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Delaware is the default choice for many U.S. startups. More than 60% of Fortune 500 companies are incorporated there, and early-stage founders are often told to “just incorporate in Delaware.”
But while Delaware is often a strong choice, it is not automatically the right choice for every business. Incorporation is a strategic decision that affects taxes, fundraising, governance, and long-term flexibility. Understanding why Delaware is so popular — and when it actually makes sense — will help you make a more informed decision.
When and Why Startups Should Incorporate in Delaware
Before you begin building out your team, formulating a product, and any other business-related work, it is key that you firstly incorporate. Vendors, employees, and potential third-party partners will generally not interact with a yet-to-be-formed company. Without incorporation, you lack formal business credibility and cannot take advantage of any tax benefits available, among other issues.
When determining your jurisdiction for incorporation, you should be thinking about a few things. Firstly, where are your target/most-likely customers? Proximity to them will help streamline operations. Secondly, what are the respective tax obligations for the regions you are considering? The more you scale up your business, the more these disparities will become relevant. For instance, New York has the Excelsior Jobs Program tax credit for software companies incorporated in their state. Thirdly, think about the governance implications since various states have different requirements. This could impact future fundraising efforts from investors.
Delaware is an attractive option for entrepreneurs for a few reasons:
1. Corporate Tax- Delaware is a very corporate-tax-friendly state for multiple reasons. For instance, there is no corporate income tax on out-of-state revenue. Additionally, there lacks both state sales tax and inheritance tax upon the death of non-residents. That said, if you are operating physically in another state, you may still owe taxes there — so Delaware is not a universal tax shield. It simply offers structural advantages in certain scenarios.
2. Court of Chancery- Unlike many courts, cases are decided by judges who are experts in corporate law — not juries. The court has a long history of corporate rulings, which creates a deep body of precedent. For founders and investors, this means faster resolution of disputes, greater predictability and lower litigation uncertainty.
3. Privacy- Delaware allows corporations to avoid publicly listing shareholders. Only directors and officers are disclosed. For LLCs, even fewer details are required. In addition, Delaware’s incorporation process is streamlined and relatively inexpensive compared to many other states. Filings are processed quickly, and the state is accustomed to handling high volumes of corporate entities.
4. Raising Capital- Venture capital firms and startup attorneys are deeply familiar with Delaware corporate law. Most standard venture documents are drafted with Delaware corporations in mind. That familiarity reduces negotiation friction and legal ambiguity during financing rounds. In short, Delaware is the “standard language” of venture-backed startups.
5. Ease and Convenience- A common misconception is that incorporating in Delaware requires operating there physically. It does not. Many Delaware-incorporated startups have no physical presence in the state. They incorporate there for legal and structural reasons, not operational ones.
To be clear, just because you’re incorporated in Delaware, doesn’t mean you have to physically operate there. For many startups, Delaware is the simply path of least resistance
When Does Incorporating in Delaware Make Sense?
When deciding whether Delaware incorporation is right for your company, think about the following factors:
1. You are building a high-growth, scalable company
2. You plan to raise venture capital or institutional funding
3. You expect significant out-of-state or international revenue
4. You want maximum flexibility for future financing or acquisition
Delaware’s dominance is not accidental. Its tax structure, specialized court system, and investor familiarity make it uniquely attractive for high-growth startups. But incorporation should align with your specific goals. Choosing the wrong jurisdiction can create unnecessary complexity later. Choosing the right one can streamline fundraising, governance, and future exits.
Before making a decision, speak with experienced legal and tax advisors. The right choice depends on your growth plans, capital strategy, and operational footprint — not just startup folklore.
At Apex, we frequently advise founders on all the reasons to incorporate or not incorporate in Delaware. If you wish to discuss further, feel free to meet with us here.
