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I've heard that for small businesses in California, incorporating in Delaware for tax reasons doesn't legally make a whole lot of sense because California will want to tax you anyway. Is that the case? If so, why are so many people still set on incorporating in Delaware?



A lot of what Delaware buys you is a transparent, functioning, and predictable state legal framework and court system.


You're right. If you plan to build a business and raise VC money for it, Delaware is the standard place to incorporate (which is the case for my company and checklist, btw).

California does add an extra layer of burden and compliance that I did not expect, but if you plan to have employees in California you must incorporate there as a foreign entity (also my case).

I've also heard from a fellow entrepreneur who has a distributed workforce that you need to incorporate in every state with an employee. This is certainly outside the scope of my checklist.


If you plan to sell anything in Californa you must also register there as a foreign entity. And pay taxes.


If you reside in or sell to California then yes, California will tax you. $800 a year plus a share of California-derived income.

The reason to incorporate in Delaware is if you want to sell your business or to get investors - this is the standard investment vehicle in the US.


Being that I'm not in California I can't think of any good reason to incorporate in Delaware. Many other states are just as friendly to corporations if not better.




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