Delaware is one of the American states that are especially beneficial for registering a business company. The state is not large at all yet over a million private companies are registered there and many of them are registered by foreigners. You can open a company in Delaware from anywhere in the world. Below we discuss the reasons why you should consider registering a company in Delaware.
Why Delaware
Every U.S. state lives by its laws and Delaware is not an exception. In particular, Delaware has its tax code and its tax rates are among the lowest in the United States.
This is the main reason why two-thirds of the companies listed on the largest stock exchange are registered in the state of Delaware. Over 60% of organizations on the famous Fortune 500 list are also domiciled in Delaware.
Advantages of registering a company in Delaware
The Constitution of Delaware was adopted in 1897. Certain amendments have been made since that time including amendments to the tax code. Registering a company in Delaware is an attractive opportunity for several reasons:
- A wide choice of company ownership;
- A high concentration of potential business partners notwithstanding a small territory;
- Well-thought-out corporate legislation;
- An opportunity for non-residents of the U.S.A. to open companies in the state;
- Minimum requirements for the application document package.
Low tax rates attract entrepreneurs from various countries to Delaware. They also appreciate the opportunity to open American bank accounts. Besides, a Delaware-based company can easily set up accounts with such payment systems as PayPal and Stripe.
Downsides of opening a company in Delaware
Besides advantages, certain downsides are associated with registering a company in Delaware.
- The state corporate income tax is 8.7% in Delaware while it is 0% in Wyoming and Texas. There is also a gross receipt tax in Delaware charged at the rates between 0.0945% and 0.7468% of the turnover. Only 11 of the American states charge this tax.
- Quite a lot of red tape is involved in registering a company in Delaware. The process can take 5 weeks or even more.
- You cannot download the application documents or have them sent to your email address. You’ll have to wait for paper documents.
Forms of company ownership
Similarly to most other states, you can register a company of one of the following types in Delaware:
- A Limited Liability Company (LLC);
- A C-Corporation;
- An S-Corporation.
Each form of company ownership has its pluses and minuses.
LLC
A Limited Liability Company is the simplest form of company ownership of those given above. It is a private company that can be established by one or several persons who do not have to be citizens of the U.S.A. Non-residents establishing companies of this kind pay taxes on their incomes, not on the company income. An LLC registered in Delaware does not have to have a physical office.
Yet, the company founders have to abide by the law because they are responsible for the company’s operations.
C-Corp
A C-Corp is a public company that can issue shares. The shareholders are taxed twice: at the corporate level and at the personal level. Non-residents of the U.S.A. are entitled to establish C-Corporations in Delaware.
In addition to issuing shares, a C-Corp can count on Government grants, regional subsidies, and other preferences. This is why the lion’s share of companies registered in Delaware have this form of ownership.
S-Corp
This form of company ownership is similar to the one described above with a couple of exceptions. First, only citizens and legal residents of the U.S.A. can establish S-Corporations and second, the number of company founders cannot exceed 100 people.
If an S-Corp issues shares, they cannot be traded at stock exchanges. The shareholders who are company employees in most cases receive dividends. Large financial corporations and companies working in the defense industry usually establish S-Corporations. Their number is not small in Delaware, by the way.
Taxes in Delaware
The tax system is rather comfortable in Delaware but it is not the most comfortable one. According to the TaxFoundation, Delaware ranks 16th.
You don’t have to pay the federal sales tax if your company is registered in Delaware and this is one of the main advantages. On the other hand, the LLC owners can be taxed at rates between 10% and 37% in the state.
A fixed tax of 21% is set for corporations and it has to be paid at the end of the financial year. In addition, every company registered in Delaware has to pay a franchise tax.
Stages in the process of registering a company in Delaware
As a rule, the company registration process consists of the following steps in Delaware:
- Come up with a company name;
- Acquire a legal address that does not have to coincide with the address of the company office;
- Appoint a company director (nominee services can be used in Delaware);
- Submit all the required documents to the business registration authorities while identifying the company founders, the corporate structure, the IPO plans, and so on.
Within a short period, the regulatory authorities will assign an EIN (Employer Identification Number) to your company. After that, you can open a bank account and start business activities.
Please note that each particular case can have its own nuances and you should seek professional support especially if you would like to open a company in Delaware remotely.
Opening a business bank account
When you have an EIN, you can open a corporate bank account. You have to supply the following documents when applying for banking services in the U.S.A.:
- Company Registration Certificate;
- License (if applicable);
- Memorandum and Articles of Association;
- Your EIN.
A bank account allows making and receiving payments, paying taxes, applying for loans, and performing all sorts of other financial operations.
You have to pay a personal visit to the bank in the U.S.A. to be able to set up an account there – this is obligatory. If you cannot do it, we suggest that you consider opening an account with an online payment service provider such as Wise or Payoneer, for example.
Business in Delaware – moving forward
If you are thinking of establishing a foreign company, we suggest that you should consider the state of Delaware. The legislation there may not be perfect and the bureaucratic machine may not be very efficient but the taxes are comparatively low in Delaware in the business environment is extremely comfortable. A company registered in Delaware would allow you to do business all over the world.
At the same time, Delaware is not the only American state that you consider. Some other states are also highly attractive for establishing a business company there.
