No doubt, you’ve heard that a lot of companies form corporations in Delaware. So, you’re probably thinking, “I guess I should register in Delaware.” Half the Fortune 500 is registered in Delaware. Why? The main reasons are that their corporate codes are very modern and up to date. Also, their judges are very well versed in business law issues. So, when there are shareholder suits, in particular, it’s a pretty good place to be.
These are publicly traded companies, here. Not your startup. You also hear things about taxation and cost, forget about that stuff – really not going to apply to you. If your business is located in a state other than Delaware, incorporating in Delaware just means you will have to deal with paperwork & annual fees in your home state as well as Delaware.
Here’s why you might want to form a corporation in Delaware. If you’re going to seek funding through institutional money, venture capitalists, or sophisticated angel investors you want to think about being in Delaware because they like it.
If you’re not doing that, maybe you’re going to be a relatively small startup and self-funded, stay in your home state. If you file in Delaware you’re going to have to register in your home state anyway. It just adds a little complexity and a little cost, and if you’re not raising institutional money or going public in the near future, it’s just not worth it.
By the way, if you change your mind and decide to chase venture capital dollars down the road, you can always transfer your corporation or LLC into Delaware. Don’t feel like your initial decision is your final one.
If you are in the process of incorporating, you should read up on 4 Things to Know When Deciding Between an LLC or a Corporation.
Author: Brett Cenkus
Brett Cenkus is a business attorney with 18+ years experience based in Austin, Texas. He has worked with a variety of businesses and has clients throughout Texas as well as many technology clients throughout the United States. Brett is a Harvard Law graduate with a sharply seasoned mind and an entrepreneurial heart. As a founder of 6 companies himself, he is especially passionate about helping startups succeed. In 2016 Brett was named the winner in the Individual category for RecognizeGood’s Ethics in Business & Community Award. He offers businesses solutions that are in sync with their culture, goals and values. You can learn more about Brett by visiting the About page on this website.