You may have heard that incorporating in Delaware is a good idea for any business. Delaware is famous among business owners for its generally favorable business laws, and you will see many companies that choose to incorporate there.
However, that does not automatically mean that it is a good idea for your particular business. It is not a one-size-fits-all solution, and it may not be the right fit for your company.
Below are some of the common myths that you may have heard about incorporating in Delaware, and the truth behind those myths.
It is easier to incorporate in Delaware compared to any other state.
This myth is actually partially true. It is very easy to incorporate in Delaware, and you do not have to be physically present in the state to incorporate there.
However, even if you incorporate in Delaware, you will still have to register as a foreign entity doing business in Florida or any other state where you provide goods and services. That means that the time and money that you saved by incorporating in Delaware is mostly wasted because you still have to register to do business in your own state. Then, you also have to comply with registration and ongoing reporting requirements in two states, rather than just one.
Delaware has very little regulation over their businesses, making them an attractive place to incorporate.
This is absolutely false. While Delaware’s laws regarding boards of directors and investors are more flexible than most states, the notion that they have fewer laws or regulations simply is not true. Delaware still has laws that address formation, environmental laws, worker safety, discrimination, and more.
Instead, Delaware has developed a completely separate court system to address business issues. Those conflicts are resolved by a judge, not a jury. These specialized judges have a good background of codified laws and case law to rely upon in issuing their decisions.
Companies that incorporate in Delaware pay less in taxes.
In general, a corporation will pay the same federal taxes no matter where it is incorporated. That means that there are no tax savings, at least on federal taxes, by incorporating in Delaware.
Although Delaware’s state income taxes are generally considered reasonable, they still do not compare to having to pay very little state income tax for your business in Florida. For companies that do not incorporate (using a C-corp structure), there is no state income tax in Florida—which is a huge savings no matter how you look at it.
By incorporating in Delaware, you may end up committing to having to pay state taxes in Delaware, even if you technically do no business in the state. For Florida businesses, that is certainly not a tax savings—it is a tax increase.
Incorporating your business is a big decision, and for some companies, using the favorable Delaware laws may make sense. For others, using Delaware as your “home state” is just an added expense and administrative headache. Which is it for your company? Florida Entrepreneur Law, PA can help you decide.
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