San Jose Business Lawyers Blog
Many startups in the San Jose area look to Delaware when establishing their corporate structure. You have probably heard that many top companies are incorporated in Delaware. Delaware is a popular state to form a corporation. But what are the advantages to a Silicon Valley company operating in Delaware? And how can you create your own Delaware company? The San Jose corporations lawyers at Structure Law Group, LLP can help answer these and other questions about the startup process.
What Are the Advantages of Incorporating in Delaware?
Despite being one of the smallest states, Delaware plays a significant role in corporate formation and law, offering numerous advantages. The state’s appealing tax laws are a primary factor for companies choosing to incorporate there. Corporations not conducting business in Delaware are exempt from the state’s corporate income tax, even if incorporated there. Instead, they are subject to a ‘franchise tax,’ which is typically much lower than corporate taxes in other states. Furthermore, Delaware offers considerable privacy for incorporators, requiring only the registered agent’s name on filings. Additionally, the state allows a single individual to establish a corporation and hold multiple corporate roles simultaneously.
Moreover, Delaware’s corporate laws are more developed than those in other states and are renowned for their exceptional flexibility and business-friendly nature. Delaware also boasts a unique court system, the Court of Chancery, which often resolves corporate disputes much faster than a Superior Court in California would. Additionally, these cases are adjudicated by judges who specialize in corporate law, offering greater predictability in the enforcement of legal statutes.
The Steps in Forming Your New Corporation
You do not need to live or conduct business in Delaware to form a Delaware corporation. To form a corporation in Delaware, you need to complete a few essential steps. First, choose your business entity type that will best fit your needs. Next, appoint a registered agent for your corporation. This agent, who can be either an individual resident in Delaware or a business entity authorized to operate within the state, is responsible for accepting legal documents on behalf of the corporation. For example, if your Delaware corporation is ever sued, the lawsuit would be served on the registered agent at their street address. Then, select a corporate name that includes terms like “association,” “company,” “corporation,” or similar, and ensure it doesn’t closely resemble other names registered with the Delaware Secretary of State. You can reserve a name for your corporation for up to 120 days before filing your Certificate of Incorporation. Finally, file the Certificate of Incorporation with the Delaware Secretary of State. This legal document, which formally establishes your corporation, can be submitted to the Delaware Secretary of State either online or via postal mail. Remember, if your Delaware company plans to conduct its business in and around San Jose or elsewhere in California, you will still need to qualify (register) as a foreign (out-of-state) corporation by filing the necessary paperwork with the California Secretary of State. You may need to repeat this process for any other state where you plan to open a business office.
Ultimately, choosing to domicile your company in Delaware can have significant legal and tax advantages for your business. But you need to proceed carefully. And you should not make any critical decisions regarding your choice of a business entity without first speaking to an experienced San Jose corporations attorney. Contact SLG today to schedule a consultation with a member of our corporate law team.