When it comes time to set up a new business, one of the first questions that many aspiring entrepreneurs will face is which state they should register their corporation. For many years now, Delaware has been the choice for many business owners because their tax laws are relatively advantageous for larger companies. However, recently there has been an upsurge of companies incorporating in New York as it’s considered one of the top business-friendly states in the world.
So what are the advantages and disadvantages of registering in either state and which one is right for you? Here are some things to consider when choosing to start your company in New York or Delaware.
One of the first considerations most people make, although it is by no means the most important, is the cost of filing the articles of organization in each state. At first glance, Delaware seems to be the most attractive, as filing fees are nearly a third of the costs than New York. However, for businesses registering in Delaware, but conducting business outside of the state, they must file an application of authority to be considered a foreign limited liability company. Application of authority filing fees can range anywhere from $50 to $300 and can considerably add to the costs of merely incorporating your business.
Advantages of Incorporating in Delaware
For many years now, Delaware has been known for its business-friendly laws. These predictable laws make it an easy choice for newer businesses trying to control their expenses and guarantee certain levels of returns. Unlike other states, Delaware has a separate court of Chancery that will answer all cases that involve corporate law. What this means is that Delaware has a very well-developed body of corporate law, allowing companies the ability to make better assessments of outcomes of litigation and the ability to have their business cases settled quickly and inexpensively.
Delaware is also known as a tax haven for many new corporations. Unlike other states, Delaware doesn’t collect taxes from businesses that do not do business there, which can lead to significant savings for certain corporations. Typically, the process to form a corporation is quicker in Delaware, as less information, such as the disclosure of company shareholders and directors, is necessary for business registrations. Another reason why many business owners incorporate in Delaware is that historically, many investors and venture capitalists prefer investing in company’s registered there. As many national companies with strategic growth plans choose Delaware for their corporations, the state has earned a reputation for being home to very successful enterprises with many investment opportunities.
Advantages of Incorporating in New York
Lately, there has been a spurt of startup companies registering their companies in New York. Like Delaware, New York is now considered one of the top business-friendly destinations in the globe. This is the case because there are several business incentive programs offered by the state for both LLC and corporations of all shapes and sizes. New York business registration also provides many credibility factors and tax advantages that attract business owners from around the globe.
In the past, New York hasn’t necessarily been known for its friendly tax environment. However, over the years, the state has made up for this through its tax benefits and “state incentive” programs. “Startup New York” is a popular benefit program offered by the state for businesses that meet specific criteria, which allows them ten years of tax-free operation when operating within a particular area. This program is one of many that encourages new enterprises to take up shop in the state. There are many other tax credits that New York affords to businesses hiring minority groups that have faced barriers when it comes to employment. These credits can range from $1,000 to nearly $10,000 a year and are inclusive of groups like unemployed veterans, food stamp recipients, designated community residents and summer youth employees.
Which State is Right For Starting Your Business?
When starting a company, many people have been driven to Delaware as their registration state of choice without really weighing if it’s right for their business. For years, Delaware was the gold standard for business registration, and many people don’t look past that fact. However, it’s important to dispel some of the common misbeliefs when choosing whether to set up your company in Delaware or New York. Most people assume that in Delaware, you will save money and avoid paying income tax – both of which are not true.
Without looking past initial registration fees, it may seem like Delaware is the better choice. However, companies operating outside of Delaware are still required to register as a foreign corporation. This registration and filing fee ends up being comparable to any other state registration cost and eliminates the total registration costs as one of the state’s benefits to consider. The other misconception is that that by registering in Delaware, you will not have to pay taxes if you register your business in Delaware. What many people fail to realize is that just because you don’t have to pay taxes in Delaware, this will not absolve you of your tax-paying responsibilities in the state that your business is operating in.
Like every business decision, however, there are pros and cons associated with each one you make. Keeping this in mind, when deciding on where to register your company, it’s best to consult with an entity formation lawyer. They will be able to provide you with all the necessary information you need to register your business and ensure you’re taking advantage of all applicable state incentive and tax benefit programs.