Boasting a business-friendly court system and the option to retain your anonymity, Delaware has long been a preferred state in which to form an LLC. But if you are planning to operate your remote business out of California, a California LLC may be a better choice for your startup.

Deciding which state to incorporate in is a big commitment; therefore, you’ll want to be equipped with all of the facts before coming to a conclusion. Here’s everything you need to know when it comes to forming a Delaware LLC vs. a California LLC.

Why form a Delaware LLC

Incorporating in Delaware comes with a long list of advantages. After all, there’s a reason why over a million LLCs (and 66% of Fortune 500 companies) are currently in existence throughout the state! From offering privacy protection to no sales tax, here’s why you should consider forming a Delaware LLC.

Delaware offers top privacy protection

One of the biggest advantages of a Delaware LLC is the privacy protection it offers remote business owners. When you file your Certificate of Formation, you are not required to list any information about LLC members or managers. Only the company name and contact information (i.e. name and address) of your registered agent are required. This is a huge factor when you are wishing to be kept anonymous.

No state sales tax and lower annual franchise tax

Affordability can, and often does, play a major role in choosing where to form your LLC. If you decide to incorporate in the state of Delaware, you won’t have to worry about paying sales tax on any purchases made within the state.

With no sales tax imposed on purchases, you can buy products at a cheaper rate. Depending on where you live, this can potentially save you up to 10% or more in purchases. It’s ideal for both in-person and online shopping, and ultimately means you’ll end up with more money in your bank account to help you grow and scale your remote business.

Additionally, companies that are formed in Delaware, but do not conduct business in the state (i.e. you are located in another state), do not have to pay Delaware state corporate income tax.

Delaware does charge an annual franchise tax, but it is a flat fee for LLCs. Many other states base their annual fees on earned income, so your franchise tax in Delaware is likely to be significantly less than it would be in other states. You may also have to pay a gross receipts tax if you do business in the state, but the tax is fairly low and only applies in certain situations.

Pro-business laws ensure you get the best probable outcome

The state of Delaware is home to the Court of Chancery, a non-trial court that has been in operation for 220 years. Judges appointed to the Court of Chancery are highly knowledgeable when it comes to corporate law, relying on precedent to make decisions. Should a case regarding your LLC ever make it to the court, you can expect to receive a fair and unbiased verdict based on prior case law instead of emotions or public opinion.

Costs to form a Delaware LLC

The total cost to form an LLC in Delaware is $140. This includes the filing fee imposed to form a Delaware LLC ($90) as well as the cost of your state business license fee ($50).

You will also be responsible for paying your Delaware annual franchise tax of $300.

Keep in mind that you’ll need to renew your state business license annually. If you’ve acquired a third-party registered agent service, this is another yearly expense to add to your budget. LLCs do not need to file any annual reports.

At this point, you’re convinced that a Delaware LLC is the perfect choice for your business, and who can blame you? However, there’s one major reason you may want to consider a California LLC instead: your company is based out of California.

Why form a California LLC

When it comes to your LLC, a good rule of thumb is to incorporate where you operate your business out of. That’s why if you live in California, it’s probably best to form your LLC in this state.

When registering your business in the State of California, you can expect to reap standard LLC benefits like limited liability protection, ownership flexibility, and pass-through taxation. But there’s also another benefit of a California-based business choosing to incorporate in the state: affordability.

California may be superior to Delaware for fiscal reasons

If you are planning to run your business from California, a California LLC is a better choice. If you have a California-based business that is incorporated in Delaware, your LLC will have the burden of paying the California State Franchise Tax Board taxes as well as annual taxes in Delaware. Although you may have saved money during the incorporation process in Delaware, you will ultimately end up paying double in the long run. This is not a good choice for any small LLC on a budget.

If you choose to incorporate and only do business in Delaware, but are a resident in California, you will still need to pay taxes in both states. California may consider you to still be "doing business" in the state if you are simply directing or managing your Delaware LLC from the state of California.

Costs to form a California LLC

The total cost to form an LLC in California is $90. This includes the filing fee required to form a California LLC.

You will also be responsible for paying your California annual franchise tax of $800, as well as an additional fee if your LLC’s income equates to over $250,000 per year. Every California LLC is required to file a Statement of Information. The purpose of the Statement of Information is to keep your California LLC contact information up to date with the [\California Secretary of State. The filing fee is $20 (every two years).

Conclusion

Delaware offers exceptional privacy protection, no sales tax, and a business-friendly court system. However, a California LLC makes more sense from a financial standpoint if you plan to run your business from California.

Ready to get started? Regardless of which state you choose to incorporate in, you can expect a higher level of credibility and flexibility for your remote business. Form your Delaware LLC or California LLC today!