By: Dennis Scoggin
When people think of Delaware … let’s face it, people don’t think of Delaware. But it is the business world’s best-kept secret. About 65% of Fortune 500 companies are incorporated in Delaware (e.g., Amazon, Google, Tesla, etc.). This is no mere fluke. The state boasts a business-friendly climate and extensive body of corporate law. And here’s the kicker: no corporate income tax. Setting up a company in Delaware is so streamlined, that it is home to more than 1.8 million companies—more than the number of Delaware residents! Which is surprising, considering the state has no sales tax, investment income taxes, inheritance taxes, or personal property taxes. A nondescript office building that spans less than a city block in Wilmington, Delaware, is the official incorporation address of more than 285,000 global companies! Notably, you do not have to live in Delaware to incorporate a company in Delaware. Also, a Delaware physical address is not required as long as you retain a Delaware registered agent for your Delaware corporation or LLC.
Predictable legal landscape
The predictability of the Delaware court system is a boon for companies—business issues are predictable because of the Delaware Court of Chancery. This forum is the nation’s preeminent corporate court. It is responsible for developing the case law on corporate matters because its judges are experts in corporate law (no juries in this court!). The Court of Chancery handles matters in equity, and focuses on corporate issues, trusts, estates, other fiduciary matters, disputes involving the purchase of land and questions of title to real estate, as well as commercial and contractual matters. The average civil lawsuit can span several years, but with judges who specialize in corporate law and the lack of juries, along with primacy of corporate-related cases, means that similar cases can be decided swiftly.
Taxes schmaxes
Delaware is considered a tax haven because of its unparalleled tax savings. If your company is incorporated in Delaware, but you conduct business out of state, there is no state income tax. There is also no inheritance tax on stock held by non-Delaware residents. Additionally, there is no state sales tax on intangible personal property (like royalty payments). Also, non-residents who own shares of stock in Delaware corporations are not subject to Delaware taxes. Some companies, however, avoid their in-state income tax by establishing subsidiary or shell companies that hold various intangible assets but do not directly run business operations.
Anonymity & expediency
Did you know that you can conduct same-day business filings in Delaware? The incorporation process can take less than an hour! You can find filing forms and fees here. If you plan on creating an LLC, there is no requirement to make the names and addresses of your LLC’s members and/or managers a matter of public record. As a Delaware registered agent, you would only need to reveal this information: (1) in the event of a legal proceeding; or (2) at the request of law enforcement. Officers, directors, and shareholders do not need to be Delaware residents. Further, small businesses are allowed to have just one person hold the role of officer, director, and shareholder. When it comes to raising capital, whether via angel investors or venture capital, they often prefer you incorporate in Delaware because they are familiar with its business laws.
Considerations
Size matters. Small businesses do not get significant tax savings—you do not get to avoid taxes outright. Delaware does not tax companies incorporated in the state that do not do business there, but you are still responsible for taxes imposed by your home state. Your company will also have to pay the Delaware franchise tax on its shares’ value, but this could be minimal compared to the income taxes your home state may charge. Albeit minimal for small businesses, franchise taxes are subject to increases based on the number of shares and improved value. You may also need to pay a franchise tax in your home state. If you plan on conducting business in another state, you still need to satisfy your state’s filing and licensing requirements for conducting business there (Delaware registered agent fees may vary). If your company is involved in a lawsuit, you will need to travel to Delaware to handle any legal disputes. You will also have to account for legal fees to retain a Delaware attorney to maneuver the legal landscape.
Key Takeaway
In sum, the key advantages to incorporating in Delaware are tax benefits, privacy, expediency, simplified structure, and predictability in corporate law. Delaware offers convenience to companies who incorporate within the state, but said benefits are primarily geared towards large corporations. If you have a small business, you should carefully weigh the additional costs involved against the benefits of incorporating in Delaware. But if you structure your company properly, you will reap the privileges of being a Delaware corporation.
This post has been reproduced and updated with the author’s permission. It was originally authored on February 1, 2023 and can be found here.
Dennis Scoggin, at the time of this post, is a third-year law student at Penn State Dickinson Law. Upon graduation, Dennis will work as a judicial clerk for the Delaware Court of Chancery.
Sources:
https://corp.delaware.gov/
https://courts.delaware.gov/forms/download.aspx?id=135828
https://www.forbes.com/advisor/business/incorporating-in-delaware/
https://www.delawareinc.com/before-forming-your-company/benefits-of-incorporating-in-delaware/?campaign
https://www.legalnature.com/guides/top-3-best-states-to-start-and-incorporate-a-business
https://www.legalzoom.com/articles/incorporating-in-delaware-advantages-and-disadvantages
https://sunlightfoundation.com/2016/04/06/why-are-there-so-many-anonymous-corporations-in-delaware/
A great place to start looking for a lawyer is the American Bar Association (“ABA”). The 
Business organizations. Depending on the stage of your business, you may need a lawyer to advise you on what type of business entity to form (e.g., corporation vs. limited liability company (LLC)). This lawyer should be able to discuss the advantages and disadvantages of each entity and to prepare any paperwork associated with formation.
How do you educate your clients? A lawyer should be willing to tell you what the law says and explain how it affects your business. A lawyer should be a teacher and take the time to educate you and your staff about legal matters directly impacting business operations. The right lawyer might also distribute newsletters or legal reports that describe recent. developments in the law that impact your business.
Does this person communicate with me? The right lawyer will not simply tell you what you cannot do but will tell you how to do what it is that you want to do. She will discuss all available options. The right lawyer will tell you what other businesses in your situation normally do.
Complaints against other employees or management in the company will arise. Having a plan for early resolution can prevent these issues from escalating.
Small businesses hit hard by the pandemic relied on government stimulus to stay alive. Many small businesses are considering their next move now that crucial stimulus is running out. For a small business with overdue debt, its creditors are likely calling, asking when they will be paid or, worse, making threats about collections and repossessions. As a result, small business owners may ask themselves what they can do to move forward.
Zach Javorsky is a recent graduate of Penn State Dickinson Law. He is from Pittsburgh, Pennsylvania, and is a graduate of Allegheny College. Zach plans to become a corporate attorney after graduation. He is a member of the Dickinson Law Review Editorial Board.
Lance Sacknoff, at the time of this post, is a graduating 3L at Pennsylvania State University – Dickinson Law, earning a J.D. and certificate in Entrepreneurship Law: Intellectual Property and Technology, as well as CALI awards in Blockchain & Cryptocurrency Law and Internet Law. As a law clerk for a Carlisle firm, Allied Attorneys of Central Pennsylvania, Mr. Sacknoff currently pursues his passion in helping small business owners navigate a variety of legal issues. He also recently served as a Launchbox panelist on “Demystifying Trademarks: What Small Business Owners Need to Know.”
Regardless of industry, there is one thing common to most small businesses: they hire, train, and supervise employees. Employees help business owners manage the daily operations and serve clients. While having employees can help spread out the work that a business does, there are several things to consider from a legal perspective. One of those considerations is anti-discrimination laws such as Title VII of the Civil Rights Act of 1964, Americans with Disabilities Act (ADA), Age Discrimination in Employment Act (ADEA), and Genetic Information Nondiscrimination Act (GINA). These laws protect against discrimination based on race, color, religion, sex (including sexual orientation and gender identity), national origin, age, disability, and medical history. The laws are enforced by a federal agency called the Equal Employment Opportunity Commission (“EEOC”).
As stated above, private employees are required to file a complaint with the EEOC in order to receive a right to sue letter. The employee must bring the claim within 180 calendar days, or 300 calendar days if there is a state agency that also prohibits employment discrimination. An employee can file this claim online, in person at an EEOC office, or by mail. After filing this claim, a notice of the charge is sent to the employer within 10 days if the charge is timely filed and concerns activity that is protected under the laws that the EEOC enforces. This notice lets the employer know that a charge has been filed.
Once the employer has been notified of the charge, the EEOC will check to see if the employer and employee would like to agree to mediate the claim in hopes that both parties can reach a settlement. Mediation is an alternative to litigation which can be less formal and involves a neutral, third-party mediator. The EEOC encourages employers to utilize mediation because it is “free, quick, voluntary and confidential.” If mediation is selected and results in a successful settlement, there is no need for the EEOC to investigate. The average time to process the mediation is 84 days. Mediation typically results in settlement. Settlement can be pursued at any time during the filing process.
At the end of the investigation, the agency will provide the employee with the investigative file and alert them to their right to request an administrative hearing or an immediate final decision. If the employee requests an immediate final decision, they will receive one within 60 days. If a hearing is requested, the case will be assigned to an EEOC Administrative Law Judge who will conduct a hearing. The employee can also appeal the agency’s decision, which can continue the complaint process.
Abbie 
Stefan Hawkins, the “Good Brotha,” went viral with a post on LinkedIn about his coffee brand “
Stefan Hawkins is a Harrisburg, Pennsylvania native. In fact, the brand name and concept “Fifth Acres” pays homage to the city that created him. He was born and raised on North “Fifth” Street in South Harrisburg, locally referred to as South “Acres.” The coffee beans are sourced in African countries, and the roast variations are given geographic names such as, “Uptown blend” and “Southside blend” to align with the geographical theme of the brand. A percentage of the profit is donated to local non-profit organizations.
“After doing some research and listening to business owners of all kinds, I have learned the importance of ownership.” When Stefan gets asked, “why coffee?” His response is often, “why not?” He saw a need and addressed it. His entrepreneurial spirit turned a hustle into his passion. He says, “this is both a hustle and a business for me. This is about longevity. I want to be the next Howard Schultz.” Howard Schultz is most famously known for being the chief executive officer of Starbucks but is also an author.
“Nobody sees your vision like the way you see your vision,” Stefan spoke about working endlessly and tirelessly for months to facilitate a good coffee shop experience for his customers. Good Brotha’s Café has a cozy, “dark-themed” bookstore vibe featuring local Black artists’ paintings of men and women on the walls, a giant bookshelf filled with books for customers to read at their leisure, and pastries to go with the perfect cup of coffee.
Kayla Duhaney, at the time of this post, is a second-year law student at Penn State Dickinson Law. She is from Mount Vernon, New York, and is a graduate of George Mason University located in Virginia. Kayla is the Vice President of the Black Law Student’s Association and a Dickinson Law Lion Ambassador. She plans to take her education and talents back to New York City post-graduation.
The words “diversity” and “inclusion” have become buzzwords in the past couple of years and particularly, since George Floyd’s murder. Hashtags like #BlackLivesMatter, #MeToo, #StopAAPIHate and similar catchy phrases have exemplified the rhetoric taking place all over the world today. The COVID-19 pandemic has also highlighted economic disparities between different racial groups in the United States. A 2020 poll by the Washington Post found that 20 percent of Hispanic adults and 16 percent of Blacks had been laid off or furloughed during the pandemic, compared to 11 percent of White employees. Responding to the public outcry for a more diverse workforce, several companies scrambled to create diverse and inclusive teams. Did your company jump on this bandwagon? Has your business integrated a diversity and inclusion strategy into its business plan ? How should your business think about diversity and inclusion?
A McKinsey study revealed that racially and ethnically diverse companies outperform industry norms by 35%. Additionally, according to Boston Consulting Group, companies that have more diverse management teams have 19% higher revenue. This data demonstrates the importance of a diverse workforce. Diversity efforts at the workplace, however, should not only be reduced to a business strategy with positive outcomes that translate into high dividends for a company’s shareholders; they should be used as a tool and a means to empower minority groups that have been excluded from accessing markets and services so that they can also empower their communities. Before delving deeper into diversity and inclusion efforts that empower underrepresented groups, let’s take a look at some of the underlying legal structures and laws regarding hiring and keeping a diverse employee base.
1. Make Diversity and Inclusion a Part of Your Company’s Mission and Vision– What does your brand say about your company culture? Who are you hiring? Whose experiences and inputs are considered valuable? If you want to create a truly diverse and inclusive team, you need to have everyone on board. When you link diversity and inclusion to your business’s goals, it becomes more than just a strategic plan. It becomes one of the core elements that drives your business. Employees will begin to embody these values and your clients will also recognize the place diversity and inclusion occupies in your business. This will also ensure that diverse employees feel a sense of belonging and that their contributions matter.
To make your diversity and inclusion efforts an empowering tool, consider making diversity and inclusion a part of your company’s mission and vision, creating task forces to hone in on the strengths and weaknesses of your diverse employees, keeping your leaders accountable and investing in your diverse employees.
Maame Boateng, at the time of this post, is a third-year law student at Penn State Dickinson Law. Maame is from Ghana and is interested in corporate and international law. Maame currently serves as a Senior Editor of the Dickinson Law Review.
Are you a current small business owner, or in the process of forming a new corporation or LLC? If so, you need to be aware of a new federal reporting requirement, which could affect your small business beginning in January of 2022. In 2020, Congress passed the Anti-Money Laundering Act, which was part of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”). The NDAA included the Corporate Transparency Act (“CTA”) which became effective on January 1, 2021. However, beginning on January 1, 2022, the CTA will begin being enforced, requiring many small business owners to ensure they are in compliance with its reporting requirements or face criminal and/or civil penalties. The remainder of this article will provide an overview of what the CTA is, who it applies to, and how small business owners can ensure they are in compliance with these new federal reporting guidelines.
However, the CTA expressly exempts many large companies, those already heavily regulated by the SEC or other federal regulators, and charitable, religious, and political organizations from the reporting requirements. Specifically, if your company employs more than 20 full-time employees, reports over $5 million in gross revenues on your most recent tax return, and has an operating presence with physical offices in the U.S., the CTA exempts your company from its reporting requirements. This specific exemption exists because, as mentioned previously, the CTA was passed in an effort to crack down on the illegal activities which tend to travel through small shell companies.
Phil Petrina, at the time of this post, is a rising 3L at Penn State Dickinson Law, a member of the Class of 2022. Phil is the President of the Student Bar Association, on the Moot Court Board, a member of the Business Law Society, and a Pennsylvania Commonwealth Scholar. He is interested in corporate and commercial litigation, business law, and healthcare law. Phil can be contacted at pjp5327@psu.edu.
