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A Tax-Friendly State for Non-US Residents

Delaware is often regarded as a tax-friendly destination, offering a range of advantages:

No Corporate Income Tax: Delaware doesn’t levy corporate income tax on businesses operating in other states. This means that if your business primarily operates outside Delaware, you won’t have to pay state corporate income tax.

Non-Taxation of Stock Shares: Delaware does not tax stock shares if their owners are not residents of the state. This is especially beneficial for businesses with significant authorized stock shares and complex capitalization structures.

These tax-friendly features make Delaware a sought-after choice for businesses looking to optimize their tax strategy.

Over a million businesses, encompassing approximately half of all U.S. enterprises, as well as two-thirds of Fortune 500 corporations, publicly traded companies, and the majority of tech startups, have chosen to establish their presence in Delaware. This preference can be attributed to Delaware’s renowned and long-standing corporate judiciary system, alongside its accommodating tax regulations and business-friendly legal and regulatory frameworks.

Situated along the eastern seaboard of the United States, Delaware holds a strategic location, midway between New York City to the north and Washington D.C. to the south. Bordered by Pennsylvania to the north and Maryland to the west and south, Delaware offers a picturesque coastline along the Atlantic Ocean. This strategic positioning provides excellent market access.

Delaware’s Investment climate

Delaware actively encourages enterprise and investment, fostering a business-friendly environment. The state has developed modern and flexible business organization laws, streamlined banking and consumer credit regulations, and reduced personal income taxes. Delaware has earned a reputation for its innovative tax structure.

Advantages of Forming a Company in Delaware

Why consider incorporating in Delaware? Foreign businesses looking to enter or expand in the American market can use Delaware’s strategic location to their advantage. Delaware offers easy access to the U.S. marketplace, the world’s largest. International businesses can incorporate in the state through the Department of State, Division of Corporations. Incorporating in Delaware provides protection for personal assets from corporate liability. Your company must have a registered office and a registered agent in the state of incorporation. If you prefer not to maintain a physical office, you can often use a Registered Agent and Office provider.

Why incorporate in Delaware?

Incorporating or forming a Limited Liability Company (LLC) also allows you to take advantage of Delaware’s modern statutory and judicial laws to customize your business operations. Delaware is known for its business-friendly policies and is an excellent choice for companies considering going public. The state offers many advantages, including low incorporation and LLC formation fees, minimal annual franchise taxes, and no state corporate income tax for businesses operating outside Delaware. Delaware maintains a clear and excellent policy to attract and expand business operations.

Key tax features, which enhance Delaware’s competitiveness, include:

  • No state or local general sales tax
  • No personal property or inventory taxes
  • Low real property taxes
  • Corporate income tax credits and reduced gross receipts taxes for new and expanding businesses
  • Tax credits on corporate income and gross receipt tax reduction for businesses in targeted census tracts
  • Property tax relief for new construction and property improvements
  • Exemption of certain investment and holding companies from corporate income tax
  • Alignment of the state tax structure with federal tax laws, enabling businesses to take full advantage of federal tax law changes
  • Two approved foreign trade zones, allowing for import tax deferment
  • Public Utility Tax rebates for qualifying industries
  • Accelerated experience ratings for new employers

Setting up your Company in Delaware

When you form a corporation or LLC, one of the primary reasons is to separate your personal assets from your company’s assets. If you conduct business without the protection of a corporation or LLC, your personal assets are at risk. Maintaining a clear division between your personal and business assets can protect your personal property. Incorporating in Delaware also allows you to use statutory and judicial laws to tailor your business’s operation and structure. Delaware is known for its business-friendly environment, making it a great choice for companies planning to go public.

Top 10 Advantages of Incorporating in Delaware

Delaware is highly regarded for incorporating companies.

Delaware courts are known for their fair and reasonable interpretation of corporate laws.

Only one incorporator is required, and a corporation can serve as the incorporator.

Delaware imposes no minimum capital requirement.

The state’s franchise tax is competitive with other states.

For companies operating outside Delaware, there is no state corporate income tax.

Delaware has no sales tax, personal property tax, or intangible property tax on corporations.

There are no taxes on shares of stock held by non-residents, and no inheritance tax on non-resident holders.

Delaware allows companies to maintain all their records outside the state.

Companies can have their principal place of business/address outside Delaware as well.

Incorporating or establishing an LLC in Delaware also presents the opportunity to leverage the state’s statutory and judicial framework to strategically manage your business operations. As an illustration, Delaware law accommodates the formation of what is known as a Serial LLC, which can be especially advantageous. Typically, creating an LLC is a straightforward process.

US Delaware Serial LLC

The primary distinction between an LLC, a sole proprietorship, or a partnership lies in the liability limitations it offers.

However, if you intend to engage in multiple lines of business and prefer not to establish separate corporations or Limited Liability Companies for each, the Serial LLC provides a solution. This structure permits the isolation of different business segments from a liability perspective. For instance, an LLC that holds several apartment buildings can safeguard each individual property from liability, provided the operating agreement allows for such separation and is duly adhered to.

Delaware LLC Legal Features

The Limited Liability Company, or LLC, constitutes a unique business entity that distinguishes itself from partnerships and corporations. It gathers the advantageous features of corporations, such as limited liability, with the benefits of pass-through taxation typically associated with partnerships. The growing popularity of Limited Liability Companies, often referred to as LLCs, is readily explicable. They offer the protective shield of personal liability akin to corporations while also delivering the tax advantages and operational simplicity found in partnerships.

Similar to corporations, an LLC is acknowledged as an independent legal entity separate from its “members.” Consequently, an LLC possesses the capability to own assets, engage in contractual commitments, and even be held accountable for legal transgressions. Furthermore, LLCs exhibit an enhanced degree of flexibility and necessitate less ongoing administrative work compared to corporations. In terms of management, an LLC can be administered by its members, mirroring the operational structure of a partnership. However, if the management structure of an LLC is entrusted to managers, the configuration closely resembles that of a corporation.

Delaware LLC
Corporate Features and Relevant Particulars

Essential particulars for operating an LLC (Limited Liability Company) in Delaware:

General Information

  • State law reference – Delaware Code Annotated, Section 18-101
  • Filing Title – Certificate of Formation.
  • Name Requirements – The official name must incorporate “Limited Liability Company” or its abbreviation “LLC.”
  • Organizer Specifications – A Limited Liability Company can be formed by a single individual, and the organizer need not be a natural person or a member.
  • Certificate of Formation Requirements – Certificates of Formation must encompass the following: (1) company name, (2) duration of the company (if less than perpetual), (3) registered agent name and registered office address, and (4) any additional matters. Declaration of past and future contributions and the Limited Liability Company’s ability to avert dissolution need not be explicitly stated.

Annual Report Requirement

  • Annual report requirement – Yes, submitted to the Department of State.
  • Publication Requirement – Not applicable.
  • Effective Date of Limited Liability Company Organization – Upon the official approval of the Certificate of Formation, the company attains legal entity status, shielding its members from personal liability.
  • Membership Requirements – A minimum of one member is required, and the member may be either a natural person or a business entity.

Transferability of Interest

  • Unless otherwise specified in the Limited Liability Company Agreement, there is no unrestricted transferability of a member’s Limited Liability Company interests. Transfers of interests necessitate unanimous approval from all members (Section 18-702(a)). The company’s continuity remains unaffected unless otherwise dictated in the Certificate of Formation or Limited Liability Company Agreement.

Management requirements

  • Unless provided otherwise in the Certificate of Formation or Limited Liability Company Agreement, a Limited Liability Company is managed by its members. Operating Agreement Requirements: Delaware law refers to Operating Agreements as “Limited Liability Company Agreements” and they govern the rights, duties, and obligations of the members. They must be in writing.

Records Requirements

  • The Limited Liability Company must retain copies of the following documents at the company’s registered office: (1) Certificate of Formation, (2) any amendments, (3) a current roster of all members and managers (if any) along with their respective addresses, (4) Limited Liability Company Agreement, (5) financial statements, and (6) federal, state, and local tax returns.

Liability Shield

  • The statute explicitly safeguards the members and managers of the Limited Liability Company from liability related to the company’s debts and obligations. Default Rules: The subsequent default rules apply unless otherwise stipulated in the Limited Liability Company Certificate of Formation or Limited Liability Company Agreement: (1) voting rights of members are determined by the percentage of profit interest held by each member, (2) operating distributions are based on adjusted contributions of the members, and (3) profits and losses are apportioned according to the members’ contributions.

State Classification

  • Limited Liability Companies are classified consistently with their federal income tax status. State-level taxation corresponds to the federal entity classification. A yearly state franchise tax of $200.00 applies to all limited liability companies.

Federal Taxation

  • For federal tax purposes, multiple-member limited liability companies are regarded as partnerships, while single-member limited liability companies are reported on the owner’s federal tax return as disregarded entities, effectively treated as sole proprietorships (Federal Internal Revenue Code Section 701).

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Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.

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