When it comes to startups and innovation in the United States, one of the first places that comes to mind is Silicon Valley in California. This region became famous as the birthplace of several unicorn companies that are worth billions of dollars today. Now, why are major tech companies like Google and Meta (Facebook) operating in California but registered in Delaware? Why is creating an LLC or a Corp in Delaware so attractive for tech companies?
Yes, you read that right! Many of the companies and startups that proudly display their California addresses are actually incorporated in Delaware. Now, we know you’d be asking yourself, “should I incorporate in California?“. Well, let’s take a look at why this is happening and what are the benefits of incorporating in Delaware for tech and SaaS companies.
4 reasons to incorporate your tech startup in Delaware
1. Taxes in Delaware are lower than in California
Each state in the United States has a specific income tax rate. In California, for example, that value is 8.84% for both C Corporations and LLCs.
On the East Coast, by contrast, taxes are much lower. To be more specific, Delaware does not have income tax when the company operates outside the state, which is more than attractive for companies whose source of income comes from the internet.
2. Delaware General Corporation Law
Unlike other regions of the country, Delaware’s legislation is not prescriptive and detailed, as it was created to offer more autonomy in business control for corporations and their shareholders.
This legislation is not intended to be a code of conduct that enriches the operation, but rather a legal framework that only lists some mandatory requirements to avoid future eventualities.
3. Delaware Supreme Court
Speaking of legislation, there is another characteristic that makes Delaware the right destination for startup incorporation.
The state has a Court of Chancery that is in charge of litigating possible cases of companies. There, entrepreneurs from all over the world have a judge prepared to judge situations fairly. Most cases do not even make it to the Delaware Supreme Court, although if they do, the case is tried very quickly.
This agility in the processes, combined with the efficiency of expert corporate law attorneys, make Delaware an ideal destination and more attractive than California for investors.
4. Having a startup in Delaware does not prevent you from operating in California or in other states
It is important to remember that even if your registration was made in Delaware, nothing prevents you from operating in California and taking advantage of all the opportunities offered by Silicon Valley. However, as long as you have a physical bond in these states, you will also have obligations to them.
Main differences between California and Delaware
Let’s compare state fees and legislation from both states to see which one offers more advantages to tech entrepreneurs.
|Corp formation fee||USD70||USD125|
|LLC formation fee||USD125||USD105|
|Individual State Income Tax||None||From 1% up to 6%, depending on the income bracket|
|Business State Income Tax for Corps||4,5%. Exemption on the first USD50,000 profit||8.84%|
|Annual Report or Franchise Tax||Between USD138.75 and USD150||USD800 from the second taxable year on|
|Privacy||Total privacy for LLC and partial for Corps (public may access information through annual reports)||No anonymity. All commercial records are public|
As you can see Delaware offers plenty of benefits to global entrepreneurs, especially those focused on SaaS and tech. California has one of the highest Franchise Tax rates in the country and does not even offer privacy to business owners. This is why tech giants and up-and-coming startups are choosing to incorporate in Delaware while carrying out their physical operations in California.
How to set up your tech company in Delaware?
With Globalfy you can form your own LLC or C Corporation in Delaware in less than 5 minutes. All you have to do is fill out the online form and wait for the state registration and the EIN approval by the IRS. You can open your company from your home country, without social security number or ITIN. It’s that simple.
With Globalfy’s all-in-one business plan you can open a company in Delaware from home and operate anywhere in the world. Don’t miss out on this unique opportunity and enter the American market now.