and officer, eliminating the need for multiple board members in smaller corporations. 

Companies can operate with a minimal organizational structure that includes a president, a secretary, and a treasurer with one person potentially holding all three positions. The state’s General Corporation Law is regularly updated to remain business-friendly while providing clear guidelines for corporate governance.

Disadvantages of Incorporating in Delaware

Even though there are a lot of reasons to incorporate in the state of Delaware, it isn’t the best choice for every business. 

First, generally speaking, it’s often best to incorporate in your home state where you’re most familiar with the laws and where you’re closer to your customers or clients.

Other disadvantages of incorporating in Delaware (unless you’re a resident of the state) include:

• Delaware charges higher filing fees than many other states.
• Any tax savings might be smaller than you think because you will still have to pay your own state’s business taxes. You will also have to pay Delaware’s franchise tax, which is based on the value of a company’s shares. This may be a relatively minor expense if you have a small business, but your stock value will (hopefully) grow with your company.
• You need to hire a registered agent in Delaware. In fact, CT Corporation (1209 N. Orange St. in Wilmington) serves as the registered agent for about 300,000 corporations around the world. 
• Your company will have filing, licensing, and annual report requirements that you need to meet along with corresponding requirements in Delaware (and any other state in which you do business). 
• If your company is taken to court, cases will be heard in Delaware. That means hiring a Delaware attorney and traveling there for court hearings.

Article Links

Delaware Division of Corporations – Annual Report Statistics

Delaware Courts – Court of Chancery