Delaware?

If you ask the proverbial “man in a pub” to name the optimum US State in which to incorporate, “Delaware” will almost always be the response – and it is most usually ill-informed advice.

The high volume of corporate court cases in Delaware means there are likely several similar cases where advisors can look for precedents, rulings on past cases, and create deals that lead to faster outcomes in a legal dispute. We learned of a client company based in Florida which first knew about a legal case being brought against them in Delaware when they received a letter in Florida informing them of having been found guilty!

Delaware has a separate Court of Chancery that hears cases involving corporate issues. These judges can decide cases quickly and without juries. Officer and director names are not required on the formation documents. This creates a level of anonymity and privacy not experienced in other states.

Forming a corporation in Delaware can cost much (thousands) more than in other states. You will have to pay Registered Agent fees (budget $500 per annum) to receive legal correspondence. You may also need to retain a Delaware corporate lawyer.

Delaware requires you to file annual reports even if you already filed in your home state. You’ll have to register the business in more than one state if you’ll do business outside of Delaware. You may need to register to transact business in another state if you have a physical location and employees outside of Delaware. Foreign qualification registers a company to do business in a state other than the state of incorporation. There may be foreign qualification costs and ongoing fees in other states where you transact business.

Full disclosure? Unless you are imminently planning a public offering… don’t waste your time and money incorporating in Delaware. Chances are the “money men or women” will tell you where they want you incorporated anyway!