The OlyverApp Blog

Five Bad Reasons You'll Be Given To Incorporate in Delaware

The conventional wisdom is that entrepreneurs should incorporate in Delaware. But that's probably bad advice. The best place to incorporate is usually in the state in which your business will be based. Here are five reasons advisors may encourage you to incorporate in Delaware that are almost certainly bogus.

  • There's a tax advantage. There is . . . for the State of Delaware. Because not only will your business pay a minimum franchise and excise tax to Dover, you'll still be fully taxed in your home jurisdiction. Unless you have a physical business presence in Delaware, you'll be paying taxes in two states instead of one. Why would anyone do that?

  • Delaware courts are extra-friendly to businesses. There's nothing special about Delaware's laws or courts. Most states have adopted a version of model corporation and LLC acts, meaning there's not much variation from one jurisdiction to the next. And you don't get special points in Delaware courts as a business, especially considering that disputes are often between entities.

  • Investors only look at Delaware corporations. Some investors are still more comfortable funding Delaware corporations for the same reason you think you're supposed to incorporate there, i.e. there are these great tax and legal incentives. They're wrong for thinking that. You're wrong for thinking that. Everyone is wrong. Except us. Obviously.

  • It's what everyone else does. Can you think of a single time that rationale has ever worked in your favor? Did it help when you got smashed and ran onto the football field naked with your fraternity brothers during the big Homecoming Game? Or tried mushrooms for the first time and spent two hours debating the meaning of life with an imaginary rhinocerous named "Cuddles"? Or bought that really expensive suit that you wore once only to see it go out of style two weeks later? Entrepreneurs don't follow the crowd.

  • Telling people you own a Delaware corporation makes you look cool. Uh, sure. You go right on thinking that. In fact, put in on your dating profile. You'll never be lonely again.

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