Sage-Tips

Why is Delaware attractive to investors?

1) Flexibility. When the time comes to structure your corporation, Delaware offers some of the most flexible corporate statutes. Your shareholders, directors, and officers are not required to live in Delaware, for instance, and you’ll only need one person to assume each role.

Why are startups based in Delaware?

The primary reason that the tech startups I work with incorporate in Delaware is finance. Venture capital firms typically require companies to be structured as a Delaware corporation as a condition of funding the company. There are scenarios where a Delaware corporation is not the ideal entity type for a startup.

Why is Delaware C Corp for startups?

As Daniel DeWolf at Mintz Levin puts it, “Incorporating as a C-Corporation in Delaware is the gold standard for high growth startups. It provides limited liability, ease of use, ease of setup, the ability to issue stock options, and tax benefits upon sale for many qualified small businesses.”

Why are there so many LLCs in Delaware?

It offers three big advantages for out-of-state businesses organized as Delaware LLCs: No sales tax if the LLC doesn’t do business in the state. No tax on intangible income, like trademark royalties, making Delaware an excellent choice for holding companies that own intellectual property.

Why is it better to incorporate in Delaware?

The advantages of incorporating here include: The state offers some tax benefits. Delaware doesn’t impose income tax on corporations registered in the state which don’t do business in the state. Also, shareholders who don’t reside in Delaware need not pay tax on shares in the state.

Why do most businesses incorporate in Delaware?

There are two major reasons for Delaware’s dominance of the corporate incorporation business. The other major reason corporations choose to incorporate in Delaware is the quality of Delaware courts and judges. Delaware has a special court, the Court of Chancery, to rule on corporate law disputes without juries.

Is Delaware offshore?

Think of leafy roads, red-brick townhouses, and the unmistakable charm of small-town America. Welcome to Wilmington, Delaware. It might come as a surprise for some, but the United States, by every possible metric, is the largest offshore jurisdiction in the world.

Can a venture capital firm invest in a Delaware C corporation?

Delaware C corporations are preferred over S corporations from the professional investor’s perspective. This is because all shareholders in an S corporation must be U.S. citizens, residents and “natural persons.” A Venture Capital firm would not qualify as a “natural person,” thus a VC firm could not invest in an S corporation.

Who are the angel investors in Delaware companies?

Angel investors or affluent business people who inject capital in to businesses like Delaware mostly for the tax laws. Investment bankers are somewhat similar to venture capitalists, but in a more conservative sense. They favor well-established corporations and also prefer Delaware companies for the same reasons as the VCs.

Can a venture capital firm invest in an S corporation?

This is because all shareholders in an S corporation must be U.S. citizens, residents and “natural persons.” A Venture Capital firm would not qualify as a “natural person,” thus a VC firm could not invest in an S corporation. Another disadvantage for investors is that S-Corps cannot offer preferred stock—they can only offer common stock.

What do venture capitalists (VCS) look for in a startup?

Venture capitalists (VCs) are known for making large bets in new start-up companies, hoping to hit a home-run on a future billion-dollar company. With so many investment opportunities and start-up pitches, VCs often have a set of criteria that they look for and evaluate before making an investment.