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Why Should My Business Incorporate in Delaware?

Incoporate in Delaware picIf you are starting a new business , you may hear that you should incorporate it in the state of Delaware. For decades Delaware has made business incorporations one of its primary industries by making itself the premiere jurisdiction for entity formation. In fact, it has been reported that more than half of all publicly-traded companies in the United States are incorporated in Delaware.

So, what makes Delaware so attractive to businesses? The Delaware General Corporation Law is flexible. The state legislature is continually updating and improving it. Also, it is interpreted and enforcement decisions are made by Delaware’s Court of Chancery, which only hears and decides corporation litigation cases. As a result, many corporate attorneys like its certainty and well-established case law.

The downside to incorporating in Delaware is the expense. Generally, you will pay $300 to $500 each year, including state filing and registered agent fees. You will also be charged Delaware franchise taxes which can range from $75 to thousands of dollars annually.

So, is it worth paying the additional expense to incorporate in Delaware? It is important to seek legal counsel regarding your unique entity and what is the best strategy for incorporating your entity. As a general rule, however, if you know you will be soliciting venture capital (VC) in the next few years, it is probably worth incorporating in Delaware. The corporation is the preferred entity for VC. Investors typically prefer the benefits offered in Delaware for their investment. Also, if the entity and its investors want to make an initial public offering (IPO), Delaware is the primary choice for IPOs. By incorporating in Delaware, it tells your VC investors that you are knowledgeable and proactive by taking the initiative and incorporating in Delaware.

If you are not sure if you will be seeking VC and you want to save money, you should incorporate in California. If you later decide to solicit VC, the fact that you incorporated in California will not prevent you from taking VC funds. We can assist you with merging or converting your entity into a Delaware corporation.

Contact us today to schedule your initial consultation. The attorneys at The Swenson Law Firm provide a variety of business law services to entities of all sizes.

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