Why 90% of startups incorporate in Delaware: no sales tax, no personal property tax, $400 franchise tax, Court of Chancery expertise, and the legal structure VCs demand.
Updated October 2024 • 22 min read
Of IPOs
Fortune 500
Min Franchise Tax
Sales Tax
Delaware isn't just popular by chance—it's specifically designed to be the best state for corporations. Over 1.5 million entities are incorporated in Delaware, including 68% of Fortune 500 companies.
Delaware's specialized business court has no juries—only expert judges who understand complex corporate law. Cases resolve faster with more predictable outcomes. Over 200 years of case law provides clarity on nearly every corporate governance issue.
Delaware General Corporation Law (DGCL) is the most flexible and startup-friendly in the nation. Allows for multiple share classes, broad indemnification, and flexible governance structures that VCs expect.
95%+ of VCs strongly prefer Delaware corporations. They're familiar with DE law, their attorneys know it, and their LPs expect it. Non-Delaware incorporation can delay or derail fundraising.
Delaware doesn't require disclosure of officers, directors, or shareholders in public filings. Only registered agent and incorporator information is public.
Delaware has no sales tax and no personal property tax on intangible assets. If you only have nexus in Delaware (rare for startups), you pay minimal taxes.
All Delaware corporations must pay annual franchise tax. LLCs pay a flat $300 fee. Corporations can choose between two calculation methods.
Simpler calculation based on number of authorized shares. Most startups use this method.
Problem: Gets expensive with high authorized shares!
Based on assets and issued shares. Usually cheaper for startups with many authorized but few issued shares.
Better: Usually cheaper for startups!
Most startups pay the $400 minimum by choosing the Assumed Par Value method. Key strategies:
The annual report is simple—it just confirms your registered agent, address, and basic company information. You file it together with franchise tax payment.
All Delaware entities must maintain a registered agent with a physical Delaware address available during business hours to receive legal documents.
Often required by banks, investors, or when registering as foreign corporation in other states.
Standard Certificate:
$50 + $50 certification
5-7 business days
Expedited:
Additional $100-250
Same day or 24 hours
Delaware only taxes income from activities within Delaware. If your startup operates entirely in other states (e.g., team in California, customers nationwide), you owe $0 Delaware income tax.
• Incorporated in Delaware
• Team works remotely from CA, NY, TX
• Customers nationwide
• Only connection to DE: registered agent
Result: $0 DE income tax
• Incorporated in Delaware
• Office and employees in Wilmington, DE
• Manufacturing facility in Delaware
Result: Pay DE income tax on DE-sourced income (8.7%)
Incorporating in Delaware does NOT eliminate tax obligations in states where you actually operate. You must register as a "foreign corporation" in states where you have nexus.
You must register as foreign corporation if you're "doing business" in a state. This typically means:
| State | Filing Fee | Annual Costs | Key Taxes |
|---|---|---|---|
| California | $100 | $800+ franchise tax | 8.84% corp income tax |
| New York | $225 | $450 annual fee | 6.5% corp tax |
| Texas | $750 | Franchise tax if >$1.23M | 0.75% margin tax |
| Massachusetts | $500 | $500 annual report | 8% corp tax |
TechCorp Inc. (DE Corp with CA operations)
This is why Delaware incorporation doesn't save taxes if you operate in high-tax states!
Delaware allows "Series LLCs"—a single LLC that can create multiple internal "series," each with separate assets, liabilities, and members. Each series operates as if it were a separate entity.
The Court of Chancery is Delaware's secret weapon. Established in 1792, it's one of the few remaining courts of equity in the US, handling only business disputes with judges (not juries) who are corporate law experts.
Cases move faster than in other states. Expedited proceedings available. Judges understand complex corporate issues immediately—no need to educate a jury on cap tables and liquidation preferences.
Over 200 years of case law means nearly every corporate governance issue has precedent. Attorneys can advise with confidence on how courts will rule. This certainty reduces risk for investors.
Chancery Court judges are among the most respected business law experts in the nation. They write detailed, well-reasoned opinions that shape corporate law nationwide.
Delaware law provides clear guidance on director and officer duties. This clarity protects founders and investors alike, especially in M&A situations and conflicts.
When Elon Musk and Twitter's board had governance disputes, they went to Delaware Chancery Court. When acquisition price disagreements arise, Delaware judges resolve them based on established law. This predictability is why VCs insist on Delaware incorporation.
Delaware incorporation doesn't eliminate taxes in states where you operate. You'll pay CA taxes if you operate in CA.
Solution: Understand you'll need foreign qualification and pay taxes in operating states.
Missing franchise tax deadline triggers $200 penalty plus 1.5% monthly interest. Can lead to revocation.
Solution: Set calendar reminders for February. File in January to avoid rush.
Authorized Shares method can cost $85,000+ vs. $400 with Assumed Par Value method.
Solution: Calculate both methods annually. Use online calculator or consult accountant.
Poor record-keeping can pierce corporate veil or cause investor due diligence problems.
Solution: Keep board minutes, stock ledger, and major decisions documented. Use tools like Carta or Pulley.
If registered agent service lapses, you won't receive legal notices and could miss important deadlines.
Solution: Set registered agent service to auto-renew. Keep payment method current.
Note: Even if starting simple, conversion later costs $10K-15K in legal fees.
95%+ of venture capital goes to Delaware corporations. Here's what VCs told us:
"We won't invest in non-Delaware corps. The conversion delay and cost isn't worth it." — Series A investor
"Delaware means I know exactly what rights I'm getting. No surprises in unfamiliar state law." — Seed fund partner
"Our LPs expect Delaware. It's just standard practice for tech startups." — Growth equity firm
How Delaware incorporation enabled $10M Series A
Total 5-year DE costs: ~$2,800. Value of choosing Delaware: Enabled $11.5M in funding.
"Best $500 we spent. Delaware wasn't about saving taxes—it was about building credibility with investors and having a predictable legal framework as we scaled. Every VC we talked to expected Delaware. Worth every penny."
VCs prefer Delaware for predictable corporate law, Court of Chancery expertise, 200+ years of case precedent, flexible governance structures, and standard investment documents. It reduces risk and speeds up deals.
Initial: $89 filing fee + ~$500 if using service (Stripe Atlas, Clerky). Annual: $400 franchise tax (minimum) + $100-300 registered agent = ~$500-700/year ongoing.
No. You still pay taxes in states where you operate. If your team is in California, you'll pay California taxes regardless of Delaware incorporation. Delaware is about legal structure, not tax savings.
Annual fee all corporations pay. Minimum $400 using Assumed Par Value method. Can be much higher using Authorized Shares method. Due March 1 annually. Not based on income—owe even if unprofitable.
You need a registered agent with a Delaware address to receive legal documents. You don't need an office. Use professional registered agent services ($100-300/year).
Yes, but it's expensive ($10K-15K in legal fees) and takes 6-8 weeks. Better to start in Delaware if you plan to raise VC funding.
Delaware's specialized business court with expert judges (no juries) handling only corporate disputes. Faster decisions, predictable outcomes, 200+ years of precedent. Major advantage for complex corporate matters.
If you might raise funding in 2-3 years, yes. If purely bootstrapped forever, your home state may be cheaper. But conversion later costs $10K+, so Delaware is often worth it even for bootstrapped companies with growth potential.
We handle Delaware incorporations for startups: $799 including filing fees, registered agent, and standard corporate documents. Get started in 48 hours.