Page 18 - World Trade Center - 2023

THE DELAWARE ADVANTAGE
Why Businesses Choose the First State
By Stephanie Chapman, CPA, WTC Delaware Board Treasurer
Delaware is officially nicknamed the “First State” because it was the first to have ratified the U.S. Constitution. It’s also the “first state” that tends to come to mind to foreign investors when considering entering the American market. The state has
earned a reputation as a preferred home base for businesses. But why?
The U.S. Constitution delegates authority to each
of the states to administer as they see fit. As
such, opening an American company requires first deciding in which state to form. The choice depends on both where the business will have activity, as well as which courts the business will have access
to, in case of civil actions. For some, this can be an impulsive decision on a familiar major city like Los Angeles or New York City, though these states carry high costs of business and are not as well-known
for their business-friendly environment. For most, though, Delaware has become known as the place to incorporate when entering the U.S. market.
According to the state’s official statistics, over 68% of the Fortune 500 companies are
incorporated in Delaware. As of 2022, total business entities in the state exceeded 1.9
million, with over 300,000 formed in that year alone, and almost 79% of all the Initial Public Offerings (IPOs) in the U.S. were registered in Delaware.
This is an enormous amount, considering it’s the second-
smallest state in the Union (thanks, Rhode Island!),
with a population of barely 1 million.
One of the primary draws for incorporating in Delaware is its pioneering legal framework. The state’s Court of Chancery, a specialized court system for business matters, is globally recognized for its expertise and expeditious resolution of corporate disputes. This specialized court offers swifter resolutions, as well as consistent and predictable outcomes. Delaware also boasts proximity to major metropolitan areas such as Philadelphia, New York City, Baltimore and Washington, D.C., so businesses establishing a presence here can tap these major port, rail and air transportation hubs and enjoy access to 40% of the American population within a day’s drive.
But what about taxes? All businesses owe a federal- level income tax, but Delaware levies the additional state-level income tax only on companies operating within the state. This means that if a business
is incorporated in Delaware, but conducts its operations elsewhere, it won’t pay income tax to Delaware, but it can still pay income tax to states in which it is operating. Delaware does not impose a sales tax (which is fantastic for consumers; the state’s Apple Store once boasted being one of the highest sellers of iPhones in the country — second only to the 24-hour outlet in Manhattan); instead, it replaces that consumer-paid sales tax with a Gross Receipts tax that is paid by the business itself, subject to exclusions. All businesses formed in the state pay a franchise tax based on working or authorized capital in the state.
Taxation is a small part of the decision where to form, and investors should discuss with their advisors where is the best choice for their unique needs. «
OVER 68%
of Fortune 500 companies are incorporated in Delaware
16 WORLD TRADE CENTER® DELAWARE 2023 | WTCDE.COM