If you’re an entrepreneur you probably notice that Delaware is a place where many people go to incorporate. Whenever I’m on Facebook reading posts and comments about forming a company many say that Delaware is the best option out there.
Besides Delaware, Nevada, New Mexico, Florida, and Wyoming are among the most popular for incorporation in the US.
When we incorporate in the US, we favor Delaware most of the time.
Some people say filing costs. From our experience, it’s not that different. Whether you pay 200 or 300$ per year doesn’t make that much difference in the bigger picture.
When it comes to incorporation costs, people only see the state fee and they’re thinking it’s so cheap. What that doesn’t include registered office, registered address, registered agent, etc. So by the time you pay all these, it will add up. However, again in the big picture, those costs don’t make much difference in your business.
The convenience of the US LLCs
Let’s back up for a moment and talk about US LLC-s and why people like to form this type of company?
If you’re a single-member LLC this is considered disregarded entity. This means this entity doesn’t exist for US tax purposes. The income of the member is considered the same as the income of the entity, and vice versa.
If you are a nonresident alien, meaning that you’re not American, this will mean that you don’t have to pay the US tax. Of course if you have business connections with the US you will be taxable, but otherwise, you should be fine with this setup.
This type of company will make it easy for you to open bank accounts. Also, this is very easy to set up, filing requirements are low and on top of this, you can access US payment infrastructure which can boost your conversion rates.
This can potentially be a very efficient tax vehicle for you.
If you invest the time you can also build US credit and access US credit facilities, get US points cards, etc.
So if you’re looking for all this where are you going to set up?
You will need to look for these things: Privacy, taxes, and laws.
In the US you can form a company with almost no due diligence, which is quite different from most places where we like to incorporate (Cyprus and Labuan, for example, require a lot of due diligence). Incorporation is fast and simple.
In the US privacy is pretty good. There are lots of asset protection rules that you can use in your favor. We will talk about this in another article.
What about state income taxes? Well, Delaware is not zero percent state income tax. They have around 8% state income tax BUT it is only applicable if your income is derived from Delaware. If you are making money outside of the state you will not pay this tax. There is also no state sales tax.
So why people choose Delaware?
Why all the big companies go to Delaware? You’ll see that Facebook, Google, Microsoft, and many others are incorporated here.
There are a few reasons for this. In Delaware, they have well-established case law, especially when it comes to intellectual property. This means that if you go to court, the outcome will be much more predictable than it would be in places where this law is not so established. In simple words, you will know what to expect if you get sued.
This law is not well established in Wyoming, for example.
Besides this, there are nuances in the law when you want to raise the capital.
For example, if we are talking about Silicone Valley investors they’re often looking for companies in California or Delaware. Laws have subtle ways where they favor either investors or founders. This is something to pay attention to.
Just like we said before, the system of forming companies in Delaware is very efficient. It’s quick, easy and simple.
The final reason has to do with banking. The US banking regulations say that you can’t open a bank account unless the bank has a presence in the state where your company is formed. Lots of banks have a presence in Delaware so this isn’t a problem when you want to form a company here.
If you are a foreigner Delaware is probably a default place where you’ll go if you want to form a US LLC.
If you’re interested in forming a company abroad reach out to us and we’ll help you with the process.