Delaware has been known as the state whose laws provide the most flexibility and have the most protections for corporations, limited liability companies, and limited partnerships. In recent years, other states have begun to take notice and become more corporation-friendly. One of those states is Florida. If you are a business owner, deciding on incorporating in Florida vs Delaware can be a big decision.
Why Should You Incorporate?
Incorporating a business means turning your company into one that is formally recognized by your state of incorporation. When you incorporate your company, it becomes its own legal business structure rather than a group of founding business members.
Reducing liability is the primary benefit of incorporation. As a business owner, you bear responsibility for all losses and debts your business may incur. When you incorporate your business, it typically reduces your liability to only the amount of capital that you personally invest. In most cases, personal assets cannot be used to satisfy the debts of the business.
Deciding Between Incorporating in Florida vs Delaware
A company may choose to incorporate in any jurisdiction, including international jurisdictions, so long as it is properly registered with the state in which it conducts business. Traditionally, Delaware has been the state of choice when it comes to incorporation. This is because of corporate-friendly taxation laws and a well-established business law legal system. Nearly half of the nation’s publicly traded companies, including global corporate leaders such as Apple, Coca-Cola, Google, and Wal-Mart, are incorporated in Delaware.
Today, deciding between incorporating in Florida vs Delaware requires some analysis. There are several important factors to consider when making this decision. These factors include:
- Whether your business has a physical storefront;
- State taxes;
- Filing fees; and
- The general business laws of each state.
If you own a business with a physical location, you should understand that regardless of where you incorporate, the state where you conduct your business will want the tax revenue. If you do not have a physical address in the state you choose to incorporate in, you will need a registered agent to review the service of process and legal notices at an office location in that state.
Incorporating in Florida vs Delaware
Delaware is known as the leader for corporations in the U.S. Some big reasons have been their business laws and tax regulations. Florida also has an established set of laws specific to incorporation and business activities. There are numerous pros and cons of incorporating in either Delaware or Florida that could sway your decision depending on the priorities of your business.
Incorporating in Delaware
Delaware is largely known as a “business-friendly” state due to its corporate laws and tax regulations. The Delaware Court of Chancery has existed for over 200 years with the sole purpose of handling corporate law matters. Judges with specific expertise in business law resolve legal disputes. Many investors, such as venture capitalists and angel investors, prefer to invest in Delaware companies due to Delaware’s tax laws and the existence of the Court of Chancery. Corporate attorneys are often more familiar with Delaware corporate law because it has been so prominent over the years.
If anonymity is important to your corporation, company records for Delaware corporations are not open to the public but can be acquired for a fee. Shareholder meetings are less formal than other states and do not require corporations to provide records of meetings that include minutes and resolutions.
If you are forming a company in Delaware but not actually conducting business there, you do not need to acquire a business license. Delaware does require corporations to pay an annual franchise tax, an annual report fee, and corporate income tax (8.7%). The annual franchise tax in Delaware is based on the size of the corporation.
Incorporating in Florida
Florida has recently surfaced as a competitor for corporate businesses. If you have an online business, Florida leads in cost-effectiveness and convenience. Florida’s online division of corporations makes searching for and filing documents convenient and easy compared to many other states. Florida’s filing fees are often lower than other states. However, additional taxes and fees may apply on an ongoing basis.
There are no minimum capital requirements to incorporate in Florida, and Florida does not require corporations to pay an annual franchise tax. To keep the corporate entity active, corporations do have to pay the annual report fee. Florida corporations are subject to the corporate income tax (5.5% of taxable income over $5,000). “S” corporations in Florida are exempt from state corporate income tax unless federal income taxes are owed. The state does not levy any personal income taxes on “S” corporation shareholders.
Florida corporations also allow a variety of employee benefit plans, which may help corporations attract the most qualified people to serve the business. Corporations in Florida may also deduct contributions made for employee disability and health benefits.
“In most cases, a corporation that is headquartered in Florida, does most of its business in Florida, or has most of its employees in Florida should be incorporated in Florida, unless there is a specific reason to incorporate in Delaware or another state.”Florida Business Attorney Trevor Brewer
Contact an Experienced Corporate Attorney
There is a lot that goes into making the best decision on incorporating in Florida vs Delaware. Each business is unique. Seek counsel from an experienced business attorney who understands the intricacies of incorporating in both states.
The team at BrewerLong can guide you through the entire incorporation process, including deciding the best corporate structure for your business and how to comply with all relevant business laws. Contact us to set up a consultation and learn more about what we can do to help your business succeed.