Advantages to incorporate in Delaware

When starting a business, there are some initial decisions that are key to helping create a foundation for a successful future. Among the most important:

  • Should you incorporate?
  • Which state should you incorporate in?
  • Which entity aligns best with your business goals?

Limited liability companies (LLCs) have quickly become the business entity of choice for millions of American and worldwide businesses. LLCs can be formed in every state, yet many entrepreneurs decide to form an LLC in Delaware, even though they never intend to operate there.

Delaware is home to some of the most business-friendly laws in the country. The state’s statutes – like the Delaware General Corporation Law and the Limited Liability Company Act – are the foundation for those laws. These statutes are regularly updated in consultation with practicing corporate lawyers to ensure that Delaware is at the forefront of business-law developments.

Asset protection

The major reason why individuals choose to incorporate their business is to protect their personal assets, such as a home, car or family savings. In the event of a lawsuit or if your business should fail, your personal assets cannot generally be touched. This limited liability feature of corporations is not available in a sole proprietorship or partnership, where the individual or partners are personally liable for all business debts.

Tax advantages

A US-based LLC can have great tax advantages, especially for foreign entrepreneurs abroad. Even for US taxpayers, LLC taxes can be favourable. An LLC is a pass-through tax entity. What this means is that the LLC is not taxed directly. Instead the profits and losses of the business pass through to its owners, who report them on their personal tax returns.

A little-known fact is that the US can be one of the biggest tax havens in the world. A US LLC opened by a non-US citizen or non-resident can allow for earnings that are not taxed in the US. Of course, certain rules apply to avoid LLC taxes.

Effectively, as a foreigner, you must have no US presence. You are only subject to US tax if you are “engaged in a trade or business in the United States”, which only applies if two things are true:

you have at least one “dependent agent” in the US, which are employees or companies that work for you almost exclusively; and

this dependent agent does something substantial to further your business in the US, as opposed to something purely administrative.

If you don’t have a dependent agent that substantially furthers your business in the US and don’t have an office in the US, you are not subject to US tax. Even if the LLC generates income in the US, the income is not taxed in the US.

Furthermore, if you reside in a country with an applicable tax treaty with the US, then you would not be subject to US tax. Since you reside in your tax home, you can claim you operate a “permanent establishment” (e.g., an office or other fixed place of business) in your home country.

In other words, when you work and pay tax in your home country, the tax treaty will circumvent any of the US rights to tax you since you are working and living in your respective country.

Full privacy when forming an LLC in Delaware

When you form an LLC, some states require you to disclose the name and address of the members or managers in the formation documents. That information becomes a public record, making it easier for anyone to find out what you own.

But Delaware doesn’t require the name and address of the members or managers to be listed in the certificate of formation. In Delaware, an LLC certificate of formation only needs to provide:

The name of the LLC.

The name and address of the Delaware registered agent.
Choosing to form a Delaware LLC offers considerable advantages that you should weigh when deciding whether, where, and how to incorporate.

Delaware law and its court system provide a generally business-friendly legal climate, and numerous attributes of LLCs in the state combine to make it an excellent choice for any business owner.

Ready to register a Delaware LLC?

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We specialize in a range of business services, such as:

  • Forming an LLC or corporation
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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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