Serving business owners since 2007Updated note: Major shifts in the race to incorporate
Companies are leaving Delaware due to litigation risks, as many perceived from the case of a judge who overrode a shareholder vote in favor of Musk’s $55 billion Tesla compensation package, despite shareholder pushback.
Musk himself has reincorporated Tesla and SpaceX in Texas.
He’s also tweeted that any lawyer still recommending incorporation in Delaware should be sued for malpractice.
We should also question if a judge can—and should—override shareholders’ decisions. Is that an overstep? And what does that say about other companies? Are they at risk? Big businesses see this as a sign of risk and unpredictability.
In addition, Musk stated he will not acquire any Delaware-incorporated companies due to litigation risks.
Other high-profile moves include Bill Ackman—billionaire CEO of Pershing Square Capital Management—who plans to reincorporate in Nevada, Mark Zuckerberg’s Meta, rumored to be shifting to Texas, and Dropbox, moving to reincorporate in Nevada. Many more mega-corporations may follow suit, adding to a growing exodus from the so-called “Corporate Capital of the World.”
Meta
Dropbox
Many on X are voicing that this is not a good thing at all for Delaware. And the governor is stepping in to patch the leak.
As these golden geese start taking flight, the Delaware governor has spoken out, saying, “things may need to change,” hoping to reassure and retain corporations.
In an interview with Business Insider, Delaware Governor Matt Meyer reassured business owners that he wanted them back:
The fact is Delaware is the best location in the world for a company to incorporate, and that’s thanks to our legal expertise dating back to 1792. But let’s be clear: If any entity leaves Delaware, we’re going to work to win them back,” Meyer told Business Insider.
Does this mean Delaware’s reign is ending? Or will it adapt quickly enough to stop the stampede toward “Delaware West” (Nevada), “Delaware South” (Florida or, in 2025, Texas)? Continue reading to learn more about business incorporation in these states.
The 3-man fight between “Delaware West”, “Delaware South” and Texas!
Delaware has long held the uncontested title of “the state in which to incorporate’’ without any formidable challenge.
That is, until recently. Things are changing. Two serious big-time contenders (plus Texas) are determined to lure new businesses to incorporate or form limited liability companies (LLCs) in their state.
We do have a fight!
Our contenders, “Delaware West” and “Delaware South,” aim to claim the title of “New Delaware.” “Delaware West,” otherwise known as Nevada, and “Delaware South,” or Florida, are currently competing to be crowned the best place to incorporate new corporations or form LLCs.
Now, before we pick a winner, let’s compare the records of these three states: Delaware, Nevada, and Florida.
Weather/climate
Depending on your druthers, it’s a no-brainer. Nevada and Florida offer climates that attract many who value their leisurely lifestyle when choosing a home state for their corporation or LLC. These states’ warmer temperatures are also perfect for outdoor-based industries, attracting many tourists and creating plenty of business opportunities.
However, if you’re looking for a more moderate climate, look no further than Delaware. Delaware’s less extreme weather can be perfect for those seeking more balanced weather without constant tropical heat.
Taxes
At this point, Delaware is the only one of the three states with a personal income tax. This lack of individual income tax means that residents of Florida and Nevada have benefits such as:
- More take-home pay: With no income tax, citizens in these states get to keep their entire paycheck.
- Investment incentives: Because residents of these two states get to keep more money, they can more easily and willingly invest in retirement, stocks, or their businesses.
- Simpler tax filings: Because income tax is absent, there are fewer forms to fill out, making tax filing less stressful.
Meanwhile, Nevada is the only one without a corporate income tax. Not having corporate tax allows businesses in Nevada to benefit from:
- Better profit margins: No corporate tax means companies keep more earnings, which the owners can then invest back into the company.
- More small-business startup incentives: Without corporate income tax, starting a new business is more manageable, encouraging more entrepreneurs to take a chance.
- More investment incentives: Companies have more money to invest without corporate tax. They can develop new products, hire employees, and improve current technology.
Nevada and Florida do not have a franchise tax, but Delaware does, and it can be formidable for large companies.
|
Delaware |
Florida |
Nevada |
Texas |
|---|---|---|---|---|
| Top corporate income tax | 8.7% | 5.5% | None | None |
| Top personal income tax | 6.60% | None | None | None |
| Franchise tax | Based on size – it can be formidable | None | None | The “Margin Tax” applies to most businesses in the state. This tax is calculated based on a business’s total revenue rather than net income, which makes it different from a standard corporate income tax found in other states. |
Formation fees and processing time
Differences in the formation fees in Delaware, Nevada, and Florida are relatively insignificant. The formation fees and processing times for these three states are as follows:
- Delaware’s formation fees start at $109 for corporations and $110 for LLCs. The processing time varies.
- Nevada’s formation fees start at $75 and take about 4-5 business days to process.
- Florida’s formation fees are $70 for corporations and $125 for LLCs. The forms can take up to two weeks to process.
- Fee for filing in Texas is $300 for both corporations and LLC (plus a 2.7% convenience fee if filing online).
Nevada and Delaware offer expedited and rushed processing, which can reduce the time required to as little as one or two days.
Interestingly, Florida’s formation fees are composed of a filing fee and a state-specific registered agent designation fee. For more information on these agents, view our guide on registered agents and why small businesses need them.
Business tax climate ranking
What even is a business tax climate, and why does it matter? A state’s business tax climate rank is an essential indicator of how competitive and supportive a state’s tax system is for your business. States with a higher rank often have lower taxes, allowing companies to maintain more revenue and better growth opportunities.
So, which state has the most favorable tax climate for businesses? To our surprise, Florida and Nevada (in that order) are the only two in the top 10 best states to form an LLC or corporation. Florida ranks 4th, Nevada ranks 7th, and Delaware ranks at a much lower 21st.
Privacy
Owners, directors, and officers of businesses can maintain reasonable privacy in Delaware, Nevada, and Florida, but privacy in Nevada is unsurpassed by any other state.
Nevada is the only one of our states that does not have an information-sharing agreement with the IRS, meaning they don’t need to share business information with the IRS.
On the other hand, Florida has the least privacy of these three states. Businesses in this state must disclose all business owners and officers publicly.
Court system
Of course, none can compare to the Delaware Court of Chancery, a 233-year-old business court whose judges, not juries, make decisions. This court, known for making pro-business decisions, has written most modern U.S. corporation case laws.
Nevada also has a business-friendly court system, but it is nowhere near as extensive as Delaware’s. Florida, which came in last in this competition, has no specialized business courts, which slows legal processes for corporate cases.
And the winner is…
So, do you incorporate or form your LLC in Delaware, “Delaware West,” or “Delaware South”? Not so fast – how about “none of the above”?
It is generally safe to say that if yours is a closely held business, primarily in one state, you will find it easier and less expensive to incorporate or form your LLC in your home state.
And that may not be Delaware, Nevada, or Florida. The actual advantage to you of incorporating in one of those states just because it has low initial fees, less stringent regulations, or even very low or no corporate income taxes is not as great as it may first appear. We must remember that smaller businesses will not experience benefits comparable to those experienced by larger public companies.
But the bigger you are or will be, and the more states in which you will do business, the more challenging your decision. You must then consider many more issues, some very complex. You should consider not only the fees and taxes of your home state but also the fees and taxes assessed by all of the states where you will do business and, therefore, have to qualify as a foreign corporation.
No matter your size, we at MaxFilings advise you to consult a professional familiar with all current regulations that apply to your business. An accountant, tax advisor, or financial planner should be involved when addressing tax issues, as they are complex and subject to interpretation.
If you’re ready to incorporate your new small business, MaxFilings can provide the best-quality incorporation experience. Our basic bundle is 100% free + the cost of state fees. You’ll also enjoy a free year of registered agent services as a bonus.
Are you ready to take the first step towards business ownership? Let us help you incorporate today.
