Registration of a company in Delaware

Delaware is a small but business-friendly American state. Close to several East Coast metropolitan areas, including Philadelphia, Washington, D.C., and New York City. Foreign entrepreneurs and local investors open businesses in Dover or any other Delaware city for tax optimization. The lack of VAT and generally relatively lower tax rates are the main reasons why more than a million businesses are in the state. Registering a company in Delaware also allows for limited liability under established corporate law.

Advantages of registering a company

• confidentiality of owners;
• the possibility of creating companies with 100% foreign investment;
• no restrictions on the minimum amount of capital;
• ability to start a company in Delaware with a single owner;
• no need to live in the state or register a legal address in the state when setting up a company;

Main forms of legal presence and doing business

• Limited Liability Company (LLC);
• Trust (Delaware Statutory Trust);
• Individual enterprise (SP);
• Joint Venture;
• Corporation;
• Limited Partnership (LLP);
• Limited Partnership (LP).

The most popular business structure is an LLC. Before opening a company in Delaware, an agreement can be drawn up stipulating the different classes of shareholders and managers, their rights, powers, and duties. The document may also contain information on how the profits and losses of the company will be distributed among its members.

Registration procedure

• choose a company name (can also be reserved for 120 days for an additional fee;
• obtain a federal identification number (EIN);
• incorporate the company in Delaware by filing a certificate of incorporation with the local Division of Corporations;
• open a bank account;
• obtain required licenses and permits.

Legislation and regulatory environment

Delaware has a standard law legal system. However, the State Code contains separate sections governing the formation and operation of companies in various legal forms:

• General Corporation Law;
• Delaware Limited Liability Company Act;
• Uniform Partnership Act;
• Corporations Act for state banks and trust companies.

State law requires that every legal entity registered in its territory must have its agent authorized to obtain legal documents on behalf of the business. Therefore, appointing foreign nationals as directors is possible when opening a company in Delaware. There is no requirement that they be domiciled in the country or state.

Delaware even has its court system for businesses, the Court of Chancery.

Tax system

In the U.S., taxes may be levied at the national and individual state levels where the company is incorporated. General federal tax rates in America:

• corporate tax – 21%;
• personal income tax – 37%;
• capital gains tax – 20% (personal)/21% (corporate);
• tax on dividends – 30% (for non-residents).

The state of Delaware levies the following taxes:

• corporate tax – 8.70%;
• VAT – 0%;
• PIT – from 2.2% to 6.6% (proportional to the amount of income).

Income from investments in the United States, like U.S. bonds, is not taxed at the state level.

Buying a business in Delaware is especially beneficial if the company will generate income outside of the state because the tax base is calculated on a territorial basis.

The method of taxation depends on the legal form of the enterprise:

• corporations are subject to corporation tax. Profits distributed to shareholders in the form of dividends are taxable a second time as shareholder income;
• an individual business is not subject to corporate taxation. All profits and losses are attributable to the owner’s income;
• partnerships are considered “pass-through” entities for tax purposes. Gains and losses are passed on to the partners and allocated to them in proportion to their ownership interests. As a consequence, partnership income is taxed as part of the partner’s income at the tax rate applicable to the partner;

LLCs and trusts can be taxed as a corporation or a partnership, depending on the company’s structure.

Corporations pay an annual franchise tax. Its amount varies in proportion to the number of shares issued (from $175,000 to $200,000).

Low-tax companies in Delaware, established as LLCs, pay a flat annual tax of $300. This is the only tax paid for firms that do not generate income within the state.

Starting a Business in Delaware: How Prifinance lawyers can assist

Creating your own business in a low-tax state in the United States is easy enough. However, an entrepreneur needs to take care of administrative issues. In addition, to get the most out of registering a company in Delaware, it is crucial to choose the proper legal form and draw up the founding documents.

Lawyers of Prifinance will provide you with comprehensive information about the peculiarities of doing business in this low-tax American state. We will help you buy a company in Delaware and solve all the organizational and legal issues that arise while creating a new company. In addition, we can entrust our specialists with annual business maintenance and bookkeeping.