Before selecting the state in which to incorporate your business, be sure to consider all costs and benefits. For instance, Delaware might cost more money than New York when it comes to incorporation costs.
But is the added expense worth it? Benjamin Franklin once noted, “in this world nothing is certain except death and taxes”. This maxim applies particularly well for businesses.
Taxes
Delaware has long been considered one of the top locations for incorporation by both public and privately-traded companies due to its business-friendly laws and Court of Chancery. However, due to high formation costs associated with creating an LLC in this state it’s essential that tax considerations be taken into account prior to choosing Delaware as your location for incorporation.
LLCs are generally considered pass-through entities for tax purposes, meaning their owners pay taxes according to their respective shares in income or loss from the company. This structure gives LLCs lower federal tax rates as well as greater freedom in selecting their tax status.
New York requires that every LLC must register as well as pay a registration fee to do business within its borders, while any Delaware LLC doing business there must file both state (and city) income tax returns for both jurisdictions. Registrating existing foreign corporations to operate within New York state is possible when both jurisdictions consent to domestication of domestication process.
Liability protection
Start-ups and businesses often wonder whether Delaware or New York would be best to form their entity. Deciding where a company will register to do business can help it comply with tax laws and legal regulations; Delaware offers established corporate statutes and an efficient court system known for quickly resolving cases.
LLCs in Delaware also provide an advantage by shielding personal assets from creditors of members, making the Delaware LLC structure attractive to many investors who require companies they invest in incorporate there. Conversely, New York law only grants judgment creditors access to distributions or allocations of profits and losses, but not ownership stakes in an entity.
New York also requires that each entity establish in New York has an authorised agent that can receive service of process and other official documents and notices, so forming one there incurs additional expenses such as costs for a registered agent and filing fees in Delaware.
Privacy
Delaware is becoming an increasingly attractive location for new businesses to incorporate. It offers laws designed to safeguard members’ personal assets while offering liability protection, all while encouraging growth and drawing investments into the state. Furthermore, its business-friendly law as well as Court of Chancery — which exclusively handles corporate cases — makes Delaware appealing for many companies.
Delaware LLC formation offers many tax advantages to its owners. Unlike corporations which must pay federal and state taxes simultaneously, an LLC acts as a “pass-through” entity, meaning its income directly benefits its members and grants privacy for them all.
Delaware stands out as a state that doesn’t mandate publication of LLC member information, making the state ideal for entrepreneurs who value maintaining their privacy and saving companies money in publication costs.
Requirements
If you’re seeking to establish an LLC in Delaware, several key elements are worth keeping in mind. First and foremost is selecting your state. After this, preparing and filing a Certificate of Formation should follow.
Your LLC must also designate a registered agent in Delaware. This individual or business will accept service of process, notices of lawsuits and any legal or government correspondence on behalf of your LLC and must either reside within its borders or be approved to operate there.
One other requirement for LLCs is an Employee Identification Number (EIN), used for tax identification purposes and easily available from the IRS website. While an EIN isn’t strictly necessary, having one can help separate the business from its owners and may even help when applying for loans.
