Delaware has been considered as the
haven for corporations. Almost all the newly formed corporate choose Delaware,
as its first choice for its incorporation. Companies found Delaware as
most advantageous to incorporate. Delaware is located in East Coast of
the United States. Delaware incorporation
has a deep-water port; the port of Wilmington, and this is another
reason for becoming the first choice for incorporation.
Moreover, Delaware is geographically located midway between the major
markets of entire Northeast and South. Therefore, Delaware
incorporation has been considered as the corporate haven, which helps
the companies to protect and increase the capital through liberal corporate
and tax laws. In this chapter, we are going to discuss about all these
advantages at Delaware and also look very briefly on what incorporation
actually is.
Before going to the core topic, i.e.,
incorporation in Delaware incorporation,
first let us see what incorporation means. In this para, it is just a
very concise discussion about incorporation. Incorporation is nothing
but forming a new corporation. In US, incorporation has been abbreviated
as Inc. Forming of the corporation can be of various types. Various corporations
can be formed such as a business corporation, a non-govt. and non-profit
corporation, even a new city or a town. The corporation is a legal body
and therefore, it is distinct from its members. Immediately after getting
the charter or a certificate of incorporation, a corporation gets special
status. The corporation may be consisting of a person or a group of people.
But, all of them are its shareholders only. After forming of a corporation,
it enjoys the advantage of limited liability. It protects its owners from
liabilities. The corporation is a legal entity and therefore, the concerned
shareholders have limited liability of the debts of the corporation. Moreover,
there is a build-in-stock structure found in a corporation and therefore,
it attracts different investors. Corporations have to pay separate tax,
as it is a legal entity. With regard to management, there is a management
structure, which runs a corporation. Shareholders are the owners and they
form a Board of Directors. In the Board, there is a CEO, one or more vice
president(s), treasurer and secretary besides other members. Another distinctive
feature of a corporation is that it is well known for its uninterrupted
existence. It continues until all the shareholders decide to dissolve
it. Withdrawal or death of one or two shareholder thus not means the dissolution
of a corporation. With regard to fund, a corporation can raise fund through
the sale of stock and also acquires own credit rating.
Now, let us take the journey through
the main topic, i.e., incorporation in Delaware. The rules for incorporation
are different in different states of US. There are some circumstances,
where a corporation can be more advantageous in certain states. A corporation
can derive more benefits from a separate state other than its home state.
Therefore, it is not mandatory for the corporate to register for incorporation
in home state only. It can choose another state also. Moreover, the corporation
also enjoys a global entity. In this regard, the name of Delaware stands
at the first position. After Delaware, Nevada is another state where Corporate
gets different benefits. Coming back to Delaware Corporation, a Delaware
corporation is a corporation chartered in the state of Delaware in United
States. More than half of the US publicly traded corporations and also
more than 60% of the fortune 50 companies are incorporated in Delaware.
Many other offshore companies have also chosen Delaware as their home.
It is not an exaggerated fact that, more than 50% of the companies that
traded on the NYSE (New York Stock Exchange) and NASDAQ are also chartered
as Delaware incorporation.
As already mentioned, there are numerous reasons behind
this craze. The Courts of Delaware are very friendly to the Corporations.
The process of incorporation is very simple and easy. The government in
Delaware is very business friendly. The documentation process for incorporation
is not tedious and time consuming. The staffs are very prompt and friendly
to corporate. In the area of business law, Delaware is unchallenged for
its advantages and thus have its international domination. Now, it is
universally recognized fact. The most basic reason is that Delaware has
passed diverse incorporation and tax laws, which are very encouraging
to different types of businesses. The type of business may be a service
organization or a manufacturing company, franchises and mail order company
or a large enterprise or a one-person professional corporation, no matter
all of these companies/corporations gets the cream of benefits at Delaware.
In addition to this, it also includes companies, which are operating or
have its HQ in one or more than fifty states of the United States. Such
companies are even based in over hundreds of other countries.
In US and even in the entire global
scenario, Wilmington, Delaware, USA has been considered as a good business
address. It is the home of numerous business giants. It is only two hours
journey on road from New York City and Washington D.C. The Philadelphia
International Airport is also located very nearby. Thereby, it is gaining
popularity among all the business giants. More than 16 major Bank holding
companies including J. P. Morgan Chase, MBNA America, First Union Corporation,
and Citibank along with 18 top most financial institutions have chosen
Wilmington for their branches and offices. The reason is, in 1981, the
Delaware Legislature has passed the Financial Centre Development Act and
thus presented tax breaks and also eliminated various consumer rate restrictions.
Today, many such Delaware Banks have assets over $1 billion.
Now, let us look at various
other reasons why Delaware is the first choice of all the business tycoons:
One can form a Delaware Corporation
very easily just by sending a FAX or mail through internet without even
coming to Delaware. For this, one has to take the service from the various
Delaware Registered Agents. It is one of the valid reasons.
The Delaware Corporate Franchise tax
is bare minimum in comparison to other states in US. The rate is around
only $30/year for Delaware corporations with 3000 shares or less. In addition,
there is an additional $20 filing fee only.
In Delaware, there is a separate court
system called as the Court of Chancery. This court is meant to arbitrate
various corporate litigations. It has a well-established corpus of case
law and moreover having a very capable corporate Bar. Delawares Court
of Chancery is termed as the equity court for limited jurisdiction and
thus gained experiences in this regard. In its progression, the court
has developed an expertise in corporate law. Thus it became a body of
legal precedent, which are respected and referred to by courts all around
US. The legal system in Delaware has been framed in such a way that, it
gives protection to all the Delaware corporations from different lawsuits.
Another peculiar characteristic of
a Delaware corporation is, one single individual is capable to hold all
of the executive offices and titles simultaneously. A person can be the
Chairman, President/vice president, secretary or the treasurer. Delaware
permits one-person corporation.
A Delaware corporation also welcome
the S Corporations, which can enjoy many advantages due to the Federal
Tax Laws, 1986 of Delaware. Resident non-US citizens are also allowed
to form a S Corporation.
Another distinctive feature is, in
Delaware, there is no minimum capital investment required to form a Delaware
Corporation. The investment of the company may be as low as zero.
The owner of the Corporation at Delaware
can act anonymously. As the owner, he/she does not have to disclose his
identity to the state of Delaware. The privacy factor of the owner is
another reasons for its craze.
Most importantly, with regard to taxation,
there is no sales tax in Delaware. Whether the corporation is physically
located in Delaware or not, as a Delaware corporation, any purchase made
by the corporation in Delaware are not subject to sales tax. In addition
to this, there is no state corporate income tax in Delaware on goods or
services provided by Delaware corporations operating outside of Delaware.
There is no personal property tax. Moreover, in Delaware, there is no
value added tax (VAT). There is no tax on business transactions (TBTs).
Delaware has no use tax, inventory or unitary tax. Wilmington and Delaware
has no city sales tax. There is no capital shares or stock transfer taxes.
The director(s) of a Delaware corporation are permitted to set the sales
price on any stock the corporation issues and desires to sell. The taxation
rules are extremely friendly to the corporate sector.
A Delaware corporation can be set
up as an all-purpose corporation, i.e., to conduct multiple types of business,
to manufacture and market any products. A Delaware corporation can offer
all kinds of such services. There is the need of a broad statement of
purpose only in this regard in the Delaware Certificate of Incorporation
and other corporate documents. Subsequently, a Delaware corporation can
start out a real estate holding company, it can add the spouses retail
business to its activities, which is not permissible in other states,
and also later on to become a manufacturer of packaged goods and so and
so forth. All of these can be possible without altering the original documentation
or to file new corporate documents. The Delaware Corporation can be set
up as the all-purpose corporation.
These are some of the reasons among
many others because of which Delaware has become the ample destination
of the Corporations holding address in Delaware. Now, it would be worthwhile
to look at some of the requirements, which are necessary for incorporating
in Delaware. For incorporation in Delaware, the party has to fill-in several
informations. This information has to be included in the Certificate of
Incorporation. Let us look at some of these: the name of the corporation,
which should be confirmed by the Delaware Secretary of State, the name
of the Delaware corporation must include an incorporation word such as
Association, Club, Company, Corporation, Society, Limited, Syndicate,
Union, Ltd. etc. Moreover, the name of the registered Delaware agent and
its full address has to be mentioned. In addition, the basic purpose of
the proposed corporation must be stated generally. Moreover, the statement
regarding the aggregate number of shares which the corporation shall have
the authority to issue and amount of par value of this stock also have
to be reported. The name and address of the incorporators along with their
signature must be submitted. In addition to all these, some more informations
are also required. The period of duration of the corporation, which is
usually stated as perpetua, has to be mentioned. Information regarding
cumulative voting of shares and its authorization has to be stated. Along
with all these, different provisions regarding the bylaws have to furnish.
Different provisions regarding the sale or purchase of the corporations
stock has to be mentioned. Various provisions with regard to specifying
special voting rights and preferences are also to be mentioned in the
Certificate of Incorporation. Different provisions with regard to limiting
or denying to shareholders the preemptive right to acquire additional
or treasury shares of the corporation is also an important aspect and
the same has to be declared in the Certificate of incorporation. The various
provisions related to the regulation of the internal affairs of the corporation
must be stated. Last but not the least, any other provisions, which needs
to defining parameters on the internal or external set up of the organization,
the financial structure or activities of the corporation are very important
matters and these are have to be stated in the Certificate of incorporation.
The required nominal fee and the annual fee as per the provisions have
to be paid to Delaware State. Thus, a corporation can file for incorporation
in Delaware. In comparison to incorporation rules set in other states
of US, the rules and regulations at Delaware are simple and friendly.
So we have seen that, in Delaware,
a Delaware corporation can enjoy multiple benefits such as privacy of
the owners, numerous mouth-watering benefits of tax saving, well-knit
protection from different law suits, the usefulness and flexibility part
while conducting business, etc. In real sense, Delaware has been termed
as the Corprate haven. Hundreds of major corporations both in and outside
of US are chartered in Delaware because of various valid reasons. The
state of Delaware charges no corporate taxes for the coprporation which
are not operating within the state. Moreover, Delaware consist of laws
and courts, which are termed as friendly to the corporations. Because
of the huge chunk of corporations chartered in Delaware, the courts in
that state are generally considered as more experienced in the application
of corporate law in comparasion to the courts of other states in US. Different
disputes over the internal affairs of Delaware corporations are filed
in the Delaware Court of Chancery, which is infact the only separate court
of equity in any of the U.S. states. As because it is a court of equity,
therefore, there are no juries, and its cases are decided by the "judges"
in a more convenient way. Therefore, Delaware is and will remain as the
first choice for all the corporates for incorporation. So, there is no
second thought lies in front of the companies and thus companies are rushing
to Delaware for incorporation.
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