Incorporating in Delaware: Advantages and Disadvantages

What are the advantages of incorporating in Delaware?

According to the Department of State, more than 1.9 million businesses have registered in Delaware, including household names like Google, Amazon, JPMorgan Chase, and plenty of others. So, why do so many companies choose to incorporate here? 

1. Corporation-friendly legal system

Delaware has a Court of Chancery, which only handles business and corporate disputes. The judges are experts in corporate law, and their decisions tend to be more predictable than those in other states. This is partly because the court operates without juries, so the judges rely more on legal precedent and business principles rather than persuasion. 

Over multiple decades, Delaware has developed one of the most extensive bodies of corporate case law in the country, covering everything from shareholder rights to mergers and acquisitions. For corporations and their attorneys, this generally means fewer surprises and more certainty when making decisions.

2. Privacy protection

When you file the certificate of incorporation to start your company in Delaware, you don't need to disclose your directors' and officers' names to the state, allowing you to keep your personal information out of the state’s public records. 

You'll still need to provide details for your registered agent—that is, a person or company located in Delaware that accepts legal filings on your behalf. But if you use a registered agent service, the company’s information appears in public records instead of your personal details. 

Keep in mind that this only applies to the initial formation paperwork filed with the state. You may need to list officers or directors on federal and state tax returns, bank records, or other required business filings—some of which may be publicly accessible. Nonetheless, Delaware can certainly make it easier to protect your personal information. 

3. Potential tax benefits

Delaware is sometimes referred to as a tax haven. For starters, Delaware doesn’t impose corporate income taxes on corporations registered in the state that don’t conduct business there. The state itself also has no general sales tax. While residents are still subject to personal income tax, shareholders who reside outside of Delaware don’t pay state taxes on their corporate shares. 

4. Investor appeal

If you're looking for angel investors or venture capital funding, there’s a good chance they’ll prefer that you incorporate in Delaware. In some cases, investors may even require incorporation in Delaware as a condition of their investment.

Delaware’s well-established case law covers investor rights, board governance, and fiduciary duties in detail. This helps investors understand exactly what protections they have and how disputes would likely be resolved. The Court of Chancery’s expertise in corporate matters also means faster, more predictable outcomes if conflicts arise. 

What are the disadvantages of registering in Delaware?

While Delaware offers distinct benefits, there are also significant drawbacks to incorporating in the state. Here are other factors to consider. 

1. Higher costs

Although Delaware doesn't tax corporations in the state that operate elsewhere, your home state will tax your company, so you do not avoid taxation. In addition, you’ll need to pay Delaware’s franchise tax based on the value of your company shares. This is generally minimal for small businesses, but it will increase as the number of shares increases and as your share value goes up.

As a result, for many small business owners, it makes more financial sense to incorporate in their home state rather than Delaware.

2. Dual compliance requirements

Even if you incorporate in Delaware, you may still need to meet your state's registration and licensing requirements for conducting business there. For example, you’ll likely need to file annual reports in both locations. You’ll also need to stay on top of permit renewals, tax filings, and other registrations related to your occupation or industry. 

Put simply, incorporating in Delaware may mean twice the work to keep your business compliant if you are registering in two states.

3. Legal disputes require travel

Because cases involving your company must be heard in the Delaware court, you'll need to travel to the state to handle any legal disputes. You'll also have to retain a Delaware attorney to handle the case instead of the attorney you use in your home state. 

Should you incorporate in Delaware? 

While Delaware offers considerable benefits to companies that incorporate in the state, large corporations typically derive the greatest advantage. This is especially true for corporations with complex structures, multiple investors, or plans for significant growth. 

However, the added expenses—franchise taxes, extra filing fees, and compliance costs—may outweigh the benefits if you’re just operating locally with no plans for outside investment. 

Given the complexity of Delaware corporate law and how it might affect your situation, it’s recommended to consult a knowledgeable business attorney, such as the ones you can find through LegalZoom’s network. 

How to incorporate with LegalZoom

Regardless of where you decide to incorporate—whether in Delaware, your home state, or elsewhere—LegalZoom can help you make it official in just a few steps. We'll walk you through the process to start your S or C corp, from preparing the formation paperwork to filing it with the appropriate state agency, for as low as $149 + filing fees.