Delaware Means Business: Ever Wonder Why Most U.S. Businesses are Established in Delaware?
by www.SixWise.com
As the legal home of over 400,000 corporations, including
60 percent of the nation's Fortune 500 companies and 50 percent
of U.S. firms traded on the New York Stock Exchange and NASDAQ,
Delaware is widely known as a U.S. corporate haven.
How did one of the nation's smallest and least populated
states become known as the country's "corporate capital"?
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Why does it seem that everyone's heard of Delaware,
the corporate haven? The Delaware Story may help explain.
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Quite intentionally.
"Delaware cannot remain the Corporate Capital of the
United States by resting on its laurels. And so collectively,
our three branches of government and the private sector are
constantly working to promote and enhance the corporate services
provided by the State," said Dr. Harriet Smith Windsor,
Ed. D, Delaware Secretary of State, in their 2005 annual report.
The Delaware Story
Since 2000, Delaware officials, including Governor Ruth Ann
Minner, have been circling the globe to spread the word about
"The Delaware Story." Delaware, they say, is home
to so many corporations worldwide because of several key reasons:
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The Delaware General Corporation Law: Said to
be one the most flexible and business-friendly in the
nation.
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The Delaware Court of Chancery: A special court
to quickly and inexpensively resolve disputes involving
the internal affairs of Delaware corporations and businesses.
Trials are heard by a judge, not a jury.
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The Delaware State Government: Accessible and
business-friendly.
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The Delaware Division of Corporations: Offers
prompt customer service.
Other interesting incentives include:
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The corporation can be operated anywhere in the world,
as long as it has a Delaware registered agent.
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One person may be the only stockholder and hold all executive
offices of the corporation.
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There is no sales tax in Delaware, nor state corporate
tax for companies that operate outside of the state.
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There is no minimum investment.
Intense Growth Nationwide and Globally
It is this "complete package of incorporation services"
that makes Delaware so appealing to business, officials say.
And they must be doing something right, considering:
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The number of active business entities in Delaware grew
37 percent from 2000 to 2005, to total over 695,000.
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In 2005, 133,700 new domestic business entities made
Delaware their home.
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Delaware experienced a record one-year growth rate in
2005 -- new business formations increased 19.5 percent.
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In 2005, over 70 percent of all public offerings on U.S.
exchanges were incorporated in the state.
Delaware's legal system has also been ranked number 1 in
the nation for five straight years, according to a survey
by the U.S. chamber of Commerce's Institute for Legal Reform.
"Year after year, the U.S. Chamber proclaims what our
member companies already know: Delaware is a great place to
do business," said James A. Wolfe, president and CEO
of the Delaware State Chamber of Commerce. "We are proud
of our legal system's top ranking in the nation for the fifth
year in a row. It's one of the many things that make Delaware
such a business-friendly state."
Delaware is also working to expand its business presence
globally. Since 2000, state officials have traveled to China,
Hungary, India, Italy, Poland, Taiwan and the United Kingdom,
while receiving visits from representatives of China, Ireland,
Italy, Japan and Vietnam.
What's in it for Delaware?
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Businesses operating in another state still have to
qualify to do business in their own state, even if incorporating
in Delaware. Small, privately held businesses may therefore
be better off avoiding this lengthy process and incorporating
in their home state instead.
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Business owners are not the only ones who stand to gain from
Delaware's business-friendly mindset. The Delaware Division
of Corporations collects revenue from several areas, including
a corporate franchise tax, LLC/LP annual tax, business entity
fees and Uniform Commercial Code (UCC) fees.
In fiscal year 2005, revenues collected by the Division reached
a record $626.1 million, up 2.2 percent from fiscal year 2004.
Further, in fiscal year 2005:
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LLC tax revenues increased 24 percent to $63.4 million
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Filing fees increased 17 percent.
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UCC general fund revenues increased 5.3 percent to $13.8
million.
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Revenue from incorporations accounted for 22 percent
of Delaware's general fund.
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Income from customers' requests for expedited service
(24-hour, same day, two-hour or one-hour) was $17.5 million
(which more than covered the Division's operating expenses
of $9.2 million).
Who Shouldn't Incorporate in Delaware?
With all of these benefits, you may be wondering, "Are
there any potential drawbacks to incorporating in Delaware?"
If you're starting a large, publicly held corporation, probably
not. Filing fees are small, as are those for maintaining a
registered agent (if your corporation does not reside in the
state). The annual franchise tax is also usually small for
start-ups.
However, for small, privately held corporations who are not
planning to reside or do business in Delaware, the effort
may not be worthwhile. Why? If the corporation is started
in Delaware but operated in another state, you will still
have to pay your own state's income taxes.
Also, your business will have to qualify to do business in
your home state, in addition to the incorporation in Delaware.
This can be a lengthy process and, when all is said and done,
may end up costing close to what it would have taken to incorporate
in your own state in the first place.
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Sources
Delaware
Department of State, Division of Corporations 2005 Annual
Report
Delaware's
Legal System Ranked no. 1 in Nation for Fifth Consecutive
Year
Delaware
Department of Finance, Division of Revenue