Incorporating in Delaware - What Advantages Does This Provide my Business?

Previous blog articles have addressed in detail the numerous financial and legal benefits of forming a registered entity (Corporation; LLC; etc.) in your home state.  This article will now address the benefits of incorporating in Delaware. 

The most sought after benefit of incorporating in Delaware is that there is no corporate tax, and the state's laws are well developed in the area of corporate law.  First, shareholders of a Delaware corporation are not required to pay personal income tax to the state if they are not residents.  There is no requirement under Delaware law that shareholders, officers or directors be residents of the state. If you business is looking  to obtain funding from a venture capitalist, or have the hopes of an IPO, then it is (practically) mandatory that you incorporate in Delaware.  It is better to first incorporate in Delaware to avoid the expense and frustration of having to convert your entity to a Delaware corporation when you begin funding discussions. 

Additionally, Delaware law is also structured in favor of upholding the limited liability of a corporation.  This is essential so that the officers and directors, and in some cases shareholders, cannot be held personally liable for acts or omissions while conducting corporate affairs. If a lawsuit is filed against a corporation and the suit falls into the area of corporate litigation, then the fate of the parties will be decided by a Judge rather than a jury.  In this case, a Judge who is experienced in all aspects of corporate affairs and disputes will decide the outcome rather than citizens of a community. 

If you first incorporate in Delaware, and intend on conducting your business operations in Massachusetts or another State, you will need to comply with State law concerning registration of a foreign entity. For example, pursuant to  M.G.L. ch. 156D § 15.03 a foreign corporation must register with the Massachusetts secretary of state within ten (10) days of transacting business in the Commonwealth.  In order to do so, you will need a Certificate of Good Standing from Delaware.  You must then file the applicable form and pay the required fee to the Massachusetts Secretary of State, Corporation Division. 

Selecting the right entity and structuring your organization in two states including Massachusetts and Delaware requires the expertise of a business law attorney. Attorney Stefan Cencarik, a business attorney in Lynnfield is available for consultation and can assist you in selecting the right entity.