6 Reasons You Should Form Your Next Business in Delaware

Leela Hopkins Last updated July 30, 2020
delaware llc formation

Delaware is one of the most popular states for people to set up their businesses for liability and asset protection purposes. It also provides ownership privacy, an efficient legal system for business disputes, and tax benefits for assets. Here are some of the top reasons why Delaware may be the best state for you to form your next business.

1. Privacy Protection

Delaware LLCs are not required to list member names and addresses in their filings. Members and managers are only specified in the LLC’s Operating Agreement, which is private by nature. Therefore, ownership and management information is not recorded and available on public record. For asset holdings and protection, LLCs are generally the preferred way to go. Corporations can also be filed without listing shareholders, directors, or officers on public record if you were to make use of a third-party incorporation service. However, every Delaware corporation is required to make a Franchise Tax payment every year and, in doing so, must list the names and addresses of the company’s directors and one officer. Shareholders, however, do not need to be specified and therefore have privacy protection. While privacy is not 100% guaranteed in some cases, it does offer more privacy protection compared to other states like California.

2. Asset Protection

Delaware LLCs protect an LLC owner’s assets. Many startups create an LLC structure to protect their assets from lawsuits. In addition, Delaware is one of the few states that only allows a charging order as the sole remedy for collecting debt on single-member LLCs. In contrast, many other states treat single-member LLCs as a disregarded entity and allow judgment collectors to pierce the corporate veil and go after the single member’s personal assets.

3. Tax Benefits

Delaware does not tax companies that operate outside of its borders. This means you do not end up paying Delaware state taxes if you have no physical office or do business directly within the state. Additionally, Delaware does not have taxes for the following:

4. Business Friendly Laws

Delaware has a well-established and highly respected Court of Chancery that focuses on resolving corporate disputes. The Court of Chancery is a non-trial court that focuses solely on businesses and examines issues involving real property and commercial litigation. It consists of only judges and no juries. The Court of Chancery allows business issues to be resolved quickly by a judge who specializes in corporate law and has expertise in resolving complex corporate disputes. On top of that, Delaware business laws tend to be more favorable to businesses compared to other states. They also have a long history of precedents that the court can use to help with disputes. As a result, corporations that register in Delaware will receive a robust legal system that offers protection of their business if it is involved in litigation.

5. Cheaper Filing Fees

Filings fees and running costs for LLCs and Corporations tend to be cheaper, but not necessarily the cheapest, compared to other states. For LLCs, the filing fees are only $90 and the annual tax is $300. LLCs do not need to file any annual reports. Corporation filing fees are more complicated and are based on your authorized stock shares and assume par value. Fees start at $89 + $9 per page plus additional fees for extra services like the 24-hour expedited service ($50). Annual reporting and franchise tax fees starts at $175 per year if calculating using the Authorized Shares Method and $350 per year if using the Assumed Par Value Capital Method. Use their handy Franchise Tax Calculator to get an accurate value for filing taxes.

6. Investor Appeal

For a new company looking to attract outside investment funding from angels, venture capitalists, and private equity firms, incorporating in Delaware will offer a better environment for raising capital for your business. Investors are more likely to consider investing in your company due to Delaware’s business-friendly laws. Top investors and business leaders understand the Delaware system and often venture capitalists and investment banks prefer Delaware corporations. Additionally, if you are considering venture funding or going public, it would be wise to incorporate in Delaware from the beginning rather than having to convert the company to a domestic Delaware entity at a later time. The initial running cost may be higher, but it saves costs in the long run. Overall, by incorporating in the state of Delaware you will be exposed to a greater range of investment options.

Doing Business in Another State

If you are incorporated in Delaware but have an office or do business in another state, you will most likely need to file for foreign qualifications in that other state. There will be additional costs, so it’s good to check your state laws regarding doing business within that state.

Unsure whether your company is doing business in another state? Ask yourself the following questions.

If you answered yes to any of the above questions, you may need to register as a foreign entity in that state.

What is Foreign Qualification?

When you form your business entity, the state in which you initially registered is the domestic state for your company. If you are doing business in other states, you would be considered a foreign entity in those states. Foreign Qualification (also known as Certificate of Registration or Certificate of Authority) is the process of registering your entity in other states that you operate or do business in.


Incorporating in Delaware offers many benefits to businesses and asset-holding companies. They provide ownership privacy, a dedicated court for speedily resolving business disputes, and great tax benefits. It is one of the best states to register your business if you are using the company to hold assets or plan to obtain venture capital funding.

Do You Need A Delaware Location

Check out VirtualPostMail’s (VPM) ultimate guide on how to form your Delaware LLC. Get a detailed walkthrough each step of the way from filing your Certificate of Formation, assigning a registered agent, and opening a business bank account.

Leela Hopkins


Marketing Specialist at VirtualPostMail. I am dedicated to bringing you useful information to help you run your business remotely. My ultimate goal is to help you successfully take your business fully remote.

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