5 misconceptions of setting up an entity in Delaware

By Elannie Damianos

Dear Readers:

If you’re considering setting up a corporation in Delaware without obtaining professional advice, think again. Here are five common misconceptions I come across when helping clients who come to me post-set-up:

Delaware is a “tax haven”. If you are doing business in Delaware itself, Delaware is subject to corporate tax. If you are not doing business in Delaware, but incorporated your corporation in that state, then you need to file an annual report and pay franchise taxes.

I don’t need to file a federal tax return if I incorporate in Delaware. Make sure you have a US accountant ready to help you when you start operations in the United States. The Internal Revenue Service imposes harsh penalties for non-compliance with its filing requirements. Deadlines must be respected and where available, extensions filed.

I can use my registered agent address for my general correspondence in the US. A US address can be required for setting up a bank account, the IRS, customer accounts, and other government agencies. Often, which address can be used, needs to be considered in the specific context.

I need to issue all my authorized shares at once to shareholders. How many shares you issue, and keep in reserve, should be considered in the context of the business’ plans for obtaining future investment, additional shareholders, and granting employee incentives.  If you need to authorize more shares, the par value of your shares may lead to hefty filing fees.

I can set up in Delaware and operate in other states. Having employees, an office, or meeting a monetary threshold of sales in another state, can trigger the need to register with the Secretary of State and tax authority in that state.

What are my next steps?

Get in touch with us! We provide a free consultation where we determine together the most appropriate way forward in your situation. Contact edamianos@seruslegal.com

About the author & Serus Legal

Elannie Damianos is a Partner at US-based law firm Serus Legal, New York. Born and raised in Sydney, Elannie is a qualified lawyer in Australia and the US and has worked with international businesses for nearly 20 years. Elannie’s practice focuses on helping foreign businesses enter the US market and she can help you navigate the complexities of the American system.

The content of this insight is general in nature and should not be relied upon as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to the reader’s individual circumstances. ATTORNEY ADVERTISING, Serus Legal PLLC, 48 Wall Street, Fl 11, New York, NY 10005.
(201) 989-8901