Why You Shouldn’t Form Your Small Business in Delaware

One of our most frequently asked questions is, “should I incorporate in Delaware?” or “are there benefits to forming my LLC in Delaware?”

This is because people hear that there are benefits to having your company formed in Delaware. Many entrepreneurs hear it and without even knowing what the benefits are they rush to the internet and have a Delaware Corporation formed.

Delaware has made a name (and a lot of money) for itself by specializing in business law. By enticing most large corporations to be registered in Delaware, they have created an environment where there are some benefits to being headquartered there but they really only apply to large publicly traded corporations.

Large corporations with thousands or millions of shareholders have unique types of lawsuits. In Delaware, there is a lot of well-established precedent for those types of cases. Legal precedent is where past court rulings are used as a guide for future rulings.

This means lawyers have more information to navigate those unique situations.

One high-profile example is the lawsuits related to Elon Musk’s takeover attempt of Twitter.

This doesn’t really do anything for you as a small business.

The downside for the small business owner is that it is going to cost you more money. First off, you must form in Delaware (paying the associated fees) and hire a registered agent to represent you there. Then in order to have your office and operate in your home state you still have to register there as a Foreign Entity and pay the fees associated with that. These fees are the same amount as if you had just formed in your home state.

In summary, you are paying Delaware fees and a Delaware registered agent as well as your home state’s fees every year.

So, for a small business owner there aren’t really any benefits to being formed in Delaware and it is going to cost you more money each year.

The decision is ultimately yours but forming in your home state will almost certainly save you money.