When starting a business, incorporation can be an exciting step. But when taking this step, many individuals may ask whether incorporating in Delaware is more advantageous than New York. The real answer is “it depends.” Knowing the difference between the incorporation processes of the two states is important in making that decision. Businesses differ, so weighing the pros and cons of each state will help you find the right venue to register in.
Incorporating in New York
For most businesses in New York, a majority, if not all, of the business conducted will be in New York. While many people believe Delaware is the top business-friendly destination in the world, New York is not far behind. In New York, there are several business incentive programs offered by the state for both LLCs and corporations. For instance “Startup New York” is a benefit program offered for business that meet a specific criteria which allows them ten years of tax-free operation when operating within a particular area. New York also offers additional benefits for businesses that hire minority groups that have historically been denied employment. The credits, which could range from $1,000 to nearly $10,000 a year, are given for the employment of groups such as unemployed veterans, food stamp recipients, summer youth employees, and designated community residents. Most of these programs require the corporation to be registered in New York State.
Furthermore, as to the structure of a business, New York LLC law allows the members to protect their interests from creditors, customize their financial allocations and form LLCs of unlimited duration if they desire. New York has also been found to have favorable commercial contract laws. In addition, New York State Courts have also been known for being relatively efficient at enforcing those laws.
Incorporating in Delaware
The primary reason why most businesses choose to register in Delaware is because it has been known as a tax haven for many new corporations. Delaware does not collect taxes from businesses that conduct business there which could lead to an abundance of savings for certain companies. Additionally, the process for incorporating in Delaware is typically faster. That is because Delaware requires much less information for business registrations. Also, the financial incentive is that Delaware incorporation costs nearly a third of what New York does. With that being said, the registration fees in both states are minimal for the benefit of incorporation.
While New York Courts are experienced in commercial law, Delaware has a separate court for these matters. Delaware’s Court of Chancery answers all cases that involve corporate law. This provides Delaware with a very well-developed body of corporate law which makes any situation a corporation may face have a predictable outcome. Because of this predictability, many investors and venture capitalists prefer to invest in corporations that are registered in Delaware.
Without looking past the initial burden of registration fees, one may be inclined to file in Delaware. There are many myths out there regarding incorporating in Delaware. For instance, there is a common misconception that you do not have to pay taxes if you register in Delaware. However, while that may be true for taxes in Delaware, you will still be obligated to pay taxes in the state your business is operating in. Investigating the tax laws of both states will also help you make the best decision for your business.
The reality is there is a lot to review when making the decision on where to register your business. An attorney experienced in commercial laws and incorporation will be able to help you weigh the pros and cons of registering in any state. The attorneys at Wingate, Kearney & Cullen, LLP have handled many corporate and business law matters on behalf of their clients. For more information or to schedule a consultation, call (718) 852-5900.