When setting up a Corporation, you analyze several factors. These factors include corporation governance, taxes and management liability mostly. This directs them to incorporate in other jurisdictions. Delaware or California, which is suitable, depends on various parameters.

What Gives Precedence to Delaware?

Delaware is thought to a favored state for large corporations due to the following reasons:

• It has always offered the best tax rules and has been the pro in management.
• It has effectively and efficiently shielded its board members against those lawsuits which were started by shareholders on corporation’s behalf.
• Minority shareholders get limited protection in Delaware than California.
• Delaware provides confined statutory protection against those mergers who take over without the consent of the management i.e. hostile takeovers.
• According to Delaware laws, all classes are allowed to vote together. Thus, these laws are preferred by the investors in Delaware. This is because the investors don’t want blockage of their any exit option by a single class. While in California, the major share of each class of stock is required to effect a change in corporate like acquisition, IPO or a merger.

Additional Costs and Taxes

If you have a corporation in Delaware and you’re willing to incorporate it in California, there are number of expenses that will increase. You will have to pay Delaware’s regular taxes (at least $225 or $400 a year). Then, you will have to file a statement of qualification in the state of California and pay the minimal tax of $800.
Other than this, the Delaware Corporation has to pay filing and administrative fees. To add to it, the Delaware Corporation has to pay extra amount of money to a registered agent in Delaware for maintaining your Delaware’s affairs. This amount is around $100 a year. Therefore, it becomes quite expensive for the corporations to incorporate in another state.

The laws of Delaware are so much in favor of investor and public companies that a private company considering an IPO would happily be a Delaware corporation.
However, the state you want to incorporate your business in depends on the structure of your corporation. A company which is not venture scale can incorporate in California. But, if they later decided to switch to venture scale, they may incorporate in Delaware along with millions of financing. Thus, it is recommended to make a wise decision as it can cost you millions of bucks.

The post Incorporating in California or Delaware- What is the Best for Your Corporation appeared first on Corporate California.