Why is the correct answer a DE C Corp if you're looking to raise?

Not an attorney, but as someone with a startup incorporated in DE—it's just the default. Delaware has very good and well-understood corporate law and a judicial system that is able to handle complex corporate cases.

If you're fundraising as a Delaware C Corp you will face no questions about that, but if you've done something else you will need to explain why to your potential investors (and they will probably push you to reincorporate).

It's just industry standard for capital raises. All corporate attorneys learn DE law when they go to law school and are expected to know it if they practice corporate law. A Colorado attorney doesn't know California law and a California attorney doesn't know New York law, but if they do corporate legal work, they're all expected to know how to deal with DE law.

Nobody knows Nevada or Wyoming law. I don't even think Wyoming attorneys know Wyoming law.

DE's court of chancery is also very sophisticated with respect to corporate legal issues. That makes it the venue of choice for investors, which means it has become the venue of choice for those seeking investment.

But in terms of states and their processes for filings, DE is a total pain in the butt. You have to pay an expedited filing fee just so that they can process your filing in less than a week. Their system is counterintuitive and clunky. You better like elevator music if you ever want to talk to a human. Sometimes they reject filings and just don't bother to tell you. It's all opaque and antiquated.

I would also add from a founders standpoint - the infrastructure Delaware has supporting their business incorporations division has been miles above any other state I have worked with. They pick up the phone when you call! The files and forms are (relatively) easy to find. Supporting firms like registration agents are plentiful and straightforward for Delaware.

Every time I read "court of chancery", for a second I think it says "court of chicanery".

many VC's require it, cuz it keeps their admin standardized.

Delaware Court of Chancery also holds the doctrine of shareholder supremacy, where execs actually have an obligation to maximize shareholder interests. Other states don't recognize it or allow balancing other stakeholder priorities.

I'm a longtime Delawarean and in my past life as a journalist I wrote about why the state is such a corporate haven.

The short answer is that companies incorporate in Delaware to mitigate risk.

The slightly longer answer is that the Delaware courts that deal with corporate legal matters are much more predictable than comparable states. There is voluminous settled case law, and so when you incorporate in Delaware, it is a safe option, a known quantity, relative to other states.

That's why VCs and other investors want the company to be incorporated in Delaware. It's not just because everybody else is doing it; it's to mitigate legal risk.

When we look at consumer products, we sometimes consider the total cost of ownership. Maybe a pair of sneakers is not the cheapest, but it lasts longer than a budget pair, so it has a lower cost of ownership over the lifetime of the product. Delaware might not be the cheapest state to incorporate in, but it has the legal equivalent of a low cost of ownership over the life of the business.

I mean it is because everyone else is doing it. Because everyone else incorporated in Delaware, that's where the case law is well established, all existing contracts are written in terms of DE corporate case law, etc. etc.

We all could have picked Road Island or New York instead. But for historical reasons it was Delaware.

Yes, that's correct. Companies originally flocked to Delaware because it was relatively easy to incorporate there, and then the volume of registrations begat the volume of case law, which begat more registrations because of the favorable legal environment.

My point was that it's not just because it's trendy or a matter of conformity. It is a risk-management strategy.

How is that any different than anything else?

Everyone hates Facebook but everyone uses it. Why? That's where the people are. Same for Instagram, Reddit, etc.

Everyone hates JavaScript. Buggy and counter intuitive. Mess in all the different browsers - historically. But everyone uses it because everyone uses it so it gets the community.

Maybe Delaware is the best... or a victim of circumstance. Or being good enough and one of the early states to get that foot hold.

Could you share the article you wrote about why Delaware is a corporate haven?

The Court of Chancery nearly always rules with the board (VCs) over shareholders (founders). VCs like that.

There are limitations on the number of owners and the amounts and type of stock you can issue as other types of corporations. Delaware doesn't require you to disclose all owners and investors and they have a court of chancery that is business friendly.

Are you my attorney?

Nope.

Would Nevada/Wyoming be a good deal if they lived in the US? Let's say, living in Texas.

If your corporation will be deemed to operate in the state you live in, which it might, then it'll need to register there as well as its home state. The least hassle path is often to make the corporate home the same as your home, then you don't have to register in two different states, and you don't need to pay a registered agent, because you can do that, etc.

It's certainly a different question if you're likely to get funding, but it's not hard for a skilled attorney to re-incorporate your business as a Delaware corp if that's a condition of financing, just takes a bit of time to do the work, and maybe not much more time than incorporating in Delaware to begin with, and delaying hassle that you might be able to avoid is better than paying it upfront.

I agree with the first paragraph and strongly disagree with the second. If you are a US citizen and live in the US, for any pass-through entity, you will likely be taxed and need to register as a foreign entity in your home state. Probably easiest to just incorporate where you reside, unless you're looking to raise capital, in which case you should just go straight to DE.

Conversion costs and/or re-incorporation complexity varies considerably by state. Some states allow for simple statutory conversion; other states expressly prohibit it. It is not accurate to to say that reincorporating is just a bit of work. Sometimes it is, and sometimes it's a lot of work. If you're serious about raising capital, start as a DE C Corp from the gun. Especially if you have multiple founders.

Your commentary on the wide variety of challenges that can arise from reincorporating/re-domiciling matches my experience.

In some cases, depending on the originating state and business structure, there may not even be a way to accomplish that without selling your old business to your new business. Even if that’s “just on paper”, it becomes an entirely different (and sometimes much more costly) beast.

If it’s a small company, you may notice the cost of registering the foreign corporation in your actual location.

Some people and tax authorities may draw an inference from states like Nevada with a reputation for shady companies in some industries.

Texas has a larger up-front cost (about $300 one-time), but no annual fees at all, no income tax for corporations or individuals.

Unlike Wyoming and Nevada, Texas does have franchise tax, but that is 0 until you exceed $1.23M in revenue, and it maxes out at .331% or .75% after that (https://comptroller.texas.gov/taxes/franchise/).

Delaware has all of these (personal, which wouldn't apply if you live elsewhere, corporate income tax, corporate franchise tax, minimum $400 annually). Wyoming costs only $50 to incorporate but has a $50 annual filing fee.

Also, you'll probably need to file foreign corporate status if you have employees in Texas but are incorporated elsewhere, which is about $700 (one-time).

How difficult is it to change, in practice? If I've got an LLC or a corp in a different state, can I form a DE C corp and arrange to have that buy my whatever?

It’s not a big deal. Startups do this all the time when they get bigger and want funding.

> If you care about anonymity, do Nevada or Wyoming

The CTA is more aimed at money laundering, but I have to imagine the new rules will make 'unmasking' anonymous corporations much easier, right?

https://www.mwe.com/insights/understanding-the-corporate-tra...

Piggybacking on this.

If I'm a non-resident alien looking to incorporate the cheapest US-based company of some sort so that I can open a business bank account for manufactured spending, would a Colorado LLC still be the the best choice for me?

You’ll need an SSN to open most credit cards, it’s very difficult to get a credit card without residency. The business banks that specifically cater to overseas founders (like Mercury) make banking easy but that doesn’t extend to churning credit cards.

Edit: put simply, it’s very unlikely that opening an LLC will help you in obtaining credit cards as a non-resident.

I assume ”non-resident” in this context means not a permanent resident, but still a SSN-holding resident otherwise. For example a TN or H1-B visa.

These visas don’t authorize you to work for a company other than the one officially sponsoring the visa, but you are allowed to own your own business. Perhaps that is the motivation for wanting to open an LLC, but I’m not sure what an LLC gets you in this situation that simply declaring yourself a sole proprietor doesn’t.

You're wrong. Non-resident alien means the person is at-best a tourist. Most likely the person is outside of the US and _maybe_ visits occasionally.

No, you are totally wrong. You should not comment on things that you have no understanding of. A non-resident alien is any person in the US who is not a citizen, green card holder, or passes the substantial presence test. There are millions of non-resident aliens on visas in the US.

Substantial presence test is applied by IRS only for tax residency. You can be on h1-b for 5 years, pass the SPT and classify as tax resident but still be non-resident alien in the eyes of DHS/USCIS/SSA.

In the United States, non-resident alien is someone who does not have a LPR or US citizenship. Students on F1 Visas and J1 visas for example, are categorized as Nonresident aliens.

H1B is a dual purpose visa on the other hand. LPRs and Citizens are obviously categorized as residents.

Completely wrong.

note: nevada lets you form entities with little information but demand the information 6 months later, which will be public

the only shady thing about this part of nevada are all the promoters advertising anonymity

What happens if you move your home to a different state after incorporation? Do you potentially have to register the business in the new state as well as the old one it's already registered in?

You don't in theory, have to live in the state you incorporate in.

I qas told that Delaware also has the bedt abonymity? Has Delaware been dethroned by Nevada and Wyoming in this aspect?

Some states are better than others. For example, California has an annual LLC tax of $800. There's no reason to pick California for a use case like this.

But if you are doing business in California, you are still liable for the annual $800 tax, even if your LLC is formed in another state.

When did the OP say that he's a US citizen? Not sure I saw that.