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Due Diligence

Why Do Vendors Incorporate in Delaware?

Sep 13, 2017 by Branan Cooper

If you’ve done much due diligence work, you’ve certainly noticed that many vendors incorporate here in Delaware (well, technically, I live in southeastern Pennsylvania but have worked for most of the past quarter century in Delaware). Have you ever wondered why? Hint: It’s not just because of the beautiful scenery and cycling friendly roads. 

Benefits of Incorporating In Delaware 

Delaware is home to over half of the Fortune 500 companies. For large businesses, Delaware holds many advantages, but smaller businesses may not find it as beneficial. And here's a list, with the help of BizFilings.com, of why:

1. The state features no sales tax and a relatively low cost of living compared to its neighboring states.  

2. Delaware’s business law is one of the most flexible in the country. 

3. The Delaware Court of Chancery focuses solely on business law and uses judges instead of juries. 

4. For corporations, there is no state corporate income tax for companies that are formed in Delaware but do not transact business there (but there is a franchise tax). 

5. Taxation requirements are often favorable to companies with complex capitalization structures and/or a large number of authorized shares of stock. 

6. There is no personal income tax for non-residents. 

7. Shareholders, directors and officers of a corporation or members or managers of an LLC don’t need to be Delaware residents. 

8. Stock shares owned by persons outside Delaware are not subject to Delaware taxes. 

Typically the court system is not a primary factor when choosing where to form a business, but Delaware deserves a special mention. The Delaware Court of Chancery is often considered an advantageous venue for shareholder lawsuits. It hears only business cases and uses only judges, no juries. For large corporations with thousands or hundreds of thousands of shareholders, this can be a big plus.  

So there you have it – The First State is also the leader in business friendly states. 

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Branan Cooper

Written by Branan Cooper

Branan Cooper is the Chief Risk Officer at Venminder. Branan has nearly 30 years of experience in the financial services industry with a focus on the management of operational and regulatory processes and controls—most notably in the area of third party risk and operational compliance. Branan leads the Venminder delivery team as the third party risk management subject matter expert in residence. Branan also serves as an industry thought leader. He's a member of InfraGard and the Professional Risk Management Industry Association (PRMIA). And, he was selected in 2018 as an advisor to the Center for Financial Professionals (CEFPro) and board member for the Global Sourcing Resource Network (GSRN).

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