Is Delaware the cheapest place to incorporate?
Entrepreneurs weighing where and whether to form a company debate the value of a Delaware C‑corp versus cheaper, simpler options like LLCs in other U.S. states or local entities abroad. Many argue Delaware is rarely the cheapest or best choice unless you plan to raise venture capital, citing higher ongoing fees and complex filing requirements, while alternatives such as Wyoming, Nevada, Colorado, or even delaying incorporation altogether can minimize cost and bureaucracy. Liability protection, tax treatment, funding goals, and the founder’s country of residence emerge as the key factors that should drive the decision.
Delaware cost and role
- Consensus: Delaware is not the cheapest place to form a company; it’s often more expensive to form and maintain than many other states.
- Its appeal is predictability: specialized courts, extensive case law, and familiarity among corporate lawyers and investors.
- Franchise tax and ongoing compliance can be “scary” and non‑trivial, especially for small or inactive companies.
LLC vs C‑Corp and timing
- Many argue: don’t incorporate at all until you have real customers or contracts; otherwise it’s “playing house.”
- For most small or one‑person businesses, a simple LLC in the founder’s home or a low‑fee state is portrayed as cheaper and simpler than a Delaware C‑Corp.
- Delaware C‑Corp is recommended mainly when raising venture capital or when investors require it. Reincorporation to Delaware later is described as common but sometimes complex.
Alternative states and costs
- Several states cited as cheaper and simpler for LLCs: Arizona, Mississippi, Missouri, Kentucky, South Carolina, Wyoming, Nevada, Colorado, Texas, New Mexico, Ohio.
- Some emphasize low or one‑time filing fees and minimal ongoing reporting; others warn about franchise taxes (e.g., California’s $800 minimum).
- Wyoming and Nevada are repeatedly mentioned for low fees and privacy; Colorado highlighted for a simple online system.
Liability, risk, and practicality
- Pro‑LLC side: limited liability and a more “professional” image are seen as worth modest upfront cost.
- Skeptical side: single‑owner entities often don’t protect against actions of the owner; insurance and good customer relationships matter more.
- Some call pre‑revenue incorporation and startup trappings “startup porn.”
Foreign and cross‑border issues
- For those in Taiwan or other countries, several warn that a U.S. entity can trigger U.S. tax filings and local “permanent establishment” issues.
- Suggestions include: consider a local entity, a foreign parent with a Taiwan branch, or delay any incorporation; cross‑border tax/treaty details are described as complex and “unclear” without expert advice.
Open source / low‑revenue projects
- Many say an open source project with little or no revenue doesn’t need a company at all.
- Alternatives mentioned: open source foundations, simple sponsorship/donation mechanisms, or holding IP in a basic LLC if truly necessary.