Incorporating in Delaware: Why Startups and Investors Prefer It

More than half of all publicly traded US companies, and the large majority of venture-backed startups, are incorporated in Delaware, a small state that most founders will never visit. If you plan to raise money from US investors, you will hear "Delaware C-Corp" early and often.

This guide explains why Delaware dominates, what it costs, and when it is the right choice for a foreign founder, or overkill.

Why Delaware?

Predictable corporate law

Delaware's corporate statute is detailed, flexible and constantly updated, and it is backed by decades of court decisions. Lawyers can answer "what happens if…" questions with confidence, which reduces risk for investors.

The Court of Chancery

Delaware has a specialised business court where experienced judges, not juries, decide corporate disputes. Decisions are faster and more predictable than in general courts.

Investor expectations

Most venture funds, accelerators and angel networks expect a Delaware C-Corporation. Standard financing documents, such as SAFEs, convertible notes and preferred share term sheets, are drafted with Delaware in mind. Using another state can add legal review and cost, or simply lead investors to ask you to reincorporate.

Flexibility

Delaware allows multiple share classes, preferred stock with investor protections, flexible board arrangements and option plans, all of which venture financing relies on.

An ecosystem

Registered agents, lawyers, banks and service providers all work with Delaware companies every day.

What a Delaware C-Corp costs

The franchise tax surprises many founders. Delaware's default calculation is based on authorised shares; a startup with 10 million authorised shares can receive a notice for tens of thousands of dollars. Recalculating with the assumed par value capital method usually brings it down to the minimum. See Delaware franchise tax explained and authorised shares and par value.

Delaware does not tax out-of-state income

A Delaware corporation that does no business in Delaware generally does not pay Delaware corporate income tax. It still pays the annual franchise tax, and federal corporate tax applies as for any C-Corporation (21%). See the 21% corporate tax.

If you operate in another state

A Delaware corporation with an office or staff in, say, California or New York must also register there as a foreign corporation and follow that state's tax rules. Delaware is the legal home; operations are taxed where they happen. See state taxes.

When Delaware is the right choice

• You plan to raise venture capital or join a US accelerator.
• You will issue stock options to a team.
• Investors, co-founders or your lawyers require it.
• You want the most widely recognised structure for an eventual sale or listing.

When Delaware is overkill

• You run a small service, e-commerce or content business and do not plan to raise money. A Wyoming LLC or New Mexico LLC is cheaper and simpler. See LLC or Inc.
• You want a corporation but not investors: a Wyoming corporation costs less to maintain. See Wyoming vs Delaware corporation.
• You want a Delaware LLC only for the name: Delaware's $300 annual LLC tax buys little that Wyoming does not offer. See Delaware LLC vs Wyoming LLC.

For foreign founders specifically

• You can be the sole director, officer and shareholder. No US resident is required.
• You can get the EIN without an SSN. See EIN for non-residents.
• If you already have a company at home, investors may ask for a "flip", making the Delaware company the parent of your local company. See raising investment as a foreign founder.
• A corporation that is 25% or more foreign-owned files Form 5472 with its corporate return when it has related-party transactions.

How UCB helps

We incorporate your Delaware C-Corporation with an investor-friendly share structure, act as registered agent, obtain your EIN, open your US bank account, and file your Delaware franchise tax correctly every year so you never pay more than you should.

Ready to incorporate in Delaware? WhatsApp us at +91 8105 199 399 or email info@ucbsolutions.com, or see the Delaware company formation page.