Every state in the Union has its own subtle differences regarding policies, laws, and rules for incorporating a startup company. Some states are more conducive for entrepreneurs than others. One state that typically gives aspiring business owners more difficulty when trying to incorporate is the state of Delaware. It is by no means ‘impossible’ to incorporate in Delaware, and the state can be advantageous to particular kinds of companies; however, there are some crucial pitfalls of incorporating in Delaware that we would like to discuss in this article. From there, it will be up to you to decide whether it is worth it to go through the process of launching your corporation in “The Diamond State” in spite of the drawbacks.
- Extra Filing Fees
In addition to the setup fees typical for starting a business, this states requires “Delaware Filing Fees” for the privilege of incorporating in their state. Extra filing fees include paying $89 for a Delaware Certificate of Incorporation, and a $50 certificate of Good Standing. If costs like these add up to impede your funding for a startup, keep that in mind when considering incorporating in Delaware.
- Annual Franchise Tax
Delaware has a yearly franchise tax, unlike many other states in the U.S. This incurs a fairly large extra cost for companies who may want to do all they can to lower fixed costs of doing business.
- Registered Agent Fees
If your business is not actually located in Delaware, and you operate or have a primary office in another state, then Delaware requires you to hire a registered agent and asks that you still register your company as a foreign entity in your home state. Annual registered agent fees can be somewhere in the ballpark of $150 per year. You also must pay taxes on revenue that originates in your home state and will comply with annual reporting requirements for your operations in both Delaware and your home state.
- Cost of Retaining Delaware Corporate Lawyer
Businesses operating in Delaware are subject to the jurisdiction of Delaware courts and state laws. If you are incorporated in Delaware and someone wishes to sue your company for whatever reason, they can sue you in Delaware and business owners must go through the process of using Delaware licensed lawyers and possibly having to travel to Delaware personally to appear in court and defend the business. This is especially inconvenient for business owners whose companies have home states outside of Delaware.