Guides & research

30 January 2025

Company Formation

Why Incorporating in Delaware is Ideal for Scaling Your Business

Isidro Helder

CEO & Founder ConnectaVerse B.V.

So, you’re mapping out your company’s next big move: attracting global investors; streamlining compliance; and laying the groundwork for explosive growth. While doing your research, one name keeps popping up: Delaware. But what makes this small US state such a giant in the business world?

Delaware has been the go-to state for company formation for decades, offering businesses a unique mix of legal flexibility, tax advantages, and an investor-friendly environment. It’s where high-growth companies find the tools to scale, and global ambitions take root. But is Delaware the right fit for your international expansion goals?

In this article, we’ll uncover what makes Delaware so appealing; when it’s the ideal choice and when it’s not; and how it supports businesses (especially international ones) looking to scale globally.

Why Delaware Tops the List for High-Growth Businesses

More than 60% of Fortune 500 companies and over 90% of all US IPOs are incorporated in the state of Delaware. These aren’t just statistics; they’re proof of Delaware’s unmatched appeal for businesses with ambitious growth strategies.

For VC-backed scale-ups, Delaware offers something invaluable: trust. Investors invariably gravitate towards Delaware C-Corps because of their clear, predictable legal framework and globally recognised corporate governance standards. For instance, Delaware’s Court of Chancery focuses exclusively on corporate disputes. With judges (not juries) deciding cases, companies benefit from swift resolutions and consistent interpretations of corporate law; all key factors that reduce uncertainty for investors.

Delaware’s corporate governance standards are designed to protect shareholders while giving businesses flexibility in operating. For example, Delaware law allows for multiple classes of shares, which is ideal for start-ups and scale-ups seeking venture capital. This means founders can maintain voting control while offering equity to investors; an arrangement highly valued in funding rounds.

And Delaware’s reputation for stability and business-friendly regulations isn’t just limited to the US. The name carries weight on the international stage, too, making it the default choice for companies planning global operations. It’s no wonder Delaware has earned its status as the go-to hub for entity formation.

But What Makes Delaware So Business-Friendly?

Delaware’s reputation as the go-to state for incorporation is built on decades of pro-business policy, legal stability, and tax efficiency. It has a corporate framework designed to support high-growth companies, making it a top choice for start-ups, scale-ups, and global enterprises.

A Legal System That Works for Businesses


One of Delaware’s biggest advantages is its Court of Chancery, a specialised business court that handles corporate disputes. Unlike in other states, where cases may go to jury trials with unpredictable outcomes, Delaware’s corporate cases are decided by experienced judges specialised in business law. This means:
  • Faster case resolutions, reducing legal costs and operational disruptions
  • A well-developed body of case law, providing predictability in corporate rulings
  • A reputation for fairness, which gives investors and businesses confidence
This legal clarity is crucial for companies expanding internationally. Investors prefer jurisdictions where corporate laws are consistently enforced, making Delaware an attractive choice for securing funding.

Business-Friendly Laws That Enable Growth


Delaware offers unmatched corporate flexibility, allowing businesses to set up structures that support rapid scaling. Some of its key advantages include:
  • Flexible Corporate Governance: Delaware allows businesses to tailor their board structures and shareholder agreements with fewer restrictions than most states.
  • Strong Shareholder Protections: The state’s laws are designed to balance investor confidence with founder control, making it easier to secure venture capital.
  • No Residency Requirements: Neither directors nor officers need to reside in Delaware, making it easier for international founders to incorporate while operating from abroad.
  • Easier IPO and Fundraising Process: Many investors, particularly venture capitalists, prefer Delaware C-Corps due to their clear regulatory structure and ability to issue multiple share classes.
For tech scale-ups and companies planning global expansion, this legal flexibility makes Delaware a highly attractive base for US operations. Hence, the Delaware C-Corp is the most common structure for British and European scale-ups.

Tax Benefits That Go Beyond Borders


Another major reason businesses incorporate in Delaware is its tax-friendly environment, especially for companies that do not physically operate in the state. Some key tax advantages include:
  • No state corporate income tax for businesses that do not conduct operations in Delaware
  • No sales tax, personal property tax, or value-added tax (VAT)
  • Favourable franchise tax system, with options that reduce costs for start-ups
  • Well-established case law on tax matters, minimising uncertainty for businesses
For non-US founders, tax planning is crucial. And doing it early, even more so. While Delaware does not impose corporate tax on out-of-state earnings, businesses generating revenue in other states may still have tax obligations under nexus rules. International founders should also consider double taxation treaties between the US and their home countries, which can impact how profits are taxed. Understanding these requirements early can help companies avoid unexpected liabilities.

When to Choose (or Avoid) Delaware for Incorporation

While it’s the default choice for tech start-ups, scale-ups, and global expansion, Delaware may not be the right site for every company. Despite its strong legal protections, tax advantages, and investor appeal, some companies do find incorporating in another state to be a better option. Let’s explore:

When Delaware is the Best Choice


Delaware makes the most sense for companies that:
  • Plan to Raise VC or Institutional Funding: Investors overwhelmingly favour Delaware C-Corps because of their clear governance structures and strong shareholder protections. Many venture capital firms actually require companies to incorporate in Delaware before investing.
  • Operate across Multiple States or Internationally: If a company generates revenue in multiple US states or globally, Delaware’s corporate structure provides flexibility and a stable legal framework, reducing corporate compliance risks.
  • Need a Corporate Structure with Multiple Share Classes: Delaware allows businesses to issue different classes of shares, which is essential for start-ups and scale-ups seeking investment rounds. This structure helps founders maintain control while issuing equity to investors.
  • Want a Predictable Legal Framework: Delaware’s Court of Chancery specialises in corporate law and ensures that business disputes are resolved quickly and fairly. This is a significant advantage for companies dealing with complex shareholder agreements, stock options, or acquisitions.

When Delaware May Not Be the Right Fit


Its myriad business benefits notwithstanding, Delaware incorporation is not always necessary. Businesses that may want to reconsider include:
  • Small Businesses Operating in a Single State: If a company only does business in one state and does not need venture capital, incorporating locally is usually simpler and cheaper. This avoids additional compliance costs associated with Delaware incorporation.
  • Businesses Looking for the Lowest-cost Setup: While Delaware offers tax advantages, incorporating there comes with ongoing company formation costs, such as:
    • Registered agent fees, required for businesses that do not have a physical presence in Delaware.
    • Annual franchise taxes, which vary based on company size.
    • Foreign qualification fees, if operating in another state.
  • Companies that Benefit More from Another State’s Tax Policies: Some states have no corporate income tax and may be more attractive for businesses focused on cost efficiency.

Comparing Delaware to Other States


If you think Delaware may not be the right fit, consider these alternatives:
  • California: A strong choice for tech start-ups, with access to investors and top talent. However, it has a high corporate tax rate and strict regulations.
  • New York: Ideal for financial services, media, and multinational corporations, but compliance costs are high.
  • Nevada: Offers no corporate or personal income tax, plus strong privacy protections, but lacks Delaware’s well-established legal framework.
  • Wyoming: Provides tax advantages and strong privacy protections, but is not as widely recognised by investors.
  • Texas: A business-friendly state with no corporate income tax, but sales tax compliance can be challenging for e-commerce and multi-state businesses.

Key Considerations for International Businesses


For non-US founders, incorporation is just one part of the equation. Companies expanding into the US also need to consider:
  • State Tax Obligations: Even if incorporated in Delaware, businesses may be liable for taxes in states where they operate or employ staff.
  • Foreign Qualification Requirements: If your company does business outside Delaware, it must register in each state where it has significant operations.
  • US Nexus Laws: Some states require businesses to collect and pay taxes if they have a physical presence or generate substantial revenue there. These laws vary by state, so getting advice early on is key.

Navigating Delaware’s Incorporation Process: Costs, Steps, and ROI

Registering a new company in Delaware is relatively straightforward but, as an international founder or UK scale-up, you need to plan carefully to avoid compliance issues and unexpected costs. Here’s what you need to know:

Delaware Incorporation Costs vs. ROI


Delaware incorporation offers long-term strategic advantages but also comes with initial and ongoing costs. For scale-ups and multinationals, these costs are often outweighed by investor trust, legal protections, and operational scalability.

Key Costs:

  • Filing Fee for Certificate of Incorporation: Starts at $89 but can exceed $1000. Varies by stock structure.
  • Registered Agent Fee: $100–$300 per year (required for non-Delaware-based businesses).
  • Annual Franchise Tax: Minimum $175, can reach $250,000 for large corporations.
  • Foreign Qualification Fees: Additional costs if operating in other states.
  • Legal & Compliance Costs: Typically $5,000–$15,000 for company formation in Delaware, including contracts and IP protection.
  • US Business Bank Account Setup: Costs depend on the bank and verification requirements.
  • Ongoing Tax and Compliance Costs: $10,000–$30,000 per year for filings, reporting, and multi-state compliance.

When the Costs Are Justified:


For businesses planning to raise venture capital, operate in multiple states, or scale globally, Delaware’s legal framework provides significant ROI, including:
  • Strong investor confidence and access to funding.
  • A predictable legal system that reduces business risks.
  • Scalability for international operations and IPOs.
  • Optimised IP protection and tax structuring.
On the other hand, if you’re a local business that only operates in a single state, has no plans to raise investment, and/or wants to minimise ongoing costs, incorporating in your home state may be the better option.

Your Step-by-Step Guide to Delaware Incorporation


1. Choose Your Business Structure


A Delaware C-Corp is the best choice for scale-ups seeking VC funding, multiple share classes, and global scalability (e.g. a UK or EU company expanding into the US). An LLC may be an alternative, but it lacks investor appeal and has more tax complexities for non-US founders.

2. File a Certificate of Incorporation


The Certificate of Incorporation is the legal document that establishes your company in Delaware. It is submitted to the Delaware Division of Corporations, detailing the company name, stock structure, and registered agent information.

3. Appoint a Registered Agent


Businesses without a physical presence in Delaware must appoint a registered agent to receive official documents. This is a legal requirement for all Delaware-incorporated businesses. Many companies use third-party services.

4. Obtain an EIN (Employer Identification Number)


An EIN is required to open a US bank account, hire employees, run payroll, and handle tax filings. Non-US founders may need to apply manually via the IRS (Form SS-4).

5. Meet Compliance & Reporting Requirements

  • Pay annual franchise tax and file reports to maintain good standing.
  • Register as a foreign entity in other states if operating outside Delaware.
  • Ensure compliance with federal and state tax obligations.
Failure to comply with these requirements can result in penalties, loss of good standing, or even dissolution of the company.

Checklist: Incorporating in Delaware


✔ Choose your business structure (C-Corp or LLC)
✔ File a Certificate of Incorporation with the Delaware Division of Corporations
✔ Appoint a registered agent (required for non-Delaware-based businesses)
✔ Obtain an EIN from the IRS for tax and banking purposes
✔ Set up a US business bank account
✔ Register for foreign qualification if operating outside of Delaware
✔ File annual reports and franchise tax payments

Delaware C-Corp or LLC: Which is Right for Your Business?

Choosing between a Delaware C-Corp and an LLC is one of the most important decisions when incorporating. But it’s also usually one of the easiest. While both offer liability protection, their tax structures, investor appeal, and compliance requirements differ significantly.

Why Most Scale-ups Choose a Delaware C-Corp


For start-ups and scale-ups, a Delaware C-Corp is almost always the best choice. It provides the structure that investors, venture capitalists, and institutional funds expect, making fundraising much easier.

Key Benefits of a C-Corp:

  • Multiple Share Classes: Required for VC- and equity-based fundraising.
  • Familiarity for Investors: Most VCs prefer Delaware C-Corps and may even require incorporation there before funding.
  • Limited Liability for Shareholders: Investors are only liable for their stake in the company.
  • Easier for IPOs and Acquisitions: Most publicly traded US companies are structured as C-Corps.

Key Considerations:

  • Double Taxation: C-Corps pay corporate tax (21% at the federal level), and shareholders are then taxed again on dividends.
  • More Regulatory Requirements: Annual filings, tax reporting, and compliance are stricter than for LLCs.

When an LLC Might Be the Right Choice


LLC formation provides more flexibility and tax advantages for US-based small businesses, sole founders, and companies that don’t need to raise venture capital.

Benefits of an LLC:

  • Pass-through Taxation: Profits are taxed at the individual owner’s rate, avoiding corporate tax.
  • Less Paperwork and Compliance: Fewer reporting requirements compared to C-Corps.
  • More Control for Founders: No need to answer to shareholders or issue shares.

Why an LLC isn’t Ideal for Scale-ups:

  • Less Attractive to Investors: VCs typically do not invest in LLCs.
  • Cannot Issue Stock Options Easily: Equity-based compensation is harder to structure.
  • Foreign Founders Face Tax Complications: Some US tax treaties do not favour LLC structures, making compliance more complex.

Debunking Delaware Incorporation Myths

Delaware is the most popular state for incorporation, but misconceptions about its benefits, requirements, and tax implications are common. Let’s clear up some of the biggest myths!

Myth 1: "You need to live in Delaware to incorporate."


Reality: Anyone can incorporate in Delaware, regardless of where they live or operate their business.
  • No residency requirements exist for business owners, directors, or officers.
  • However, companies must have a registered agent with a physical address in Delaware to receive legal documents.

Myth 2: "Delaware suits all businesses equally."


Reality: While Delaware is ideal for scale-ups and multinationals, it isn’t always the best choice for small, local businesses.
  • If a business only operates in one state and doesn’t need venture capital, incorporating locally is often cheaper and simpler.
  • Companies doing business in other states must register as a foreign entity, which adds extra compliance costs.

Myth 3: "Incorporating in Delaware eliminates all taxes."


Reality: While Delaware offers tax advantages, businesses are not exempt from all taxes.
  • Delaware does not impose state corporate income tax on businesses that operate outside the state, but federal corporate tax (21%) still applies.
  • If a business operates in another state, it may owe taxes there under nexus rules.
  • Franchise taxes apply to all Delaware-incorporated companies, with fees based on share structure.

Delaware as a Launchpad for Global Growth

For international companies, incorporating in Delaware is a strategic move that can open doors to investment, intellectual property (IP) protection, and seamless global expansion. Whether you are a UK scale-up or an established European business looking to enter the US market, Delaware provides a stable foundation for international growth.

Attracting US Investors


For companies seeking venture capital or institutional funding, Delaware is the crème de la crème. Investors prefer Delaware C-Corps because of its:
  • Familiar governance structures that reduce legal risks.
  • Strong shareholder protections that increase investor confidence.
  • Standardised legal precedents that streamline negotiations and investment terms.
For a UK or EU business expanding to the US, this credibility can make the difference between securing funding or not.

Structuring IP Ownership for Tax Efficiency and Protection


One of the biggest advantages of incorporating in Delaware is the ability to strategically manage intellectual property.
  • Delaware law provides strong protections for patents, trademarks, and copyrights.
  • Businesses can structure their IP assets to optimise taxation, particularly when expanding globally.
  • Companies with high-value IP, such as tech start-ups, fintech firms, and SaaS companies, can benefit from Delaware’s predictable corporate laws in case of litigation.
For non-US companies, protecting IP early is essential. US businesses are aggressive in defending trademarks and patents. Filing for trademarks with the USPTO (United States Patent and Trademark Office) and securing IP enforcement strategies can help avoid costly legal battles down the road.

US Banking Setup for Non-US Founders


Incorporating in Delaware also makes it easier to access US banking services, which can be challenging for international founders.
A Delaware-incorporated company with an EIN (Employer Identification Number) is more likely to be approved for a US bank account.
  • Having a US account simplifies customer payments, payroll processing, and cross-border transactions.
  • Many global payment processors and financial institutions prefer working with Delaware C-Corps due to their credibility.
For UK and EU founders, this removes a common barrier to doing business in the US.

Scaling HR Operations Efficiently


If expanding into the US talent market, understanding local HR laws is critical. For companies planning to hire in the US, Delaware incorporation makes it easier to scale HR operations without unnecessary compliance risks.
  • Hiring US Employees: Delaware’s legal framework simplifies stock option plans and employee agreements, making it attractive for talent acquisition.
  • At-will Employment: Most US employees work under "at-will" agreements, meaning termination policies differ significantly from Europe.
  • Work Visas: Companies hiring non-US employees need to consider visa sponsorship (L-1, E-2, H-1B, or O-1) and payroll tax compliance.

Making the Right Choice: Delaware or Elsewhere?

Incorporating in Delaware is a powerful strategic move for businesses planning to scale, attract investors, and establish a presence in the US. Its business-friendly legal system, tax advantages, and investor appeal make it the preferred choice for international scale-up. Nonetheless, it is not a one-size-fits-all solution.

If your business is seeking venture capital, multi-state operations, or strong legal protections, Delaware is an excellent choice. On the other hand, if you’re US-based and running a small, locally focused company, incorporating in your home state may be simpler and more cost-effective.

Before making your decision, consider:
✔ Your Funding Strategy: Will you be seeking venture capital or institutional investors?
✔ Your Operational Footprint: Will you operate in multiple states or internationally?
✔ Your Tax and Compliance Obligations: Are you prepared to manage Delaware’s franchise tax and multi-state compliance if necessary?

For UK and EU businesses expanding into the US, getting the right setup from day one is crucial to avoiding costly mistakes, unexpected taxes, and compliance risks. The ConnectaVerse streamlines this process by guiding you through incorporation, tax obligations, and hiring while connecting your team with local experts for registered agent services, legal support, and multi-state compliance solutions.

Still weighing up whether Delaware is the right move? Don’t let indecision slow your expansion.

Book your free consultation with the ConnectaVerse today to get clear, expert advice and set your business up for success.

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