Question: What are the advantages and disadvantages of incorporating in Delaware? I hear it’s important for an IPO, but if we don’t plan on going public anytime soon, should I bother to incorporate in Delaware?
Answer by Naomi Kokubo, Editor of Founders Space
That’s a really good question. We did some research and we found an interesting article on the advantages and disadvantages of incorporating in Delaware.
Here’s the key takeaway… “For the typical California-based early-stage startup, Delaware does not offer any practical advantages over a California incorporation. Perhaps the only near-term advantage is that Delaware allows for a single-member board of directors, regardless of the number of shareholders in the company. This can facilitate corporate governance in an early-stage startup. Apart from this, however, a Delaware domicile simply adds administrative burdens for an early-stage startup based in California. These burdens include the difference in the way franchise taxes are handled and the need to qualify as a foreign corporation in California. In general, there is more administrative hassle. The burdens can be dealt with, but the question is whether the burdens are worth the minor advantages, if any, afforded by a Delaware domicile in the early stage.”
I’m sure not every lawyer will agree with this article. It also depends on what state you’re in. Nevada is pretty friendly towards corporations. Keep in mind that the majority of corporate lawyers are well versed in Delaware law, so it’s much easier for them if you simply incorporate there.
Note: Before making any business decisions based on information on this site, it is your responsibility to check with your counsel or professionals familiar with your situation.
Founders Tip: Consider using a filing service such as Legal Zoom where they file all the documents with the state, get your record book, and more.