The Top 4 Drawbacks to Incorporating in Delaware

More companies are incorporated 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 not only have to pay the filing fees for the state in which you are transacting business, but also Delaware filing fees, which include $89 for the Delaware Certificate Of Incorporation and $50 for the Certificate of Good Standing, which you will need to register the corporation in most states, including California.

These filing fees are in addition to the filing fees you will then need to pay to register your corporation in the state in which your corporation is actually conducting 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 in addition to the Delaware filing fees.

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 $129 to $149 each year.

3. Extra Franchise Taxes.

If you incorporate in Delaware you will not only have to pay the annual franchise tax in the states in which you are “doing business,” but also in Delaware.

For example, if your company is headquartered in California, but you incorporated in Delaware, each year you will not only have to pay the $800 annual franchise tax in California, but also the annual franchise tax in Delaware.

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.

For these reasons, not every company should incorporate in Delaware.  Instead, you should make sure that the benefits of incorporating in Delaware outweigh  the extra expense and time of being incorporated there instead of whichever state your company is headquartered in.

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, but it does not constitute legal advice in any respect.  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.