Most successful corporations in California are legally registered in other states. The most common state that businesses use when incorporating is Delaware. Corporations that organize in the state can enjoy lower taxes, better corporate laws, and no capital requirements. Delaware also has the advantage of a court system that is uniquely tailored to the needs of corporations. Below is a full overview of the advantages of incorporating in Delaware.
Better Corporate Laws
The corporate laws in Delaware are favorable because they are more flexible than in other states. Delaware empowers corporations with a broad range of legal choices that businesses can take advantage of on an optional basis. Corporations that organize in Delaware are also given broad freedom to develop their own rules that are enforceable in the court of law. The state also has no requirements for Delaware corporations to be organized by residents of the state. Individuals residing in other states can freely organize in Delaware as a foreign entity. Therefore, many businesses choose to organize in Delaware to enjoy the corporate laws that the state has to offer.
Delaware Court System
The State of Delaware is also favorable for many businesses because it has a court system that is dedicated to their needs. The Delaware Court of Chancery enables businesses to avoid jury trials and use judges exclusively. The courts in Delaware are also strictly dedicated to business law to help businesses avoid unnecessary legal hurdles. The judges in Delaware courts also have the power to impose temporary restraining orders, injunctions, and other legal measures that are essential for businesses seeking to assert their rights. The advantages of the state’s court system are one of the primary reasons why California businesses choose to incorporate in Delaware.
No Capital Requirement
The State of Delaware has no capital requirements for businesses seeking to incorporate in the state. Unfortunately, capital requirements are still imposed in many states, including California. Rules on minimum capital requirements might sound good to legislators, but the reality is that they hamper business activity and force many entrepreneurs to forego incorporation. The lack of capital requirements means that businesses can incorporate in their infancy before seeking venture capital. Incorporated entities are more likely to be attractive to investors. Therefore, the lack of capital requirements for organizing a corporation in Delaware can help entrepreneurs reduce their risk and improve their chances of attracting capital.
The State of Delaware imposes no corporate taxes. The low taxes in Delaware offer a significant advantage over California, which imposes some of the highest corporate tax rates in the United States. Corporate taxes in California can be as high as 11 percent, while Delaware has a zero percent rate. The state also imposes no requirements for paying extra taxes when the majority of shareholders reside in another state. Delaware corporations that are headquartered in California still have to pay some California income taxes, but not on all of their income. The tax savings can be very significant when computed over many years.
Choosing to incorporate in one of the best US states is an important step for building a successful startup. If you believe you need assistance with the incorporation process and the managing of a successful corporation, you can always contact Inc. Plan(USA) for a free 30 minute consultation or you can check out our other blog posts.