If I operate a business in CA is there any benefit to being incorporated in DE?

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If I operate a business in CA is there any benefit to being incorporated in DE?

I do marketing consulting in CA and have an e-commerce company. I incorporated in DE a couple years ago because the tax benefits were more favorable. However, I received a letter from the CA State Franchise Tax Board, indicating that I owed back taxes. They explained that the fact that I do business in CA qualifies me to pay taxes in CA. Since most of my revenues are from consulting, is there’s any benefit to be incorporated in DE at the same time?

Asked on August 5, 2010 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

No, there really are no benefits. It's a myth that Delaware incorporation confers some advantage...or rather, the Delaware Chancery courts (which deal with many corporate law issues) are very skilled and experienced, and Delaware regulations and legal precedents are advantageous in the case of certain legal disputes. However, these are not advantages that benefit small businesses, or even large businesses in 99% of their activities. DE's advantages come into play mostly in terms of some issues or disputes over corporate management, authority, dividends, etc.

Since the main issue for a small business has to do with taxes, and taxes is governed mostly by where economic activity takes place or has a connection, there's not really any gain from DE incorporation.


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