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Incorporating in Delaware? 5 Issues to Consider

By Aditi Mukherji, JD | Last updated on

When starting a business, a major consideration is deciding where to incorporate.

The state of Delaware is known as a somewhat magical place in the realm of business. Although it's an incredibly popular place for businesses to incorporate, it doesn't necessarily make a good fit for small business owners -- especially if you only conduct business in your home state.

Here are five issues you'll want to consider if you're thinking of incorporating in Delaware:

  1. Size matters. Incorporating in Delaware may not make a whole lot of sense unless you're running a large, publicly traded company. For small, privately held companies -- especially those that mainly do business in one state -- incorporating in your home state may be best. Unless your business is physically located in Delaware, you will still need to register for operation -- and likely pay income taxes -- in your home state.
  2. You may need to find an agent. When you choose to incorporate in Delaware instead of in your home state, you will have to find an "agent of register" in Delaware. If you don't already have someone in mind who lives in Delaware, then you may need to devote some extra time and money to hire one.
  3. Taxes. Small businesses won't save much on taxes by incorporating in Delaware, as they still must pay taxes on operations in their home state.
  4. Potential cost savings. Incorporation costs may be lower in Delaware, but that doesn't necessarily add up to major savings in the end. The process of getting incorporated in Delaware can end up being just as, if not more, expensive as incorporating in one's home state.
  5. Legal disputes. If you ever run into legal problems, you may be called into court in Delaware. This could involve substantial travel time and expenses. In addition, if you already have a lawyer that you regularly use in your home state, he or she may not be familiar with the laws of Delaware, or even licensed to practice law in Delaware. Before selecting a place to incorporate, figure out whether the laws in your home state would provide stronger legal protection to your business than the laws in Delaware.

A number of factors must be considered when deciding where to incorporate. For more guidance on whether incorporating in Delaware is a good idea for your particular company, consult an experienced business organization attorney near you.

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