Why the major California tech companies are actually registered in Delaware?

What you will find in this article:

When we speak about startups and innovation in the United States, one of the first places that come 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. Nevertheless, why major California tech companies, like Google and Meta (Facebook), operate in state but are actually registered in Delaware? Why are Delaware entities so attractive to 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.

A group of people working at a California tech company

4 reasons to follow California tech companies and 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

Another reason to choose Delaware over California is the Delaware General Corporation Law, the foundation of the state’s corporate 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, makes 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 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.

DelawareCalifornia
Corp formation feeUSD70USD125
LLC formation feeUSD125USD105
Individual State Income TaxNoneFrom 1% up to 6%, depending on the income bracket
Business State Income Tax for Corps4,5%. Exemption on the first USD50,000 profit8.84%
Annual Report or Franchise TaxBetween USD138.75 and USD150USD800 from the second taxable year on
PrivacyTotal 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.

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