Delaware as a State of Incorporation
Why do companies repeatedly form their businesses in Delaware?
Here is a point by point discussion of each reason:
Tax structure
There is no tax on business income earned outside the state using an allocation formula. So sole proprietors, partnerships, and C Corporations who incorporate in Delaware will not have to pay corporate income tax on monies earned outside of the state if they have no payroll, property or customers in the state of Delaware. Most businesses fall into that category and enjoy the allocation benefits. If you are located in the state your net income tax rate is 8.70%. However, be cautious as Delaware has a franchise tax that is levied on all entities and starts at $175 and quickly works its way up.
Probably the most untold aspect of this limited taxation is the fact that your home state probably will want you to register and pay taxes there. This can result in dual admin costs and registration costs. California, for example, dictates taxation by where management control is located. So if you live in California and own a Company incorporated in Delaware you will be taxed in California and will need to also register there.
Law
Corporations also prefer filing in Delaware because of its court system and the fact that most…
