Why Set Up your Business in Delaware?

Are you thinking about expanding your business to the United States? Well, let me tell you why Delaware should be at the top of your list. For an Indian company looking to set up, Delaware offers some pretty sweet perks that are hard to ignore. Let’s dive in and explore why the second-smallest state in the US is such a big deal in the business world.

1. Delaware’s Business-Friendly Reputation

Delaware isn’t just another state on the map – it’s practically a household name when it comes to business incorporation. But why is that?

• The Numbers Don’t Lie

Get this: over 66% of Fortune 500 companies call Delaware their legal home. That’s right, we’re talking about giants like Apple and Walmart. If it’s good enough for them, it’s definitely worth considering for your Indian venture, right?

• Streamlined Process

Setting up your business in Delaware is smoother than butter chicken on naan. The state has perfected the art of business formation, making it quick and hassle-free for international companies like yours.

1. Tax Advantages

• Delaware Corporate Income Tax

Here’s where it gets interesting. Delaware corporate income tax only applies to businesses conducted within the state. Title 30, Section 1902(a) of the Delaware Code applies only to income derived from business activities and property within the state. This means companies without physical operations in Delaware may not owe state corporate income tax.

So, if your Indian company doesn’t have physical operations in Delaware, you might not owe any state corporate income tax at all.

• No Sales Tax

Unlike many other states, Delaware doesn’t have a sales tax. This can be a huge advantage, especially if you’re in the retail or e-commerce business.

1. Court of Chancery and Corporate Law Expertise

• The Famous Court of Chancery

The Delaware Court of Chancery, renowned for its specialised expertise in corporate law, is a key factor in why businesses should consider incorporating in Delaware. This court is widely recognized as the preeminent forum for resolving corporate disputes and has played a crucial role in shaping American business law.

• Delaware Corporate Law

Everyone wants to be a part of Delaware corporate law and here’s why:

• It’s predictable and stable
• There’s a vast body of case law to refer to
• Judges are experts in corporate matters

This means less uncertainty and more peace of mind for your Indian business venturing into the US market.

1. Privacy Benefits

• Keep Your Cards Close

In Delaware, you don’t have to publicly disclose the names of your company’s directors or shareholders. This level of privacy can be a big plus for many Indian businesses looking to maintain discretion in their operations.

• Flexibility in Management

Delaware allows for flexible management structures. You can have a single person wear multiple hats in the company, which can be great for streamlined decision-making.

Delaware offers a business-friendly environment, attractive tax benefits, top-notch legal expertise, and privacy perks that are hard to beat.

Types of Business Entities in Delaware

Delaware offers several business entity structures that cater to different organisational needs and objectives. For Indian companies considering incorporation in Delaware, it is crucial to understand the key features of each entity type.

Corporation (C-Corp and S-Corp)

Corporations are separate legal entities owned by shareholders. Delaware offers two main types of corporations:

C-Corporation

C-Corporations are the most common corporate structure in Delaware. Key features include:

• Limited liability protection for shareholders
• Ability to issue multiple classes of stock
• No restrictions on the number or type of shareholders
• Subject to corporate income tax at both federal and state levels

Many of the top companies in Delaware are C-Corporations. For instance, over 66% of Fortune 500 companies are incorporated in Delaware, including tech giants like Apple, Google (Alphabet), and Amazon.

S-Corporation

S-Corporations offer pass-through taxation, similar to partnerships. Characteristics include:

• Limited to 100 shareholders
• Shareholders must be U.S. citizens or residents
• Only one class of stock allowed
• Profits and losses pass through to shareholders’ personal tax returns

Limited Liability Company (LLC)

LLCs combine the liability protection of corporations with the tax flexibility of partnerships. Delaware LLCs are known for:

• Flexible management structure
• Pass-through taxation (unless elected otherwise)
• No restriction on the number or type of members
• Strong asset protection laws

Delaware’s LLC structure is particularly popular among startups and small to medium-sized businesses.

Limited Partnership (LP)

Limited Partnerships consist of one or more general partners and one or more limited partners. Features include:

• General partners manage the business and assume personal liability
• Limited partners invest capital but have limited involvement and liability
• Pass-through taxation

General Partnership (GP)

General Partnerships are the simplest form of partnership, where all partners share management responsibilities and personal liability for the business debts.

It is worth noting that Delaware is home to a significant number of incorporated companies. As of 2024, over 1.5 million business entities are incorporated in Delaware. This includes a substantial list of companies incorporated in Delaware from various industries and sectors.

For Indian companies considering Delaware incorporation, it is essential to carefully evaluate each entity type based on factors such as liability protection, tax implications, management structure, and growth plans. Consulting with legal and tax professionals familiar with both Indian and U.S. business laws is highly recommended to make an informed decision.

Find out how startups in India can benefit from tax exemptions. Learn about the eligibility criteria and application process on our website.

Step-by-Step Process for Setting Up in Delaware

For Indian companies looking to establish a presence in the United States, Delaware offers a streamlined process for business formation. This section outlines the crucial steps for starting a business in Delaware.

1. Choose Your Business Structure

Selecting the right business structure is a critical decision that will impact your company’s operations, taxation, and liability. Here’s how to approach this important step:

Factors to Consider

When deciding on a business structure for your Delaware entity, evaluate the following:

• Liability Protection: Assess the level of personal asset protection you require.
• Taxation: Consider the tax implications for both U.S. and Indian tax purposes.
• Management Structure: Determine your preferred management style and flexibility.
• Investor Appeal: Think about future funding needs and investor preferences.
• Compliance Requirements: Understand the ongoing compliance obligations for each entity type.
• Costs: Factor in formation and maintenance costs for different structures.

Comparison of Entity Types

To help you make an informed decision, here’s a comparison of the main business structures available when setting up a company in Delaware:

Entity Type	Liability Protection	Taxation	Management	Investor Appeal
LLC	Strong	Pass-through or Corporate	Flexible	Moderate
C-Corporation	Strong	Double taxation	Structured	High
S-Corporation	Strong	Pass-through	Structured	Moderate
Limited Partnership	Limited for LPs, Unlimited for GPs	Pass-through	GP manages	Moderate

LLC (Limited Liability Company):

• Offers flexibility in management and taxation
• Popular among small to medium-sized businesses
• Allows for foreign ownership

C-Corporation:

• Preferred by large companies and startups seeking venture capital
• Allows for multiple classes of stock
• No restrictions on ownership

S-Corporation:

• Provides pass-through taxation
• Limited to 100 shareholders, all U.S. citizens or residents
• Not suitable for most Indian companies due to ownership restrictions

Limited Partnership:

• Useful for investment vehicles
• Requires at least one general partner with unlimited liability

When starting a business in Delaware, it’s crucial to align your choice with your company’s long-term goals and operational needs. Many Indian companies opt for either an LLC or a C-Corporation due to their flexibility and strong liability protection.

2. Select a Unique Business Name

When setting up a company in Delaware, choosing a unique business name is a crucial step. Here’s a concise guide to the process:

Delaware Naming Requirements

• Include appropriate entity identifier (e.g., “LLC”, “Corporation”)
• Name must be distinguishable from existing businesses
• Certain words (e.g., “Bank”, “University”) require additional approval
• Non-English names must provide an English translation

Name Availability Search

• Use Delaware Division of Corporations’ online search tool
• Check for similar names to ensure uniqueness
• Consider alternatives if your first choice is unavailable

Name Reservation Process

• Optional 120-day reservation available
• $75 state filing fee
• File online or through a registered agent
• Standard processing time: 15 business days
• Expedited service available for additional fee

Selecting a compliant and available name is essential for your Delaware business formation. Ensure you meet all requirements before proceeding with your company registration.

3. Appoint a Registered Agent

Appointing a registered agent is a crucial step when setting up a company in Delaware. This entity or individual serves as the official point of contact between your business and the state.

Role of a Registered Agent

A Delaware registered agent has several key responsibilities:

• Receiving legal documents and official state correspondence
• Forwarding important documents to the company in a timely manner
• Maintaining a physical address in Delaware for service of process
• Ensuring the company stays compliant with state regulations

Options for Registered Agents in Delaware

When choosing a registered agent in Delaware, you have several options:

(i) Commercial Registered Agent Services: These are professional companies specialising in registered agent services. They offer reliability, privacy, and often additional business services.

(ii) Individual as Registered Agent: An individual with a physical address in Delaware can serve as a registered agent. However, this option may lack privacy and professional support.

(iii) Company Officer or Employee: If your business has a physical presence in Delaware, an officer or employee can act as the registered agent.

(iv) Self as Registered Agent: Business owners can act as their own registered agent if they have a physical address in Delaware, though this is generally not recommended for privacy and practical reasons.

When selecting a registered agent, consider factors such as reliability, privacy protection, and additional services offered. Many businesses opt for commercial registered agent services to ensure compliance and streamline communication with the state.

Remember, maintaining a registered agent is an ongoing requirement for companies incorporated in Delaware. Failure to do so can result in penalties and loss of good standing with the state.

4. File Formation Documents

When setting up a company in Delaware, filing the appropriate formation documents is a crucial step. The specific document required depends on your chosen business structure.

Certificate of Incorporation (for corporations)

For corporations, you must file a Certificate of Incorporation with the Delaware Division of Corporations. Key points include:

• Minimum filing fee: $89
• Additional $9 per page if document exceeds one page
• Can be filed online or by mail

Certificate of Formation (for LLCs)

LLCs must file a Certificate of Formation. Important details:

• Filing fee: $90
• Can be submitted online or by mail
• Expedited services available for additional fees

Required information and filing fees

Both documents typically require:

• Company name
• Registered agent details
• Business purpose
• Incorporator or authorised person’s signature

Filing fees vary based on the entity type and additional services requested. It’s advisable to check the current fee schedule on the Delaware Division of Corporations website.

5. Obtain an EIN (Employer Identification Number)

An EIN is essential for most businesses operating in the United States, including those incorporated in Delaware.

Purpose of an EIN

An EIN serves several important functions:

• Acts as a federal tax ID for your business
• Required for opening business bank accounts
• Necessary for hiring employees
• Used for filing federal and state tax returns

Application process

To obtain an EIN:

1. Apply online through the IRS website (fastest method)
2. Apply by fax or mail using Form SS-4
3. International applicants can apply by phone

The process is free and, if done online, provides an EIN immediately upon completion.

Remember, even if your Delaware company doesn’t have employees, an EIN is often required for various business operations and is an important step in establishing your company’s identity.

6. Create Governing Documents

When setting up a company in Delaware, creating proper governing documents is crucial for establishing internal rules and procedures. The specific document required depends on your business structure.

Corporate bylaws (for corporations)

Corporate bylaws are essential internal documents for Delaware corporations. Key points include:

• Not required to be filed with the state, but important for internal governance
• Typically cover topics like shareholder meetings, board of directors, officers, and stock issuance
• Should be customised to fit your corporation’s specific needs
• Adopted during the initial board of directors meeting

Operating agreement (for LLCs)

For Delaware LLCs, an operating agreement serves as the primary governing document. Important aspects:

• Not mandatory in Delaware, but highly recommended
• Outlines ownership structure, member rights and responsibilities, and management procedures
• Can be tailored to suit the LLC’s unique requirements
• Helps maintain limited liability status and prevents default state rules from applying

7. Comply with Delaware’s Annual Requirements

Maintaining good standing in Delaware requires fulfilling certain annual obligations.

Annual report filing

Delaware corporations must file an annual report:

• Due by March 1st each year
• Filed online through the Delaware Division of Corporations website
• Requires information on directors and officers
• Filing fee of $50 for standard corporations, $25 for exempt corporations

LLCs are not required to file annual reports in Delaware.

Franchise Tax Payments

Both corporations and LLCs must pay annual Delaware franchise tax:

• For corporations: Due by March 1st each year
• For LLCs: Flat fee of $300

It’s important to note that Delaware franchise tax is separate from Delaware corporate income tax. While there is no state-level Delaware income tax filing requirement for companies that don’t conduct business in the state, those with in-state operations may need to file Delaware corporate income tax returns.

Staying compliant with these annual requirements is crucial for maintaining your company’s good standing in Delaware and avoiding penalties or loss of liability protection.

Explore the various types of business entities and benefits of registering your startup in India. Click here to learn more.

Considerations for Non-Residents Setting Up in Delaware

When establishing a business in Delaware as a non-U.S. resident, there are several important factors to consider. This section outlines the eligibility requirements and additional steps for foreign owners.

Eligibility for non-U.S. residents

Delaware welcomes foreign business owners, offering a straightforward process for non-U.S. residents to form companies in the state:

• Neither U.S. citizenship nor residency is required to form a Delaware LLC or corporation.
• Individuals from anywhere in the world can start a business in Delaware, with some exceptions for restricted countries.
• Delaware does not discriminate against non-citizens inside or outside the United States.

Additional requirements for foreign owners

While the formation process is similar to that for U.S. residents, non-U.S. owners should be aware of these additional considerations:

1. Registered Agent: Foreign owners must appoint a Delaware Registered Agent with a physical address in the state.
2. Foreign Bank and Financial Accounts (FBAR) Reporting: Businesses owned by non-U.S. persons must register with the U.S. on the FBAR form if they ever have $10,000 or more connected to the company.
3. Tax Reporting: Income substantially connected to the United States must be reported to the IRS.
4. Beneficial Ownership Information (BOI) Report: Most foreign businesses must file a BOI report with FinCEN within 30 days of registering (90 days for businesses formed in 2024).
5. Document Legalisation: Foreign owners may need an Apostille or document legalisation for transactions or government compliance in their home country.
6. Name Listing: If required for business in other countries, foreign owners should request to have their names listed on the filing document.
7. EIN Application: Non-U.S. residents can obtain an EIN, which is necessary for various business operations.
8. Bank Account: Opening a U.S. bank account may require additional documentation and potentially an in-person visit.

By understanding and fulfilling these requirements, non-U.S. residents can successfully establish and operate a Delaware company, benefiting from the state’s business-friendly environment and corporate law expertise.

Pros and Cons of Incorporating in Delaware

When considering incorporation in Delaware, businesses of various sizes must weigh the advantages against potential drawbacks. This analysis will help you determine if Delaware is the right choice for your company.

Advantages for Different Business Sizes

Small Businesses

• Simplified Structure: Delaware allows a single person to hold multiple corporate roles, simplifying management for small businesses.
• Privacy: Delaware doesn’t require officer or director names on formation documents, providing a level of anonymity.
• Flexible Laws: Delaware’s corporate statutes offer more flexibility in organising the corporation and defining rights and duties of board members and shareholders.

Medium-Sized Businesses

• Investor Appeal: Venture capital firms and angel investors often prefer Delaware corporations, making it easier to attract funding.
• Court of Chancery: Access to a specialised court for corporate matters, potentially leading to more predictable legal outcomes.
• Tax Benefits: No state corporate income tax for companies not operating within Delaware.

Large Corporations

• Advanced Corporate Laws: Delaware’s corporate laws are continuously updated to meet the needs of large, complex businesses.
• Stock Issuance Flexibility: Delaware C-corps can easily issue multiple classes of stock and distribute stock options to employees.
• IPO Readiness: Investment bankers typically prefer Delaware corporations for companies planning to go public.

Potential Drawbacks to Consider

1. Additional Costs: Higher initial filing fees compared to some other states
2. Dual Compliance: Companies operating outside Delaware may need to register as a foreign entity in their home state, leading to dual filing and reporting requirements
3. Limited Local Benefits: Small businesses not operating in Delaware may not realise significant tax savings to offset the additional costs
4. Complexity for Small Businesses: The sophisticated legal framework may be unnecessarily complex for small, local businesses
5. Distance Issues: For companies not based in Delaware, resolving legal matters in the state could be inconvenient and costly
6. Potential for Increased Scrutiny: Delaware corporations may face additional scrutiny from other states’ tax authorities due to Delaware’s tax-friendly reputation

While Delaware offers significant advantages, particularly for medium to large businesses and those seeking investment, it’s not a one-size-fits-all solution. Small businesses and those operating primarily in a single state should carefully consider if the benefits outweigh the additional costs and complexities.

Common Mistakes to Avoid When Setting Up in Delaware

When establishing your business in Delaware, it’s crucial to be aware of potential pitfalls. Here are some common mistakes to avoid:

Choosing the wrong business structure

Selecting an inappropriate business structure can have significant legal and financial consequences:

• Misalignment with business goals: For example, choosing a C-Corporation when an LLC might be more suitable for a small business.
• Overlooking tax implications: Each structure has different tax treatments, affecting your bottom line.
• Unnecessary complexity: Opting for a more complex structure than needed can lead to additional administrative burdens.

To avoid this mistake:

• Carefully assess your business needs, growth plans, and tax preferences.
• Consult with legal and tax professionals to determine the most suitable structure.

Neglecting ongoing compliance requirements

Failing to meet Delaware’s compliance obligations can jeopardise your company’s good standing:

• Missing annual report filings: Corporations must file annual reports by March 1st each year.
• Overlooking registered agent fees: Failure to pay can result in your agent resigning, potentially leading to the voiding of your LLC.
• Ignoring corporate formalities: For corporations, not maintaining proper records or holding required meetings can risk personal liability.

To stay compliant:

• Set up reminders for important deadlines.
• Maintain accurate records and follow corporate governance procedures.
• Ensure timely payment of all required fees and taxes.

Misunderstanding Tax Obligations

Delaware’s tax system can be complex, and misunderstanding your obligations can lead to penalties:

• Confusion over Delaware franchise tax: This tax is separate from income tax and applies to all Delaware entities.
• Overlooking potential tax nexus: Operating in other states may create tax obligations beyond Delaware.
• Failing to obtain necessary tax IDs: Not securing an EIN (Employer Identification Number) can hinder various business operations.

To manage tax obligations effectively:

• Familiarise yourself with Delaware’s tax requirements, including franchise tax calculations.
• Assess your tax liabilities in all states where you conduct business.
• Obtain all necessary tax identification numbers promptly.

Additional Steps for Doing Business in Delaware

After incorporating your business in Delaware, there are several crucial steps to ensure your company is fully operational and compliant. Here’s what you need to know:

Business Licences and Permits

1. State Business License: Required for all businesses operating in Delaware
2. Professional Licence: Certain professions require additional licensing from the Delaware Division of Professional Regulation
3. Local Permits: Check with your local municipality for any additional required permits

Opening a business bank account

1. Required Documents: EIN (Employer Identification Number)
2. Choosing a Bank: Consider fees, minimum balance requirements, and available services
3. Benefits: Separates personal and business finances

Foreign qualification (if operating in other states)

If your Delaware company plans to conduct business in other states, you’ll need to complete the foreign qualification process:

1. Filing Requirements: Submit a “Foreign Qualification” form to each state where you’ll operate
2. Delaware Process for Other Companies: Companies formed outside Delaware but operating in the state must file for foreign qualification
3. Compliance Considerations: Maintain a registered agent in each state where you’re qualified

By completing these additional steps, your Delaware business will be well-positioned to operate legally and efficiently, both within Delaware and in other states where you conduct business.

Conclusion: Is Delaware Right for Your Business?

As you consider whether to incorporate your business in Delaware, it’s essential to weigh the state’s renowned benefits against your company’s specific needs and circumstances. Let’s recap the key advantages and outline crucial factors to consider in your decision-making process.

Recap of key benefits

1. Advanced Corporate Laws: Delaware’s flexible and up-to-date corporate statutes cater to modern business needs.
2. Court of Chancery: A specialised court for corporate matters, offering expert judges and predictable outcomes.
3. Tax Advantages: No state corporate income tax for companies not operating within Delaware, and no sales tax on intangible personal property.
4. Privacy: Limited disclosure requirements for company officers and directors.
5. Investor Appeal: Delaware incorporation is often preferred by venture capitalists and angel investors.
6. Efficient Processing: Quick turnaround for business filings and registrations.

Factors to consider in your decision

1. Business Size and Goals: Delaware’s benefits often favour larger corporations or startups seeking significant investment. Small businesses may find the advantages less impactful.
2. Operational Location: If your business primarily operates in another state, you may face dual compliance requirements and additional costs.
3. Tax Implications: While Delaware offers tax benefits, you may still be subject to taxes in your home state. Evaluate the overall tax impact across all jurisdictions where you operate.
4. Compliance Costs: Consider the ongoing expenses of maintaining a registered agent in Delaware and potentially in your home state.
5. Legal Needs: Assess whether your business is likely to benefit from Delaware’s sophisticated corporate laws and specialised court system.
6. Privacy Requirements: Determine if the enhanced privacy offered by Delaware aligns with your business needs and transparency goals.
7. Long-term Strategy: Consider your plans for growth, potential IPO, or attracting investors, as Delaware incorporation can be advantageous in these scenarios.
8. Industry-specific Regulations: Some industries may have specific requirements that make incorporation in your home state more practical.

In conclusion, while Delaware offers significant advantages for many businesses, it’s not a one-size-fits-all solution. Carefully evaluate your company’s unique situation, consult with legal and tax professionals, and consider both the immediate and long-term implications of your incorporation decision. For some businesses, especially larger corporations or those with ambitious growth plans, Delaware’s benefits may outweigh the costs. However, for many small businesses or those operating primarily in a single state, incorporating in their home state might be the more practical choice.

FAQ’s

Why do businesses set up in Delaware?

Businesses set up in Delaware for several key reasons:

1. Advanced and flexible corporate laws
2. Court of Chancery, a specialised business court
3. Tax advantages, including no state corporate income tax for companies not operating in Delaware
4. Privacy protections for business owners
5. Streamlined incorporation process
6. Investor appeal, as many venture capitalists prefer Delaware corporations

Can a foreigner open a company in Delaware?

Yes, foreigners can open a company in Delaware. Delaware does not discriminate against non-citizens or non-residents. However, foreign owners must:

• Appoint a registered agent with a physical address in Delaware
• Obtain an EIN (Employer Identification Number) from the IRS
• Comply with federal regulations, including FBAR reporting if the company has $10,000 or more in assets

Why do businesses incorporate in Delaware?

Businesses incorporate in Delaware for several reasons:

1. Business-friendly legal environment
2. Well-established corporate case law
3. Tax benefits for out-of-state operations
4. Efficient and fast incorporation process
5. Enhanced privacy for business owners
6. Flexibility in corporate structure and governance

How to set up a company in Delaware?

To set up a company in Delaware:

1. Decide on your business structure
2. Choose a unique company name
3. Hire a registered agent
4. File formation documents (Certificate of Incorporation or Formation)
5. Pay the required state fees
6. Obtain an EIN from the IRS
7. Create internal governing documents
8. Comply with ongoing state requirements

How to set up an LLC in Delaware?

To set up an LLC in Delaware:

1. Choose a unique name for your LLC
2. Appoint a registered agent
3. File a Certificate of Formation with the Delaware Division of Corporations
4. Pay the $90 filing fee
5. Create an Operating Agreement (not required to file, but recommended)
6. Obtain an EIN from the IRS
7. Comply with ongoing requirements, including paying the $300 annual franchise tax