The Top 4 Drawbacks to Incorporating in Delaware

More companies incorporate in Delaware than any other state.  In fact, half a million businesses, including more than half of all U.S. publicly-traded companies and 60% of Fortune 500 companies, have incorporated in Delaware. So why wouldn’t you form your corporation in Delaware? This article highlights the biggest drawbacks to incorporating in Delaware and explains why it is not a one-size-fits-all solution.

1.  Extra Initial Filing Fees

If you incorporate in Delaware you will have to pay the filing fees for the state in which you are transacting business and also Delaware filing fees. These include $89 for the Delaware Certificate Of Incorporation and $50 for the Certificate of Good Standing. You will need the Certificate to register the corporation in most states, including California.

These filing fees are in addition to the filing fees you must pay to register your corporation in the state where it actually conducts business.  For example, to register your Delaware corporation to do business with the California Secretary of State’s Office you will also need to file a California Statement Of Designation Of Foreign Corporation, which has a $100 filing fee.

2.  Annual Costs For A Registered Agent for Service of Process

In addition to extra filing fees, if you incorporate in Delaware you will be required to have a registered agent for service of process.  The annual fees for this service vary, but companies such as Biz Filings and Legal Zoom charge $220 to $249 each year.

3. Extra Franchise Taxes

If you incorporate in Delaware, you will have to pay the annual franchise tax in the states in which you are “doing business,” and also in Delaware.

If your company is headquartered in California, for example, but you incorporated in Delaware, each year you will have to pay California’s $800 annual franchise tax and Delaware’s annual franchise tax.

4.  Extra Reporting Requirements

If you incorporate in Delaware, you will have a second layer of reporting requirements.  For example, if you incorporate your company in Delaware, but are headquartered in California, you would have to comply with the reporting requirements in both states.

These drawbacks to incorporating in Delaware mean it is not the ideal solution for every company.  Instead, you should make sure that the benefits of incorporating in Delaware outweigh the extra expense and time of being incorporated there instead of the state of your headquarters.

If you incorporated your company in Delaware, what have you found to be some of the biggest advantages and disadvantages?

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.