If you plan to seek institutional (e.g., VC) funding, then DE makes the most sense. Otherwise, you might as well form the corporation in the state where you will be living.

I have written several blog posts on this topic that will explain the reasons for my comments above. Please start with "In which State should My Startup Incorporate?" (http://dana.sh/ix8so2) and follow the links from there.

Disclaimer:

This answer is not a substitute for professional legal advice. This answer does not create an attorney-client relationship, nor is it a solicitation to offer legal advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed attorney in the appropriate jurisdiction before taking any action that may affect your rights. If you believe you have a claim against someone, consult an attorney immediately, otherwise there is a risk that the time allotted to bring your claim may expire. Quora users who provide responses to legal questions are intended third party beneficiaries with certain rights under Quora's Terms of Service (http://www.quora.com/about/tos).

Delaware is famed to be the "incorporation capital" of America - more than 60% of Fortune 500 companies are incorporated in Delaware. According to Delaware Department of State, Division of Corporation's 2006 Annual Report the number of active business entities in Delaware has grown 50% in the last six years to a total of more than 765,000. In 2006, Delaware welcomed more than 145,000 new businesses.

The reason why so many Fortune 500 companies are drawn to this state is the fact that Delaware has an excellent body of corporate case law spanning 110 years regarding such matters as management/shareholder issues and mergers/acquisitions.

Some Facts

Here are some facts dealing with forming a company in Delaware:

• Names and addresses of shareholders, directors, officers, members or managers of a Delaware Company do not appear within public records. Moreover, during incorporation process, there is no obligation to provide this information to the State of Delaware.
• No minimal capital investment in the Company is required.
• There is no sales tax in Delaware.
• The Company has no obligation to have a bank account in Delaware.
• The Delaware Company headquarters may be located anywhere in the world. The Company has no obligation to have its headquarters in Delaware, nor to conduct any business in this state. The sole obligation for the Company doing business somewhere other than Delaware is to be represented by a Registered Agent in Delaware.
• The same person can be Shareholder, Director and Officer of a Delaware Corporation. Directors can establish the price they wish for the sale of the Company's shares. They can also adopt, modify or repeal any Company bylaw.
• If the Company does not do business in Delaware, it does not have to pay any income tax to the state (this is relevant to C-Corporations only).
• If a Delaware Company shareholder doesn't reside in the state, the said shares are not subject to inheritance tax in case of death.
• The Delaware Court of Chancery is the oldest business court in the country and uses judges instead of juries.
• Delaware adopted a whole set of corporate laws which are very favorable to companies and which recognize contractual freedom. The "General Law Corporation" of Delaware is one of the most evolved and flexible corporate laws in the United States.

With all those advantages in place, Delaware might not be the most suitable place to incorporate your new business. Delaware is one of the three states commonly recognized as "corporate heavens".

Where to incorporate is a complex decision. The best state to incorporate in can depend on the industry you are operating in and the type of business you plan to do. While Delaware is generally thought to be the best state because of their corporate friendly legislation, some industries are better situated in other states. In particular, if you are in the oil industry Texas would be a much better choice.

I suggest you bite the bullet and find a good corporate lawyer. Spend a couple of hours of his or her fees to talk about your business and what you will be doing. The lawyer should be able to recommend a location that is suitable for you.

If you plan on attracting investors talk about who you can accept as an investor, and ask the lawyer to draft a unanimous shareholder agreement. That agreement will set out the rules for how you can force out a bad investor. Yes, there are bad investors, and they can kill your company.

Get a personal employment agreement with a golden parachute clause. That way if you ever lose control of the company you will have some protection from being fired, and if fired you will get a nice chunk of money to start your next venture.

Then talk to an accountant about your business and how to set up accounting for that business. Getting it right can save you hundreds to thousands of dollars in tax preparation fees every year.

Good luck, and have fun.

Startups eyeing global markets or big investments often incorporate in the Cayman Islands because it's a tax haven. This means no corporate, capital gains, or withholding taxes, which is a big draw for investors. Cayman law is also quite simple, making it easier to set up and run a business.

However, it's not all rosy. The Cayman Islands have a bit of a shady reputation because of this tax haven status. It can also be more expensive to do business there compared to other places. Plus, if you're aiming for the US market, there might be extra hurdles to jump through.

In the end, it boils down to what the startup wants. If saving on taxes and having an easier legal setup are top priorities, the Cayman Islands could be a good fit. But if they're worried about reputation or want easier access to US markets, it might not be the best choice. It's all about weighing the pros and cons.

You do not HAVE to incorporate in Delaware. basically, very large publicly traded companies incorporate there and it is usually because they have gotten big, perhaps gone public and needed to take advantage of the Delaware corporation laws.

I have been consulting with startups for 15 years and my advice to any new company is the following:

1. Determine if an LLC or a corporation is best for you.
2. Register or incorporate in your own state. It is easier and much less messy if you are in your own state. That does not mean that you cannot do business in other states. We are a nation that thrives on interstate commerce. To do business in another state, you will need to register as a “foreign” corporation. (Foreign here means that you are from another state, as opposed to an Alien corporation which is from another country).
3. In any event, you must be incorporated or registered as an LLC in one state and you will need to have a registration in every other state you will do business in.

Incorporating in Delaware is easy with the help of a registered agent service like Northwest Registered Agent.

They provide legal advice and guidance during the formation process, documents corporate resolutions and minutes, processing incorporations paperwork with the state, verifying banking information, amending existing filings as needed, providing a physical address for government correspondence, and preparing annual reports.

Additionally, Delaware offers tax benefits such as no sales tax on goods sold out-of-state, unlimited number of shares allowed, no personal income tax, corporate income taxes only apply when doing business inside Delaware, low taxes on intangible assets such as trademarks or patents, one Board member is needed instead of several, total transparency, minimal filing requirements, and free annual reports.

As someone who sold shell companies back in the 90's before Dodd/Frank and the Sarbanes-Oxley Act , I agree with Jurgen about being very careful about who you take advice from. I worked with many lawyers who knew nothing about structuring deals for fund raising. They were figuring things out on their client's dime.

I can't tell you how many times I was asked what law school I went to to learn about "this stuff". I told them I went to UHK. Their response: "I didn't know the University of Hong Kong had a course in that!" (That's University of Hard Knocks) I did a lot of research and self study of SEC rules and regulations as well as Delaware and Nevada state SEC regulations. I highly recommend you start you education now. Starting a business predicated on a big plan requiring lots of money is not an easy task and should not be undertaken because you want to become wealthy.

You might want to consider starting up like many highly successful corporations in your garage first. If you actually find that you've tapped into a vein of consumer acceptance and demand the market will draw you towards the money. First you need to clearly understand the WHY of what you're looking to do. Once you are grounded in WHY the WHAT you do will have greater impact as you move towards fulfilling your purpose. Good Luck!

Most people’s advice is that if you’re starting a tech or other venture-backed company that’s going to have outside investors from around the country, a stock option plan for employees, and grow big, you need to start in Delaware. Nevada is very, very distant second or third. The reason is a combination of company-friendly corporate laws, good customer service from the Secretary of State office, and the fact that lawyers and investors all over the world know Delaware law already and all their legal forms are designed for it.

On the other hand, if you are starting a business that is not going to go big, have employee ownership, or have significant angel and venture capital investment, it’s typically best to incorporate in the state where the business will be located as either a corporation or LLC.. Your home state’s laws will apply to most everything about the business other than corporate governance, and you’ll have to pay your home state registration fees no matter where you incorporate, so it’s just not worth the trouble to add an extra layer of an out-of-state incorporation.

If you’re asking which is a more company-friendly place to physically locate your business, I’d probably say Nevada. Do you like the desert, and gambling? There’s not much by way of beaches there, but they are pro-business. On the other hand, Delaware is relatively uncrowded too, has some nice small towns, and it’s not a high cost place like New York or California.

1. Business-Friendly Legal Environment

• Delaware has a well-established and highly regarded corporate law framework, primarily governed by the Delaware General Corporation Law (DGCL).
• The state’s Chancery Court is a specialized business court that handles corporate disputes efficiently, without juries, allowing for faster and more predictable outcomes.

2. Flexibility in Business Structure

• Delaware allows businesses to customize their corporate governance structures. For example, companies can create unique shareholder and director agreements.

3. Tax Advantages

• No state corporate income tax on companies that do not operate within Delaware.
• No state sales tax.
• Low franchise tax for many businesses, especially small and medium-sized entities.

4. Privacy for Business Owners

• Delaware does not require publicly disclosing the names of directors, officers, or shareholders during business registration, offering a degree of anonymity.

5. Efficient Registration Process

• The state offers a straightforward and fast business registration process. Expedited processing options allow businesses to incorporate in as little as one hour.

6. Established Precedents

• Delaware's court system has a long history of corporate case law, providing a predictable legal environment for businesses and their advisors.

7. Widely Recognized by Investors

• Venture capitalists and institutional investors often prefer Delaware corporations because of the state’s legal protections, predictable regulatory environment, and favorable treatment of shareholders.

8. Adaptable Corporate Law

• Delaware’s corporate laws are updated regularly to address the needs of modern businesses, ensuring they remain competitive and relevant.

These factors combined make Delaware a preferred choice for business registration, especially for corporations and startups seeking legal predictability and operational flexibility.

4o

Neither. A lot will depend upon what you want to do. In some cases Delaware would be better. In others another jurisdiction. If you are operating a business in Nevada then Nevada would be ok. I am not a big fan of Nevada because the companies are being sold on a false basis: you won’t have to pay taxes. Also, the ‘law’ of Nevada is weak and tends to look to California for answers when there is no answer to be found in Nevada cases. That is a disaster. Some of the worst cases for asset protection are coming out of Nevada courts because they are interpreting Nevada law using California court cases. Not good.

For most people neither Nevada or Delaware are ideal.

Looking at US tax issues only (as only a US attorney advises on US legal formation, a European startup could use a United States corporation (“USC”) or a foreign corporation (“FC”) from you home country.

A USC files a 1120 corporate tax return gets taxed on its world wide income profits under Section 11. Though, as your note says, you are looking to operate the USC for US operations. A FC files a 1120 foreign corporate tax return gets taxed on effectively connected income from a United States Trade or Business (“USTB”). A FC operating in the US has a USTB.

And, a FC operating in the US has effectively connected income as the income represents US source income coming from a USTB (Section 864(c)(3). And, any foreign source income generated from a FC represents effectively connected income if coming out of a US office as noted in Section 864(c)(4)(B).

So, both a USC and FC files a corporate tax return and pays taxes on its profits from US operations.

A USC has certain tax benefits for US tax purposes. As the USC could form a subsidiary(s) corporation owned by USC as an affiliated group of corporations as noted in Section 1504(a). And, this group may file as one economic tax entity for tax purposes. This fact allows the group to offset any losses from a new subsidiary corporation from USC’s profits. The group accomplishes such by filing a consolidated tax return as allowed by Section 1501. As long as the subsidiary corporation has been a member of the affiliated group, the election allows the taking of losses against profits for the group tax return as covered in Consolidated Treasury Regulation Section 1.1502-1(f)(2)(ii).

Based on tax requirements, the USC may return profits to the European shareholders as dividend. USC withholds a 30% dividend tax on the profits sent back to foreign shareholders according to Section 871(a) (individual foreign shareholders) or Section 881(a) (foreign corporate shareholders).

However, we can mitigate these withholding tax requirements with a Bilateral Tax Treaty between the US and the foreign shareholders home county. Under the US Model Treaty Article 10, the individual shareholder have the withholding rate reduced to 15% and corporate shareholders have the rate reduced to 5% (latter amount varies between exact treaty). Note: most developed taxing countries have a bilateral tax treaty with the US while non developed countries will not have such treaty.

If the European, start up uses a FC for US operations, the FC has different requirements with similar results for dividend equivalent amounts (“DEA”) result as noted in Section 884(a). Here, a profitable FC may face tax on its excess profits not reinvested in the US operations. We measure these profits yearly based on changes in investment in US operations as noted in subsection (b). This DEA faces the same 30% withholding under subsection (a). However, the same tax treaty can reduce the withholding rate as we noted in previous paragraph as further discussed in subsection (b).

The tax requirements for FC and DEA work to keep the taxes paid by the group similar. Though, the FC pays the tax for DEA amounts versus the shareholders when operating a USC with foreign shareholders.

As someone who has worked with startups in both markets, I don't think that startups now have to be located in either to be successful. In fact, look at what already successful startups are doing...it's often not expanding their offices in New York or California, it's going to different markets entirely - where warehouse/office space is plentiful, taxes are better, labor is more affordable, and housing is less expensive for younger workers.

Gary Vaynerchuk is opening an office in Chattanooga, TN...Uber and Google both have offices in Pittsburgh, PA...BrandYourself and others are opening offices in Lancaster, PA (often called "little brooklyn"). There are a million examples.

You can travel to pitch investors, there is great talent remotely if you need something you can't find locally...and you aren't going to be starting an office immediately in either state. If you can distance yourself from the "cool kids" approach, you might make far better headway...unless you're doing an incubator.

Many people bootstrap their product before Seed Rounds come around - think of the money you'll be able to put into your product and not on rent. These are the things that eat up your timeline and resources...then you get kicked back into "working" for one of the other companies instead of "owning" your own.

Just my opinion in watching many people blaze out seeking glory, and end up working to make someone elses' dreams happen.

I believe this will be a non-trivial exercise that will cost at least several thousand dollars in legal fees. Before going into details, I will provide background information.

Last year I blogged about this topic generally in How Can I Move My Corporation to Another State? Quoting a portion of that post:

From the legal perspective, there can be three ways to move a corporation to another state.

1. Form the new-state corporation. Transfer assets and liabilities of the existing corporation to the new-state corporation. Dissolve the existing corporation.
2. Form the new-state corporation. Merge the existing corporation into the new-state corporation.
3. Convert the existing corporation to a new-state corporation. (This sometimes is called redomestication or redomiciliation.)

Alternatives 1 and 2 can have significant tax implications. This can be an especially complex issue for Alternative 2, because there are different types of mergers.

Alternative 3 is the easiest approach, because the existing entity remains in place. The potential problem, however, is that applicable laws may not permit Alternative 3. For example, California law does not permit a California corporation to convert to a foreign-state corporation. (Interestingly, California law does permit a California LLC to convert to a foreign-state entity.)

While DE allows a corporation to convert in (form at http://corp.delaware.gov/Non-DE%20Corp%20to%20DE%20Corp09.pdf), it appears that NY does not allow corporations to convert out. Thus Alternative 3 (the easiest) would not be available.

If you are giving this serious consideration, you should consult with both a tax advisor and an experienced business lawyer before proceeding further.

Disclaimer:

This answer is not a substitute for professional legal advice. This answer does not create an attorney-client relationship, nor is it a solicitation to offer legal advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed attorney in the appropriate jurisdiction before taking any action that may affect your rights. If you believe you have a claim against someone, consult an attorney immediately, otherwise there is a risk that the time allotted to bring your claim may expire. Quora users who provide responses to legal questions are intended third party beneficiaries with certain rights under Quora's Terms of Service (http://www.quora.com/about/tos).

An entity is normally only incorporated in one state. It can then do business in any state, but typically has to qualify to do business in each state in which it does business. This usually requires a consent to service of process in that state and is a trigger to alert the tax authorities. And, of course, a filing fee. The definition of “doing business” that triggers the filing requirement varies, but usually requires either an establishment or employees in the state, or some other considerable connections with the state.

Almost every state has a statute defining the trigger and exceptions. Typical is the model act, adopted in several states, which provides as follows:

“Without excluding other activities which may not constitute transacting business in this State, a foreign corporation shall not be considered to be transacting business in this State, for the purposes of this Act, by reason of carrying on in this State any one or more of the following activities:

“(a) Maintaining or defending any action or suit or any administrative or arbitration proceeding, or effecting the settlement thereof or the settlement of claims or dis- putes.

“(b) Holding meetings of its directors or shareholders or carrying on other activities concerning its internal affairs.

“(c) Maintaining bank accounts.

“(d) Maintaining offices or agencies for the transfer, exchange and registration of its securities, or appointing and maintaining trustees or depositaries with relation to its securities.

“(e) Effecting sales through independent contractors.

“(f) Soliciting or procuring orders, whether by mail or through employees or agents or otherwise, where such orders require acceptance without this State before becoming binding contracts.

“(g) Creating evidences of debt, mortgages or liens on real or personal property.

“(h) Securing or collecting debts or enforcing any rights in property securing the same.

“(i) Transacting any business in interstate commerce.

“( j) Conducting an isolated transaction completed within a period of thirty days and not in the course of a number of repeated transactions of like nature.” (Model Business Corporation Act, Sec. 106)

Three reasons (I'll compare California because it is what I know):

1) Delaware corporate law is much more developed and streamlined compared to other states. Because so many companies incorporate in Delaware, and because they have specialized courts that deal only with corporate disputes, there is much more "legal certainty" about how the courts will treat certain contractual and transactional issues, and it is largely seen as "business friendly." Delaware largely lets companies decide lots of minor issues. On the other hand, California likes to dictate all kinds of small issues. For example, in DE you can have as many directors as you want, whereas in CA you have to have one for every shareholder up to three. So if you are a startup with three shareholders, you are obliged to have three directors, even if that doesn't make any sense at all and means a lot of wasted time in getting signatures.

2) Delaware makes things easy. The Delaware filing office is open until 8PM, and usually filings come back stamped in a day. This is huge for fast-moving capitalization transactions. California, on the other hand, takes weeks unless you pay expedite fees, and often sends filings back for stupid non-conformities. Like many other CA government agencies, the Division of Corporations can be a bureaucratic mess.

3) Delaware conforms to investor expectations. Virtually all corporate lawyers in the US (and many around the world) are familiar with DE corporate law, and indeed for many of us DE corporate law is probably even more familiar to us than the law of the state we are in! Thus, you don't have to worry about your investor's lawyer not knowing the intricacies of whatever state you are in. Most California VCs are reluctant to invest in California corporations, much less a corporation from Wisconsin, New Jersey or Arkansas.

If you form a Delaware corporation, you also have to qualify the business in the state in which the corporation is doing business, which is the main reason to not form a Delaware corporation in my mind. It probably costs an extra 1-2K to form a corporation in Delaware rather than the state you are in (costs of qualifying in your state + legal fees to qualify + cost of DE franchise tax (~400)). I often think this is more than than made up in just the first financing transaction you go through. And it will be much more expensive to convert later if that is a route you take.

In short, if you are aiming to raise capital to scale your business, a Delaware corporation is almost always the smartest choice (though like all things there are exceptions). In the startup world you get the "it's standard" answer because it is: forming a Delaware corporation says that you are swinging for the fences, whereas forming a NY LLC says you are hedging your bets. That may not be entirely fair in all cases, but it is the perception.

UPDATE: and if you are going to incorporate in Delaware, consider paying a lawyer for advice but using www.clerky.com for the actual filings/docs... It's the only service I recommend for scaleable tech startups.

Disclaimer:

This answer is not a substitute for professional legal advice. This answer does not create an attorney-client relationship, nor is it a solicitation to offer legal advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed attorney in the appropriate jurisdiction before taking any action that may affect your rights. If you believe you have a claim against someone, consult an attorney immediately, otherwise there is a risk that the time allotted to bring your claim may expire. Quora users who provide responses to legal questions are intended third party beneficiaries with certain rights under Quora's Terms of Service (http://www.quora.com/about/tos).

• Lacks tradition of academia and sharing; The social currency here is still actual money, not ideas.
• Limited investment resources; Private equity we have, private equity seeking positions in consumer-facing web products, until recently, we had not.
• Small developer talent pool; Facebook and Google were vacuums until recently.
• Poor climate requires a lifestyle sacrifice; We'll never have consistently warm weather, access to swimmable water, or mountains.

That said, I'm here because I find the overall quality of life and culture to be supreme. I believe the disparity between NYC and SF's startup count is temporary, owing to the limited number of people in the world fluent with technology and development. As that number increases, as it surely will with every graduating class, NYC will obtain the share it needs to match its potential.

Delaware is the Standard of Corporate Law

If a company wishes to have investors who live in a variety of jurisdictions across the United States, or even the world, then Delaware is the place to be, because it is the legal standard for corporate law.

What that means, is that any investor’s lawyer in the United States (and sometimes even overseas) will be very familiar with the legal jurisdiction 0f Delaware, and relevant things like shareholder’s rights, etc.

Court of Chancery

It’s not only the Delaware corporate legal statutes, which everyone copies from (even the Cayman Islands copies from Delaware), but Delaware case law and the judiciary itself. Delaware has a court system dedicated exclusively to matters of corporate law, the Court of Chancery.

The Delaware Court of Chancery is widely recognized as the nation's preeminent forum for the determination of disputes involving the internal affairs of the thousands upon thousands of Delaware corporations and other business entities through which a vast amount of the world's commercial affairs is conducted. Its unique competence in and exposure to issues of business law are unmatched.

The Job of a Startup is to Systematically Eliminate Risk

Startups are extremely risky. They call investment allocated to startups “risk capital” for that reason. The job of a startup, from the perspective of fundraising, is to systematically reduce that risk. Each reduction in risk leads to cheaper access to capital to grow the business.

The first and easiest risk to remove, is jurisdictional risk, and just incorporate in Delaware. Now your New York investors need not worry about any gotchas in Washington state corporate law or judiciary, because any disputes between shareholders and the company will be resolved by the Delaware Court of Chancery.

Almost 100% of venture capital funded startups in the United States incorporate in Delaware.

There’s a persistent myth there are tax advantages. There are not.

If your business is finances or in the money / banking business, Delaware is the place to register. For real estate, I'd chose Florida. I'd initially structure any other C Corp either in Wyoming or in Nevada, both of which have similar protection and non state tax regulations.

Once you are ready with the IPO, I'd structure a company in the state it operates in (for IPO and raising capital for a tech company, I'd probably file in CA). and then buy out the initial company through the new C Corp. I'd also structure the C Corp now and register is as dormant to age in the mean time.

There is more to the strategy than I have just briefly mentioned. And definitely be aware who you ask for advice on this. Most of my clients I helped got the wrong information from so called 'specialist' legal and accounting firms.

Your structure is VITAL at the outset. So, be careful where you get your info from.

You're welcome to contact me on 702 430 6061 for more info.

Good luck.

There are absolutely NO tax benefits to incorporating in Delaware. Delaware is relatively popular because of the laws governing corporations in Delaware and the Chancery Court system in Delaware, not because of any favorable tax benefits.

There are any number or reasons why it might make sense to form an LLC or a C-Corp in the US, but so much depends on the specifics of your particular situation. There are also a number of downsides for a business operating outside the US that would cause you to avoid having a US entity. You really need to have a conversation with a CPA familiar with US tax laws to discuss your specific situation.

There is no “best” answer to this, because it depends on the specific facts of each case. Before deciding where to incorporate, questions you need to ask yourself include:

1. Where will the company be operating?
2. By whom will the company be financed?
3. Where will the founders live?
4. From where will revenues be generated?
5. Is the goal to be acquired, and if so, by whom?
6. What legal jurisdictions might affect the company?

If you are considering incorporating a new company in a country other than your home country, you should consult with both an accountant and a lawyer to understand the ramifications of the decision.

Delaware figured out a long time ago that positioning themselves as the best state in the union to incorporate a business was a pretty solid differentiator for a small state to have. The court system (they call it the Delaware Court of Chancery) has the deepest case law and most efficient process for business law cases in the country. If you take a business issue to court in California you may have a judge that was doing family law last week. In Delaware you'll be in front of a judge who understands business and can rely on a huge body of case law for efficient resolution.

It's worth noting that more than half of all publicly-traded companies are incorporated in Delaware and over half of the Fortune 500. There's a reason for that.

Finally, my experience is that venture funds prefer/require that you be a C-corp incorporated in Delaware, so if your plan is to look for venture funding at some point then you might as well form the corporation that way from the start.

Given that few details have been provided, it is difficult to write a meaningful answer.

If you are planning to court institutional investors (e.g., venture capitalists) in the U.S., then incorporating in Delaware was a good idea.

If you needed to incorporate in the U.S. and wished to do so quickly, easily and reliably, then incorporating in DE may have been a good idea.

If neither of the foregoing applies, then it is difficult to know why you chose DE and whether doing so was a mistake.

Disclaimer:

This answer is not a substitute for professional legal advice. This answer does not create an attorney-client relationship, nor is it a solicitation to offer legal advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed attorney in the appropriate jurisdiction before taking any action that may affect your rights. If you believe you have a claim against someone, consult an attorney immediately, otherwise there is a risk that the time allotted to bring your claim may expire. Quora users who provide responses to legal questions are intended third party beneficiaries with certain rights under Quora's Terms of Service (http://www.quora.com/about/tos).

Generally speaking and in short, yes.

Most angels do not want to be members of an LLC or pass-through entities. S-corporations are designed for a limited number of shareholders hence the “S” stands for small. Venture capital firms will almost always require C-corporation structures when investing.

Delaware is the preferred jurisdiction for forming C-corporations for many reasons. Outlined below are just some as well as some disadvantages to forming in Delaware.

20 advantages to incorporating in Delaware and some disadvantages

Advantages of incorporating in Delaware:

1. Delaware has very friendly business and corporate laws. With so many companies incorporating in Delaware this has created a robust body of corporate law that promotes predictable and probable outcomes when litigating and settling business law suits.

2. Delaware uses a Chancery Court that utilizes only judges and not juries to hear and rule on business related lawsuits. This means that any cases heard before their court can be decided quickly. Chancery judges also have a background in corporate law. With this background they can best assess the specifics of corporate suits brought before them.

3. Angel investors and venture capital firms prefer investing in Delaware C corporations. Many typically require the company they are investing in be formed in Delaware due to the related benefits mentioned here and others.

4. Incorporating in Delaware is the norm. Since filing a corporation in Delaware is so common, most corporate lawyers are familiar with Delaware corporate and business laws which can expedite your research time and save you legal fees.

5. Delaware has low corporate tax rates. Corporate income taxes are not collected on Delaware corporations who are doing business outside the State of Delaware.

6. There is not tax on: royalty payments, trademarks, copyrights or other “intangible assets”.

7. You are not required to have a business license to operate your company outside of Delaware.

8. Complex shareholder structures enjoy flexible taxation requirements.

9. Non-residents of Delaware do not incur personal state income tax.

10. Shareholders, officers, directors, managing members of LLCs do not need to be residents of Delaware.

11. Any stock or shareholders that reside outside Delaware are not subject to Delaware taxes.

12. Delaware companies have much faster formation times than the majority of other states.

13. Processing time is less than one hour in Delaware. Compared to California which has a 24-hour option however it is not guaranteed and requires a rush processing fee.

14. Your designated corporate structure is more flexible as you can elect one person to fulfill all of the typical roles and duties required to form the corporation such as executive officer and director.

15. Investment bankers usually require corporations be formed in Delaware when filing an initial public offering (IPO).

16. Complicated mergers are easier to file in Delaware.

17. Enjoy more privacy protection in Delaware. You are not required to publicly disclose the names of corporate officers, directors or shareholders with Delaware.

18. Logistically it makes sense to form your corporation in Delaware because it is so business friendly.

19. You are setting precedent that you are a national company by incorporating in Delaware. By incorporating in Delaware you are sending a message to customers and investors alike that you are a big, national corporation that means big business.

20. If your company is an internet or technology startup with presence throughout the U.S. or globally, Delaware’s laxed reporting requirements can be helpful.

Some disadvantages of incorporating in Delaware:

If you are operating your company outside Delaware you will need to perform additional steps to properly setup your company operations and formation.

1. You must Foreign Qualify your company if you transact business in your home state outside of the state that you incorporate in.

2. If you have a physical location and/or employees in a different state you will need to register your company as “foreign” in that jurisdiction. Example if you are located and operating business out of California but are incorporated in Delaware, you will need to register as foreign in California.

3. You are subject to the corporation and state income taxes in the state you are doing business in as well as the taxes and fees associated with incorporating in Delaware.

4. You must register an agent in Delaware as a requirement when incorporating so that you can receive legal documents to the corporation.

5. If you do not know anyone who can serve as a registered agent in Delaware you will need to hire a company to act as the registered agent.

6. You must also register an agent in the state you are doing business in.

7. You must pay annual franchise taxes in Delaware. This tax is calculated by the value of the corporation’s shares. The tax starts at $175.00 with an annual reporting fee of $50.00. However the tax can be as high as $250,000.00 for large corporations. To be considered a large corporation your company needs to be generating at least $750,000,000 in annual gross revenue. See how Delaware uses 2 methods to calculate franchise tax on corporations for more details on this calculation.

8. There are annual reporting requirements in Delaware that corporations must adhere to as well as the reporting requirements of your home state of business.

Should you incorporate in Delaware?

This question is best answered first by what your goals are for your company. Do you plan to bring on investors and other shareholders to help you grow a national company or do you plan on operating a “mom and pop shop” in your home state? You should also seek the advice of a business attorney well versed in corporate law to best answer this question in conjunction with your company goals. You can post a job for free to consult and get bids from our network of vetted business and corporate attorneys. BestLegalChoice is an online legal marketplace to meet screened and vetted attorneys passionate about helping business owners and entrepreneurs to build and protect their businesses. If you have any questions please reach out.

The pros of Delaware are well established legal statutes and protection for shareholders and boards of directors of a corporation. Some but not all of these protections will apply if you choose to be an LLC.

Cons of Delaware are since you intend to operate in NY, you will be required to register the DE entity as a foreign entity doing business in NY. You will be required to file and pay taxes in BOTH DE and NY. DE has the advantage that DE state income tax will not apply to you unless you actually conduct business in DE. DE franchise tax will apply to you and you will have to file the franchise return and pay the tax annually. Note that DE franchise tax can be as much as $180,000 per year, however, as a small company you should expect to pay more in the range of $400. As mentioned you will still pay all the same taxes including income tax to NY, so you won't avoid any NY tax by incorporating in a different state.

It all boils down to is the extra cost of DE franchise tax and hassle of filing in two states, worth the potential that you might have a little bit better liability protection if your business is ever party to a significant lawsuit. In my experience for most closely held, owner operated businesses the answer is no, but you have to decide that for yourself and may even want to have a discussion with an attorney to completely quantify your risk vs reward for a DE entity.

So looking at your list #1 is the only benefit you will receive the other three will not apply. DE has average annual fees but you still pay fees in NY and you still pay taxes in NY, so the DE fees and taxes are additional to NY not in place of NY.

*February 2021 Update*

The best state to form your limited liability company (LLC) in is nearly always your home state. This is because your company is doing business primarily in that state, whether it is a physical business oran online business.

There are two exceptions to this rule:

1) You are a non-US resident (in which case you can choose any state and we recommend Wyoming or Delaware)

2) Or if you have a real estate LLC (we’ll talk about why this is below, but essentially the "home state rule" doesn't apply here)

You can read our Ultimate Guide on deciding between Wyoming vs Delaware here but if you’re choosing between WY and DE StartPack's recommendation is:

• We recommend Delaware only if you have plans to in the future convert your LLC to a C Corp (to raise venture capital from U.S. investors) or you really want the "prestige" of saying your company is from Delaware. Some customers say this matters to them and if it does, it is your business, your choice!
• Otherwise, we recommend Wyoming. Why? Wyoming is the most popular state for non-residents who are online businesses, e-commerce businesses, or business owners who want a easy and simple way to form and manage their company. It's the most popular state among StartPack customers, has lower annual fees ($50 vs $300 in Delaware), a low filing fee ($100), was the first state to ever create the LLC. Also don't sleep on Wyoming's prestige as well; it has a friendly business environment and has even been called "The Switzerland of the Rocky Mountains."