Choosing a State of Incorporation

Traditionally, Delaware has been considered a favored state for incorporation. However, due to adoption in other states of provisions of a Model Business Corporation Act or of provisions of Delaware corporation law, traditional advantages for incorporation under the Delaware statute may no longer be more advantageous.

Incorporate Where Operations are Located

Many corporations now will find it most efficient to be incorporated in the state where the corporation will have most of its operations. Almost all states now have modern corporation statutes that will allow the same simplicity in setting up the corporation as that provided in the Delaware corporation law.

Registering as a Foreign Corporation

Incorporation under the Delaware Corporation Law would require a corporation doing business in a state other than Delaware to qualify in its home state as a foreign corporation. The time and expense of obtaining such additional qualification could be avoided simply through incorporating in the home state. Incorporators should keep in mind also that various reports and fees may have to be paid in each additional state in which the corporation does business. Therefore, any advantage to be obtained from incorporating in a foreign state should be significant enough to outweigh the ease and simplicity of incorporating in the home state.

Tax Advantages

There may be no significant tax advantage to incorporating in a state such as Delaware because at least for the beginning corporation, most states will have similar provisions for payment of a minimum tax. However, the potential for tax advantages from incorporation in different jurisdictions may become significant as the operations and assets of the corporation develop, and tax developments in different jurisdictions may warrant periodic review.

Delaware remains a preferred state of incorporation for public companies or companies that will be doing business in various states. Delaware's tax structure for corporations is considered by some observers to be competitive with or even more advantageous than tax structures in other states, and Delaware has a well-developed body of corporate law and judicial precedent that can provide a sense of certainty in corporate transactions.

Some observers believe that incorporation in states that have adopted provisions of the Model Business Corporations Act could have advantages over incorporation in Delaware. Those observers believe that the Model Business Corporation Act (pdf) produced by the American Bar Association provides substantive advantages of the Delaware corporation law while avoiding some of the more archaic corporate formalities that remain in the Delaware law. However, the Delaware law continues to be refined. For public corporations or corporations expected to be doing business in many jurisdictions, developments in the Delaware law and the law of the corporation's home state should be monitored to maintain awareness of the advantages of each state's corporation law.