Why Incorporate in Delaware?
"Companies and individuals deciding to establish an entity in the United States often will elect to set up a corporation...in a state such as Delaware that offers certain advantages over many other states. These advantages include:
Ease of establishment...
Flexibility for the owners...
Latitude for directors...
Clear and well developed corporate law...
Tax advantages...Delaware imposes no state corporate income tax on certain types of entity (qualifying holding companies and investment companies) unlike many other U.S. states. For other entities - incorporated but not doing business in Delaware-- the sole tax imposed is an annual franchise tax. In the case of companies with a small number of authorized shares the annual tax payable is minimal.
Delaware Intellectual Property Holding Companies...Because qualifying holding companies are not subject to any Delaware income tax, many businesses have taken advantage of this to achieve savings from other state income taxes. Typically, one or more operating companies will transfer their intellectual property (patents, trademarks trade names, copyrights, etc) to a Delaware IP holding company subsidiary. The subsidiary will then license the rights to the IP back to the operating group in exchange for an ongoing royalty payment. The operating company(s) will deduct the expense of these royalty payments against state income taxes owing.
A number of these arrangements have come under challenge in other states in recent years especially where the IP holding company is used solely to hold and license back the IP (and not for any other business purpose such as third party licensing, IP monitoring or IP enforcement). While not all state challenges have been successful, in a number of cases courts have negated the intended tax savings. (One type of state challenge has been to seek to subject the IP holding company’s income to tax in the state of the operating company; other states have sought to deny the benefit of the expense deduction against the state income tax.)...
These challenges have cast doubt on the use of arrangements designed purely to avoid income tax in other states..."
Read more in this article from the Australian Trade Commission.
