Opening a Company in Delaware LLC or Corporation

Opening a company in Delaware begins with the filing of the Certificate of Incorporation at the Delaware Division of Corporations following the instructions of the Delaware General Corporation Law.

These are the details to include in the Certificate of Incorporation for Delaware:

• Certification: If the Certificate of Incorporation is submitted by mail, it is advisable to include a cover page called "Certification Sheet" indicating the type of service requested from the Delaware Division of Corporations and the contact person’s information;
• Company Name: The name must include designations such as “Association”, “Company”, “Corporation”, “Club”, “Foundation”, “Fund”, “Incorporated”, “Institute”, “Society”, “Union”, “Syndicate” or “Limited”, or an abbreviation of these;
• Name and address of the Registered Agent in Delaware;
• Business Purpose;
• Number of Shares for which authorization is requested, both common and preferred;
• Par Value of the Shares: The par value is the face value of the shares and affects the registration fee and the Franchise Tax;
• Name and address of the Incorporator: This is the person or entity that files the Certificate of Incorporation;
• Signature of the Incorporator.

Shareholders’ Meeting and Board Meetings
For organizational meetings of companies in Delaware, a minimum of two days' notice of the meeting is required. The consent of the entitled participants can waive the required notice, and the meeting does not necessarily have to be held in Delaware.

The deadline for filing the Annual Report with the Delaware Division of Corporations and for paying the Franchise Tax is March 1st.

Taxation in Delaware

The corporate income tax rate in Delaware is 8.7%. Income from royalties and the exploitation of IP [trademarks, patents, works of ingenuity, etc.] are not subject to taxation in Delaware.

• Personal income taxation in Delaware is progressive, with rates ranging from 2.2% to 5.55% for incomes below $60,000, while the maximum rate on personal income is 6.60% for incomes of $60,000 or more.
• Income produced by companies and individuals outside the state is not subject to taxation in Delaware.
• Delaware does not have a Sales Tax but imposes a gross receipts tax, with rates ranging from 0.0945% to 0.7468%
• The Property Tax in Delaware is 0.53%
• There are no inheritance taxes in Delaware, and non-residents in Delaware do not have to pay registration taxes on shares of Delaware companies.
• There are two methods to calculate the Franchise Tax. Using the "Authorized Shares Method", the minimum tax will be $175. Alternatively, using the "Assumed Par Value Capital Method", the minimum tax will be $400. The maximum tax for most companies is set at $200,000 [we are talking about companies with over 5000 authorized shares]

Opening an LLC in Delaware only makes sense in certain situations and does not always represent the best choice

There is a myth that opening an LLC in Delaware is a way to avoid paying taxes in any country. This is an entirely incorrect notion. Whether it is a Corporation or LLC, there is total anonymity for members and company directors in Delaware. The commercial registers of Delaware do not disclose the names of the members or directors.

Regarding taxes, however, the tax advantages associated with opening a corporation or LLC in Delaware are realized when no taxable income is generated in Delaware or when most of the taxable profits come from royalties, for example. In this case, opening a company in Delaware provides a tax advantage.

Publication date: November 08
Last modification date: January 04, 2021

Opening a company in Delaware is a choice like any other and does not involve particular complications or disadvantages in terms of cost. The documentation necessary to open a company is the same as required in other states. The important thing is not to have illusions about the supposed advantages of opening a corporation or an LLC in Delaware, but rather to understand the right reasons that drive the desire to open a company in that state. From a tax perspective, there are other states in America where opening an LLC or a Corporation is more convenient. The same is true for privacy. Insights on the corporate law in Delaware.

Where does the myth that Delaware is a tax haven come from?

From the fact that it was once possible to open a foreign bank account for a Delaware company [where "foreign" means "Non-United States"] and because the rules on permanent establishment and taxation of foreign-sourced income were still unsophisticated.

No bank worldwide will ever open an account for a Delaware company. Even if it did, tax rules would still subject the income generated in the country to taxation. Speaking of the myth of Delaware LLCs, the American tax authorities have recently closed a legal loophole that allowed complete anonymity of single-member LLCs in America even in front of the tax authorities [and not just at the level of commercial registers in Delaware].

Tax advantages linked to the opening of a corp or LLC in Delaware

The establishment of a corporation or LLC in Delaware entails a tax advantage if the Corporation or LLC does not derive taxable profits from activities carried out in the state. This translates into a 4-10% tax advantage, depending on other American states with which the corporation or LLC established in Delaware is compared.

Another tax advantage for a company in Delaware is realized if the corporation/LLC not only does not operate in the State of Delaware but also does not produce income in the United States. This is because a Delaware corporation that generates income, for example, saves Delaware state taxes in the State of New York but then ends up paying New York state taxes.

Another fiscal advantage of establishing a company [Corporation or LLC] in Delaware is realized when the company derives most of its taxable profits through royalties or technology transfer agreements. This is because, in Delaware, this type of profit is not subject to taxation. Federal corporate income taxes, however, even for companies opened in Delaware, remain valid as does the obligation to prepare and file the tax return at the end of the year.

When it is advisable to open a company in Delaware

The advantages of Delaware are linked to the fact that it has a legal tradition that has always been very favorable to companies. It has a series of legal precedents that make it very clear how to handle particular situations in corporate life. We refer, for example, to:

Final note on the advantages of opening a company [corporation or LLC] in Delaware

Unless you have to perform significant capital account operations, there is no need to open a company in Delaware. Other states allow you to open a company in America with the same degree of privacy as Delaware.

Here's why Delaware has this reputation in the world of commercial law: strong specialization, speed of judgments, injunctions, the possibility of decisions that take into account the particular situations of the case at hand and that can also significantly deviate from the letter of the law [when the case is decided in equity by the Court of Chancery].

These are considerable advantages that, however, can only be fully appreciated by large companies, typically listed on the stock exchange. Following Delaware's lead, other American states are beginning to adopt special sections of their courts dedicated solely to corporate matters. Before Delaware, and until 1913, New Jersey was the preferred state for forming a corporation in America.

In most cases, a commercial company in America as an emanation of an Italian company, perhaps without employees in America, and without the need to carry out significant capital account operations, does not need the advantages that the Delaware legal-judicial system offers in commercial law. However, one can still decide to open their company in Delaware.

• Capital stock transactions,
• Minority shareholder rights,
• Disputes about the Responsibility of company directors,
• Corporate decisions without a jury,
• Very lax usury laws [this explains why banks and financial companies almost all have their headquarters in Delaware..]
• Labor disputes, etc.
• Following this link, it is possible to read the decisions of the Court of Chancery;
• On this page, you can find the judgments of the Supreme Court of Delaware;
• This is the website of all the judiciary organs of the State of Delaware