The prestige enjoyed by Delaware as a corporate domicile is in part due to the emphasis which the state has placed in making its corporate laws, court system and infrastructure attractive to businesses. The success achieved by the state is reflected in the almost one third contribution to the income of the state government from registration and franchise taxes. Other frequently cited reasons for Delaware’s popularity as a company domicile include:
• Delaware is the only state within the US to have a separate Court of Chancery whose judges are highly experienced in company law. The decisions of that court have established a body of law relevant to corporations which are frequently followed by other courts in the US.
• The Delaware General Corporation Law is used as a standard by which the corporate laws of other states are tested; it is the corporate code that is used in most US law schools to train lawyers which results in greater familiarity with Delaware corporate law among lawyers.
• Delaware does not impose a corporate income tax on corporations that are formed in Delaware, but which do not transact business in the state. Non-resident companies only pay an annual franchise tax to the state with a minimum of US$125 payable annually.
• The large number of well-known companies with Delaware as their corporate domicile has influenced many small and medium sized companies to adopt the same strategy.
Advantages of Delaware Corporations
• No disclosure of the names of Shareholders.
• An individual can hold all corporate offices and be the sole Director.
• The annual state franchise tax is low.
• Meetings and records can be held anywhere in the world.
• Shareholders and Directors can act by written unanimous consent.
• No minimum capital is required in order to commence business.
• No residency requirements for Shareholders, Officers and Directors.
• Corporations can be established for any lawful act or activity.
• No state income taxes for corporations which do not transact business in the state.
• Special provisions can be included in the Certificate of Incorporation and By-Laws which exculpate Officers and Directors from personal liability and provide indemnification of Officers, Directors and Shareholders.
Delaware Corporate Structure
• The Certificate of Incorporation is the public document registered with the Office of the Secretary of State of Delaware on formation of a corporation.
• By-Laws are the regulations of the corporation as adopted by the Directors which describe the procedures by which the management of the company is to operate.
• The Stockholders are the owners of the company, but they do not manage the company. Typically, they hold common stock and have the right to one vote for each share they own. Only one Stockholder is required.
• The Directors manage the company and are responsible for the affairs of the company such as the issuance of shares, election of Officers and approving transactions. Only one Director is required.
• The Officers of the company are appointed by the Directors and handle the day-to-day business of the company. The Officers carry out the Board’s decisions and implement the Board’s policies. Officers are usually the President, Vice President, Secretary and Treasurer.
Foreign Ownership of Delaware Corporations
There are important tax and corporate governance issues relating to the ownership by non-US persons of a Delaware corporation. These are:
• No restrictions on foreign ownership or management of the corporation.
• Shareholders may be individuals or business entities of any nationality or domicile.
• With the exception of a Registered Office and Registered Agent in Delaware, no physical presence in Delaware is required.
• The By-Laws of a corporation are not a matter of public record.
No disclosure in the public record of the names of the Shareholders of the corporation.
• The corporate records may be maintained outside the US.
As a corporation incorporated within the United States the company is required to comply with US Federal Tax and Reporting requirements. A Federal Tax Identification Number must be applied for and on an annual basis the company is required to file a tax return with the US Internal Revenue Service.
Note: Trident Trust is able to arrange for qualified professionals to prepare and file the company’s tax filings.
A Certificate of Incorporation is filed with the office of the Secretary of State of Delaware upon the incorporation of the company which lists:
• The name of the corporation which must end with the words “Company”, “Corporation”, “Limited” or “Incorporated” or one of the abbreviations such as “Co.”, “Corp.”, “Ltd.” or “Inc.”.
• The name and address in Delaware of the corporation’s Registered Agent and Registered Office.
• The nature of the business or purposes to be conducted or promoted.
• The total number of shares of stock which the corporation shall have the authority to issue and any designations, preferences, rights, qualifications, limitations or restrictions on the shares.
On March 1st of each year, every Delaware Corporation must file an annual Franchise Tax Report and pay an annual Franchise Tax. The tax is based on the authorised share capital of the corporation and the Tax Report must include the names and addresses of the Directors and Officers. Late filing of the report and payment of the tax will incur penalties and interest which is compounded daily.