Does it make any sense to incorporate my business in Delaware if I conduct most of my business in Massachusetts?
Incorporating a new business in Delaware has some benefits and some disadvantages that depend largely upon the size of the corporation involved. As a general rule, the smaller the business, the less likely that registering or incorporating that business in Delaware and then conducting business in Massachusetts is a good idea for a number of different reasons. On the other hand, the larger the company is, the more likely that incorporating in Delaware will be a better idea even if you conduct your business in Massachusetts.
The Advantages of Delaware
Familiarity with Business Law
Delaware courts are dedicated to business law. There is a chancery court in Delaware which conducts specialized review of business issues and which has a great deal of experience with most highly specialized business and corporate law concerns. While many courts in Massachusetts will have similar specialists, not all will, and there is always a chance that a court may not have the expertise in a particularly thorny area of the law which could put your business in some jeopardy.
If you are forced to go to court in Delaware. you can be assured that your corporation will be dealing with a judge that has experience in almost any matter. While this fact ss very helpful for large businesses which might expect to be sued on a more frequent basis, it may not be much of a benefit to a small business without many assets or as many risks of frequent lawsuits.
Tax Benefits of Incorporating in Delaware
For companies choosing to incorporate in Delaware and then conduct business in another state, Delaware will not impose a corporate income tax in most instances. While this tax benefit would matter a great deal to a large company, it matters little to a small company who is unlikely to experience the benefit of this tax strategy. Keep in mind that a franchise tax will have to be paid by any company able to exercise the aforementioned tax strategy.
Some Disadvantages of Incorporating in Delaware
You’ll find that Delaware’s filing fees for amendments, and annual filings and other filings are markedly higher than in most other states. So, the extra expense may not be worth any benefits for small corporations.
Double the Filing Fun
It’s also important to realize that incorporating in Delaware means that you have to meet the filing requirements for a Delaware corporation and the filing requirements for the state that you do business in, thus increasing the administrative burden on your company. Again, this may not be a big deal for a very large company with an office dedicated to such matters, but could be a significant problem for a small company who now has to keep its Board of Director and Shareholder meeting minutes and other important subcommittee meeting minutes in two locations.
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