Incorporation is an exciting step for any up-and-coming business. One of the first questions many New York companies ask is whether they should incorporate in New York or Delaware. Chances are you’ve heard there are advantages to incorporating in Delaware, but you’re not actually sure what that means. So, is Delaware incorporation really the best option for your business?
The short answer is that there is no one-size-fits-all answer, because every company is different. The following are some factors to consider in making the decision that’s best for your company. Despite what you may have been told, incorporating in Delaware isn’t always the right answer.
Advantages of Incorporating in New York
If you’re a new business in New York, it’s likely that most, if not all, of your operations are here, as are many of your clients. Logistically speaking, it’s easier to incorporate where you live and run your business. For that reason alone, many New York companies opt to incorporate in New York.
Besides convenience, New York incorporation offers businesses a lot of freedom to operate as they see fit. Among other things, New York LLC law allows members to customize their financial allocations, protect their interests from creditors, and form LLCs of unlimited duration if they so desire. New York is also known for having favorable commercial contract laws, along with courts that are adept at enforcing those laws.
Delaware Incorporation Advantages
Delaware has long had some of the most business-friendly laws in the country, and, for that reason, many U.S. businesses choose to incorporate there. Most notable are the strong laws safeguarding personal assets from creditors and the laws shielding LLC members from personal liability. People also like that Delaware LLCs aren’t required to pay Delaware income tax if they don’t actually do any business there.
The Delaware incorporation process is also simple – it can be done online, without an out-of-state trip. And because so many businesses are incorporated in Delaware, they’ve created a special court that’s known for expediently handling business disputes.
Why Incorporating in Delaware Isn’t Necessarily Better
In the past, Delaware rightfully earned its “Best Incorporation State” title thanks to its uniquely favorable legal landscape. However, other states have started to catch up. New York has adopted increasingly business-friendly policies and laws. These days, most businesses won’t notice any significant difference between incorporating in Delaware as opposed to New York.
It’s important to dispel two common misbeliefs about incorporating in Delaware over New York: 1) you save money, and 2) you avoid paying income tax. True, the initial incorporation fee is less in Delaware, but any company that does business in New York still has to register as a foreign corporation here, even if it’s incorporated elsewhere. The fee for this is comparable to the fee for incorporating here in the first place, so rather than saving money by incorporating in Delaware, you ultimately end up paying fees in two states. Similarly, just because you don’t have to pay Delaware income tax, you’re not absolved from paying New York taxes if your business operates here.
Like any important business decision, choosing a state of incorporation must take into account the specific needs of your business. If you have questions about what state is right for you, speak to a trusted advisor.
Legal Guidance in Building Your Business
At The Gouchev Law Firm in New York, we work with businesses of all sizes, including start-ups and franchise businesses. Call us at (212) 537-9209 or schedule a free strategy session today to see what The Gouchev Law Firm can do for your business.