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Law

What is a Delaware Corporation?

By Garry Crystal
Updated May 17, 2024
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A Delaware corporation is a corporation that has its legal business affairs registered in the US State of Delaware. The corporation or business does not actually have to be in business or do any type of business in the State of Delaware, but it must be registered as a business there. The corporation can be a limited liability company or a sole-operated business.

Almost half of the businesses listed on the Fortune 500 are Delaware corporations. The reason for this may be that, because of the amount of businesses in the State, the courts in Delaware are very experienced in corporate law. If a limited liability company is sued, the courts in Delaware can provide better guidance and counsel than other courts due to their greater experience.

There are many other distinct advantages to registering or chartering your business as a Delaware corporation. Delaware’s business laws are some of the most flexible and pro-businesses laws in the nation. You can become this type of corporation from anywhere in the world. You do not have to live or conduct your business in Delaware.

You can register as a Delaware corporation by telephone, Internet, or fax through a recognized agent from anywhere in the world. Another advantage for some is the fact that this type of corporation does not have to be identified in the public state records. No income tax is charged if your business is out of state, although this is the case with most out of state businesses.

The corporate franchise tax for a Delaware corporation is very low, in some cases as low as 60 US dollars (USD). There is also a filing fee of around 25 USD, and if the company does not conduct business, that is the only tax they must pay to Delaware. If you are a limited liability company trading as a Delaware corporation, you must also pay an annual franchise tax of 200 USD.

In today’s business world, companies and corporations are sued on a regular basis. Registering as a Delaware corporation offers a definite benefit, not just legally, but also in charging terms. The laws of Delaware are very pro-business, and the State of Delaware also has very lax interest laws. Banks and companies can basically set any interest rates they wish. This may be one reason for the high number of credit card businesses operating from the state. This is good news for the business, but not such a benefit for the customer.

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Discussion Comments

By anon273086 — On Jun 05, 2012

If a company is a Delaware corporation and they commit a tort against an employee in another state, can they be sued in Delaware as opposed the state of the employee's residence?

By anon231908 — On Nov 27, 2011

They do that to be tax exempt. The IRS is a Delaware corporation.

By anon220172 — On Oct 06, 2011

I don't see any reason you couldn't change the state under whole laws you organized your business. I would like to see citations in the article. As for potential problems, a lawyer can advise about the relative advantages and disadvantages of any number of alternatives.

I heard that Maryland has developed a new kind of corporation (a benefit corporation, or B-corp) specifically designed for socially-oriented ventures that allows the business to make socially beneficial choices without liability for breach of fiduciary duties to stockholders. This might not appeal to large corporations focused on profit, but could appeal to those more concerned about social consequences of their actions.

By jlmk — On Mar 28, 2011

The advantages to this sound like good ones -- really good ones. But I'm wondering if there are any disadvantages to registering a business as a Delaware corporation if you live and operate your business in another state.

It just seems like a strange thought to have a business that is registered out of state, and it seems like there must be some problems that could arise from it.

By elizabeth2 — On Mar 26, 2011

Wow, I can't believe that almost half of the businesses on the Fortune 500 list are Delaware corporations! That is a lot!

I didn't even know that you could do something like this. It definitely sounds like there are a lot of advantages to it. I am a business owner already, so there's probably nothing I can do about it now. However, if I start another business, this will definitely be something I look into further.

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