Should my new business incorporate in Delaware?

According to the State of Delaware, more than two-thirds of Fortune 500 companies are incorporated inside its borders (as Delaware C Corps). This trend is not limited to big corporations as many small businesses and start-ups make the same decision. Even in Silicon Valley, establishing a new company in Delaware has become the new norm. In this post we break down why companies choose Delaware as their state of incorporation, and whether this is the right move for your business.

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The Benefits of Incorporating in Delaware

The Delaware Court System

Delaware’s Court of Chancery is well-respected for its handling of business cases for both small companies and larger corporations. While other states may use either judges or juries to decide business-related cases, Delaware’s court uses only judges, ensuring a legal decision from someone experienced and well-versed in a variety of business scenarios. With the state’s vast catalog of previous decisions, companies usually have good foresight into how cases will turn out, which can promote settlements.

The state’s court system is also well-known for being favorable to business owners – only increasing its reputation among those deciding on where to incorporate. Board members especially have benefited from the state’s protection against derivative lawsuits (lawsuits brought by a shareholder on behalf of a company).

Venture Capital Preference for Delaware

Not only do investors prefer companies established as Delaware C-Corps, but sometimes they even require it as a condition of investment. Most VC firms and their lawyers are already familiar with the Delaware legal system, and are comfortable with the mechanics of complex transactions in the state.

Flexibility and Privacy 

Delaware offers a great deal of leniency in terms of structuring boards of directors and issuing stock. Unlike other states, Delaware gives preferred shareholders of a company greater voting rights and influence over the business. Further, directors, officers and major shareholders are not required to be residents of the state.

The process of forming a business in Delaware is easy when compared to the process of forming a business within a different state. One can form a corporation in Delaware by filing online paperwork which can be formalized in a matter of hours. Companies are also not required to disclose information about their founders or directors on their formation documents. In other states, these documents require heavier disclosure like providing at least three people holding the director position and another three holding the officer position.

Tax Incentives

One other reason businesses decide to incorporate in Delaware is its tax breaks. Companies that are incorporated in Delaware, but do not conduct business there are not subject to state corporate income tax. Major shareholders are especially fond of the state’s policy of not taxing stock shares if owners do not live in Delaware.

Disadvantages

Additional Taxes and Fees

While companies that don’t do business in Delaware aren’t subject to state income tax, they are subject to franchise taxes. In addition to the franchise taxes in Delaware, a company will also have to pay these taxes in the state where its headquarters are physically located. The Delaware version of this tax can add up quickly – costing a company anywhere from $125 to $180,000.

Even though the process of establishing a business can be quick and easy in Delaware, it is also more costly. A newly formed company can expect to pay $1-2K more in filing fees than they would in other states. In addition to this filing fee, a company will have to pay foreign qualification fees to do business in its home state. If Delaware is not the actual home of your business, the company is also required to hire a registered agent with a Delaware address to receive legal documents on behalf of the company.

If your business is small, and not planning on acquiring VC funding, it may be more beneficial to incorporate in your home state to avoid these fees. Delaware courts also take an expansive view of who may be subject to their jurisdiction. So, even though your only contact with Delaware may be as the state of incorporation, that alone may be enough to subject your company, and its officers and directors, to suit in Delaware.

Making the Right Choice for my Business

Forming a corporation is a giant step in the life of any business. For those unsure whether incorporating in Delaware is the right decision, it is recommended to consult with a legal team well versed in the business laws of the state. For some smaller companies, the legal and financial incentives of incorporating in Delaware may not be as valuable as they would be for larger corporations. A founder should also consider not just what will work for their business today, but also what decision will be in best interest of the business for the foreseeable future.

Which accounting system is right for my business?

Selecting an accounting system may not the be the most exciting topic for a startup or new venture, but it is undoubtedly an important decision for a company. Accounting software houses, organizes, and displays financial operations information that provides important insights into a business. Selecting a system that does not meet your company’s needs can lead to future headaches or reduced reporting functionality and in turn lead to an inability to make crisp management decisions.

In this post, we break down the most popular accounting programs on the market so that you can make the right decision for your business. 

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QuickBooks by Intuit

Over the years, QuickBooks has become the most popular accounting software program for small-to-medium businesses. QuickBooks enables its users to easily create invoices, utilize automated bill tracking, accept payments, generate financial reports to keep track of expenses, as well as book more technical accounting entries to deferred revenue. It is perfect for a company that desires a ready-made, all-in-one software solution.

QuickBooks Online (QBO)

QuickBooks Online version comes with three different subscription options that are sold as monthly subscriptions ranging from $20-$70 a month. The software’s best features include invoice customization, online banking transfers, integrated invoicing & payments solutions, and accessibility anywhere with access to internet. For companies with multiple employees who would need access, QuickBooks Online allows multiple users on the same account at no additional charge. All of these factors combine to make QBO the SaaS accounting solution market leader for small-to-medium businesses.

QuickBooks Online does require more learning for those unfamiliar to common accounting practices. It does, however, offer numerous video tutorials to get up to speed. The software also provides an integrated payroll option for companies looking to manage payroll directly through their accounting system. Payroll capabilities come at an additional cost on top of per-employee surcharges, but may not provide as much transparency as other off-the-shelf payroll operations services such as Gusto or JustWorks.

QuickBooks Desktop

Unlike QuickBooks Online, QuickBooks Desktop can be unlocked with a one-time up-front purchase. It is a great option for those who need a program that can manage inventory management or need more customized forms for activities like invoicing.

As this is a desktop application, it has received less resources towards development in recent years and also can be clunky to operate for those who haven’t used the system before. This software may also not make sense for companies with multiple users who need to have remote access since subscriptions are sold per desktop. The program also requires all transactions to be processed manually, unlike its online counterpart and has very limited capabilities for online tracking, payment, and bill managements.

Xero:

Xero is a fully online application that stores and manages all data through the cloud. Similar to QuickBooks, Xero works best for individuals and smaller businesses with straightforward operations. Xero offers a simple set-up, after which point you can navigate features such as customizable form templates, express payments and real-time reconciliation of transactions. It is also a great tool for collaborators as other Xero users can access published financial reports.

While Xero allows you to generate invoices, it does not allow a breadth of payment options such as ACH, which is often a preferred method used to pay larger invoices. It also lacks deeper functionality for things like partial client payments or those who are looking to the software for handling complex financial workflows. Xero also has a reputation for poor customer support, troubleshooting, and help tutorials, especially via phone.

Sage Intacct:

Sage Intacct excels when it comes to flexibility and wide options for software integration. It’s best for businesses that have outgrown QuickBooks or Xero and need a more robust solution to cover additional reporting functions. One of the biggest draws of Intacct is the deep customization it offers. Users love the financial dashboards to keep track of key metrics as well as its ability to book and manage custom contracts / invoices.

While it is highly customizable, Intacct may not always be a one-stop shop for accounting services, especially for companies that need to manage inventory. Unlike QuickBooks or Xero, Intacct requires implementation from Sage or one of its partners, which can be expensive and a downside for those companies not wanting to work with external parties. Furthermore, unlike its main competitor NetSuite, Intacct does not feature multi-currency payment options.

NetSuite:

NetSuite is considered to be an Enterprise Resource Planning (ERP) system. It is highly scalable, designed to serve mid-to-large sized growing companies. Beyond accounting, it can handle financial management, inventory management, project management, and payroll — allowing a business to use it as a one-stop-shop option for its full suite of financial operations software.

Like Intacct, NetSuite excels at developing custom dashboards. The dashboards are simple to design and intuitive, and cater towards most functions in a global organization, so it is easy to track key performance indicators.

With all of the access that NetSuite provides, it is no surprise that it comes at a price higher than its competitors. A base license for the software costs $999 per month, with an additional charge of $99 a month for every user. For this reason, and because it contains unnecessary add-ons, it is likely not a package necessary for smaller businesses.

Choosing an accounting system for my business

For those unsure of which software to choose, the best option is to utilize free trials and get a feel for what accounting software will best complement your business. When choosing an accounting suite, it is important to consider not just the state of your business today, but if you believe this software can scale with your business for the medium term.

Which type of investment is right for your business?

When the time comes for seed investment, it is important for entrepreneurs to understand the financing options available to them. The two types of initial seed funding that most young businesses choose are convertible notes or Simple Agreements for Future Equity (SAFE) notes. In this post we break down these financing structures in more detail for entrepreneurs and early-stage business owners.

Best practices when pursuing early-stage venture funding

According to a 2017 Report by The Startup Genome Project, there are between 6,300 and 7,800 currently active tech startups in NYC, making it the second largest startup ecosystem in the world. However, only 619 of those startups were backed by Venture Capital. This is just one example that highlights the small percentage (about 8.5% in this report) that ever see access to institutional seed funding.