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Why do so many companies incorporate in Delaware?

• Layke1123 5y ago
  Without even reading, I'm going to assume it had to do with capitalists dodging taxes. Let's find out how surprised I'm going to be. /s
  • ed25519FUUU 5y ago
    Wait until you find out how much in taxes the elites pay in communist countries.
    • Layke1123 5y ago
      Whataboutism? Are you saying if they do it, it makes it ok for us to do it? What's the difference then?
      • pplrlikethis 5y ago
        No the point is that PEOPLE will try to take advantage of tax codes regardless of the ideology presumably followed by the country. It has nothing to do with capitalism. You could undoubtedly find examples of elites avoiding taxes under feudalism, or in the theocracies of the world, in Communist nations, and capitalist ones. The thing you ascribe to capitalism is a failure not of some ideology but a problem with human nature. If you blame capitalism and throw up your hands the problem can't be addressed.
        • Layke1123 5y ago
          For profit. People will abuse a system for profit. I don't understand how to explain it anymore simply than that. Do you run a family as for profit?
      • kingsuper20 5y ago
        Tax avoidance, and inequality generally, is not a distinguishing feature of US-style capitalism. It appears to be baked into the cake of humanity.
        • Layke1123 5y ago
          Who's humanity? I wonder what allowed humans to thrive before modern capitalism if it is as you say?
    • kingsuper20 5y ago
      The high GINI scores in the USSR always cracked me up. The tendency for money and resources (and pretty women I suppose) to pool has never been well dealt with. All large-scale systems for business and government seem to devolve into dogfights over scarcity.
  • koheripbal 5y ago
    This is exactly how people reinforce their existing bias.
    • mrwnmonm 5y ago
      This is exactly how people treat someone being honest. You don't know what is his opinion after reading the article, so you can't say he reinforced anything.
    • Layke1123 5y ago
      So where was the bias?
  • techbubble 5y ago
    Well, there's also the bit about not having to deal with a long list of fees and onerous requirements like many states have, when all you're trying to do is start a business, build a product and hopefully find some paying customers.
  • kingsuper20 5y ago
    To be fair, you have to wonder what the point of corporations even paying taxes is. I always thought that they should wait until the shareholders or employees actually received money/goods/services from the Borg. In a highly simplified world, 100% of profits are passed through, but then you currently get the issue of dividends being non-deductible (that's true, isn't it?). Odd. On the other hand, with the Senator from Mastercard running matters, I don't expect to see any consequential changes.
    • PeterisP 5y ago
      The key issue with that is that in this case the shareholders can defer the distribution (and thus the taxation) for multiple decades and potentially forever. If you need to get some spending money/goods/services from the Borg, you can instead sell a small share of the Borg; if you'd want to invest the profits somewhere else, you instead have the Borg invest it there (because that's untaxed in that case), if you'd want to buy a fancy villa you can have the Borg buy it and rent it to you - even at a fair price, the key thing is that you're only taxed on the amount you'd need to extract for rent, but the purchase is with pre-tax money. If we would wait until the shareholders actually receive the money, it means they have the ability to arbitrarily decide when the revenue will be taxed, so they'll ensure that it definitely isn't taxed now. So the result would be that profits are never passed through until/unless absolutely necessary - or perhaps they can wait out a couple governments until some decades later the rules change.
      • kingsuper20 5y ago
        It seems to me that that argument could be made for any appreciating asset class. Real estate (especially in Prop 13 California) would go up in value and could be borrowed against. Same with collectibles. I hear what you are saying in that the gaming on a simplification begins on Day 2. With tax law, I'd say that the West is covering new ground in the last 100 years. Multiple mitts in the pie of legislation who all want something different (money, partial control of the taxee, veering of social goals) resulting in increasingly arcane rule sets, edge conditions resulting in tax court decisions with yet more fuzziness on the outlines. The death of self employment and economy of scale of the modern corporation leads you to some weird places.
• Grimm1 5y ago
  The 175-180k figure for franchise tax is misleading. Our franchise tax as an early pre-revenue company was $450 dollars this year because of one of the methods of franchise tax calculation available.
  • tomklein 5y ago
    I guess the author means $175 up to $180,000 instead of $175k as minimum
    • Grimm1 5y ago
      The minimum to my knowledge is that $450
      • jkaplowitz 5y ago
        $175 according to official info at: https://corp.delaware.gov/frtaxcalc/ https://corp.delaware.gov/frtaxcalc/ The maximum is however $200k. I can believe that it may have been $180k in the past.
        • Grimm1 5y ago
          Ah yup the minimum is 400 plus 50 fee for the method we use. But 175 for the other method. Well that clears that up. I’ve always been advised to open a company for the few times I’ve done it with an initial 10m shares for ease of investors and to more easily manage an employee options pool so I’ve never had a co that would qualify for the 175 method. The more you know
• rzzzt 5y ago
  Is there some advantage of choosing the entity mentioned in the article over its ~100 competitors? I found a list of registered agents here: https://corp.delaware.gov/agents/ https://corp.delaware.gov/agents/
  • arjawn 5y ago
    Are you forming a C Corp or an LLC? You'll need a registered agent regardless BUT you shouldn't pay too much for a registered agent!
    • rzzzt 5y ago
      Neither, just found it interesting that the _one_ address always comes up, but you don't hear of the runner-ups (although it seems I have also missed the mention of the other big player that someone quoted from the article).
      • brianwawok 5y ago
        Curious how much it cost. My random Indiana registered agent is $50 a year. I’m sure I could somehow find a cheaper one, but not worth the effort. Maybe this is a similar situation but in Delaware, which has a LOT more businesses than Indiana.
  • kube-system 5y ago
    I am sure that the quality and breadth of services provided by the agents chosen by fortune 500s well exceed the services provided by an agent that is one guy in a garage.
• deleted 5y ago
  [deleted]
• jpincheira 5y ago
  It's a state that has services very well streamlined, and it's perfect for C-Corps. For LLCs, probably the best state will be Wyoming. We recently launched our new company [1] and are deep into helping entrepreneurs getting started mostly in Delaware and Wyoming. [1] https://startpack.io https://startpack.io
  • vageli 5y ago
    What makes Wyoming the best state for LLCs?
    • jpincheira 5y ago
      From our experience, most customers go for Wyoming LLCs because of the cost-effective option of a $50 Annual filing charge as compared to Delaware which has a $300 Annual franchise tax. The option is totally up to you. We wrote a guide around how to choose the best state for new LLCs [1] [1] https://www.startpack.io/best-state-to-form-your-llc-in https://www.startpack.io/best-state-to-form-your-llc-in
      • itake 5y ago
        My understanding is that if you create your LLC out-of-state, you still need to register your llc as a foreign entity, which often, puts forth the same requirements as an in-state LLC. Take specifically California. If you live and operate in CA, but register your LLC in Delaware (or Wyoming), you still need to pay the $800/yr franchise tax and complete all of the same tax paperworks that you would if the LLC was registered in CA. Isn't it just simpler (and cheaper in time and money) to register in the state you operate in?
        • arjawn 5y ago
          If you live in the US, correct! It's best to form an LLC in the state you live in. If you live internationally, you can actually choose any state to form an LLC in (and Wyoming + Delaware tend to be the two most popular options, Wyoming for online digital businesses due to the lower ongoing annual costs = $50 per year to the state vs $300 per year in Delaware!)
• layoutIfNeeded 5y ago
  Tax fraud, I mean, optimization.
  • briandear 5y ago
    It isn’t fraud if it’s legal.
    • layoutIfNeeded 5y ago
      Spirit of the law vs letter of the law.
      • sneak 5y ago
        The spirit of the law isn't written down, and it is unreasonable to expect people to infer it and comply with that inference. If you believe in the rule of law, you believe in the idea that people should only be required to follow the letter of the law. The point of laws is letters - there is literally nothing else to it. Expecting people to follow unwritten law is not a belief in the rule of law.
      • kube-system 5y ago
        Most tax avoidance has nothing to do with ambiguous tax law. Most of it is very specific. And if something isn’t specific enough, we already have regulatory agencies who regularly exercise the power to further clarify them. A company moving their income from one location to another to take advantage of lower tax rates is no different than the current exodus of remote-working tech workers from the coasts to lower tax areas. People make decisions based on the law. This isn’t a bad thing, this is what we hope and expect to happen. If the laws do not produce the desired effect, that’s the fault of the legislature, not those following it.
        • yboris 5y ago
          > People make decisions based on the law. But who writes the law? Look into "regulatory capture" and how companies tilt the tax law to their favor. If it costs less money to lobby the government into changing the laws than paying those taxes, the companies will do that. And that's what's been happening!
• tomrod 5y ago
  I find efforts to skirt rules and regulations very fascinating. This reminds me of a discussion awhile back. When interest rates threatened to go negative due to European markets circa 2014-2015, I remember discussing with fellow economists just how negative rates could go. Ultimately, at some negative rate, we figured wealthy individuals would remove their capital from the market and put it in warehouses with armed guards. The maintenance cost would eventually be lower in that approach than to leave in banks (charging higher fees as rates increased) or similar. Ultimately it was speculative only, thankfully, since capital inflows from Europe to the US kept the rates higher than zero. Fascinating stuff!
  • kingsuper20 5y ago
    Not too different than the concept of precious metals depositories I guess. I don't know what the yearly tithe is in places like Singapore for this service, but one problem would be the physical size of the cash. Maybe they should reissue the $100k federal reserve note for public consumption.
  • Denvercoder9 5y ago
    > Ultimately it was speculative only Not really. In e.g. the Netherlands you've to pay a 0.5% interest rate over the balance above €100k, €250k or €500k at most banks. Of course most people that hit the cap just spread out their money over multiple banks, use a savings deposit that still gives zero or positive interest, or invest it.
  • rmah 5y ago
    Incorporating in Delaware is the exact opposite of trying "to skirt rules and regulations". It is based on the desire for well defined, stable rules and relatively efficient enforcement.
    • tomrod 5y ago
      As would the solution I mentioned regarding negative interest rates. Both are evidence of competing regulatory systems, which is why I consider it fascinating.
  • 5y ago
• will4274 5y ago
  > a place where corporations could frolic in the open fields of capitalism Do people like this style of writing?
  • mdorazio 5y ago
    Yes. Not everyone shares your preferences.
    • mixmastamyk 5y ago
      It made me laugh, is that a bad thing?
• codegeek 5y ago
  TL;DR It is mostly due to the corporate friendly and experienced legal system in Delaware. Not so much about taxes. If you are too small or just starting out, you may be better off incorporating in your local state of residence to avoid overheads. Right?
  • arjawn 5y ago
    For C Corps, correct! But for LLCs my candid thoughts are form in Delaware only if you have plans to in the future convert your LLC to a C Corp (to raise venture capital from U.S. investors) or you really want the "prestige" of saying your company is from Delaware. Some people say this matters to them and if it does, it is your business, your choice! Otherwise, I recommend Wyoming. Why? Wyoming is the most popular state for non-residents who are online businesses, e-commerce businesses, or business owners who want an easy and simple way to form and manage their company. It's the most popular state among https://startpack.io https://startpack.io customers, has lower annual fees ($50 vs $300 in Delaware), a low filing fee ($100), and was the first state to ever create the LLC. Also don't sleep on Wyoming's prestige as well :) It has a friendly business environment, also allows you to protect your personal info when filing with the state (use the registered agents info) and has even been called "The Switzerland of the Rocky Mountains" (I don't know who coined this term though haha)
• yboris 5y ago
  Delaware is considered a tax haven / tax shelter https://www.investopedia.com/articles/personal-finance/092515/4-reasons-why-delaware-considered-tax-shelter.asp https://www.investopedia.com/articles/personal-finance/09251... ps - for this reason I prefer to call Delaware "the scumbag state"
  • briandear 5y ago
    Maybe states should learn from Delaware. The minimum tax required for an LLC in California is $800. So even if you have an LLC that makes no money, you still have to pay California $800 per year.
    • arjawn 5y ago
      California actually started to waive this fee in year 1. "As of June 2020, the $800 franchise tax fee has been waived in the first year in California." However even with this fee waived it still makes A TON OF SENSE to file your LLC in the beginning of the year vs the end (OR do a delayed effective filing https://www.startpack.io/blog/what-is-an-llc-delayed-effective-date https://www.startpack.io/blog/what-is-an-llc-delayed-effecti...) Otherwise, you end up paying the annual fees twice in ~ 1 year. Here's an example before CA started to waive this fee of how brutal this could be in CA for LLC owners: California has an annual franchise fee tax of $800. This fee is due every calendar year, not every 12 months. Calendar Year: January - December Every 12 Months: 12 months from Today So this means if you were to start an LLC that was "born" or "officially created" on December 31st, 2020, you would be responsible for paying the full $800 franchise tax fee for the year of 2020! Fast forward to January 1st, 2022, one year and one day later, even though essentially only one year has passed by, instead of owing $800 to the state of California... you would owe $1600! To make things worse, the first annual franchise tax fee payment is due within the first 3-4 months from when your LLC is formed, and from then on, due by April 15th each year. So if you were to create a California LLC that went in to existence on December 31st, 2020, you would have to pay $1600 in the first 5 months!
      • mixmastamyk 5y ago
• Pxtl 5y ago
  So, when a state operates in California but pays its Delaware subsidiary to hold its IP and other intangible assets as a tax dodge, does it not have to pay Californian sales taxes on this purchase?
  • pwned1 5y ago
    Sales taxes are generally applicable to the final retail sale of a good for ultimate use, not for transfer of intellectual property rights.
    • Pxtl 5y ago
      I haven't worked on the money side of a business - businesses are allowed to claim an expense for purposes of reducing their income tax burden, but they don't have to pay sales taxes on that same expense if it's internal to an associated business? That seems perverse. "I spent money on X" "Okay where's the sales tax payments for X?" "The money went to myself, so there's no sales tax" "So then you didn't spend the money?" "Yes I did."
      • pwned1 5y ago
        They do, it's called a use tax. So if you buy paper for your business and don't pay sales tax, you'll generally have to pay the same amount in use tax.
  • doktorhladnjak 5y ago
    I doubt intangible assets are subject to sales tax
  • IncRnd 5y ago
    There would be no difference in IP taxation if your example were 100% in California.
  • gamblor956 5y ago
    A) Yes, it still collects sales tax on the purchase. (Sales tax is owed by the buyer, not the seller). B) The company would still owe CA tax on the revenue from selling the phone. C1) California would disregard the IP royalty, so no deduction for the Delaware shenanigans. C2) Other states will grant the deduction...but tax the royalty on nexus grounds, and the subsidiary won't have apportionable expenses to offset the royalty income, resulting in a higher net tax burden for the corporate group .
• lifeisstillgood 5y ago
  It's not (just / only) taxes - Delaware has for a century or more not imposed changing rules and regulations on businesses registered in its state. It has basically left things well alone. If this was outside the USA then Delaware would just be some tiny island tax haven. But it's a full fledged State in the most powerful country in the world. Businesses in Delaware still have to abide by every Federal law and regulation, and every Federal tax. It's not (quite) a no laws, no rules hideaway. What they don't have to do is guess which State's local problems are going to hamstring them in five years. Delaware incorporation gets you in the USA market at the national level. National America laws affect you but local State politics you can safely ignore. And be confident that the changes coming nationally will be clearly signalled in California or Texas first. Yes there is tax arbitrage opportunities - but we are seeing similar things in Netherlands or Ireland in the EU. And when things got too out of hand then the other states would all "have a quiet word" with Delaware. Similar to how the Dutch Irish sandwich is it seems coming to an end. So yeah, businesses like stability and only having to look in one direction, much more than low taxes but more complex environments. Edit: It's worth reading up on the Dutch / Irish sandwich. In some ways yes it is egregious (and yeah a lot of the time it is - franchises that claim all the profit resides in a logo or a policy book - we all know that's crap). But that's a question of degrees - if I sell McDonalds burgers I will make more than selling some unbranded stuff. So IP does have value. Now let's say I am licensing wind turbine generators for a wind farm - designed in UK, built in Germany, installed in France by a Dutch company with Spanish investors. Whose laws apply to the licensing agreement ? This gets really hard really quickly - which takes us back to Janet Yellen and minimum OECD tax rates. By stopping the race to the bottom, it does not matter so much - tax is paid, and gets shuffled in somewhere. I know I am banging on but, getting outraged by tax dodges like this will prevent us taking the big wins - if there is a global minimum tax rate a huge amount of wasted effort on tax avoidance goes away, and it opens up real possibilities for clamping down on tax evasion. Companies in Delaware mostly pay tax in the right range - and those that don't, trust me, the way to deal with it is to hire more IRS agents - probably the only branch of Government that has a 4-10x ROI year on year :-) tl;dr tl;dr There is an order to fixing taxes either globally or between states. First set a global minimum corporate tax rate (see OECD/Yellan). Then clamp down on tax evasion by forcing beneficial ownership to be made public globally. Only after all that is it worth fighting over who get what cut of the pie. There is no global tax pie right now - we need to bake it before we discuss cutting it.
• cletus 5y ago
  This is a good overview. I honestly don't understand how these IP transfers are legal and continue to be legal. In the example from this article if the Delaware subsidiary bought the tennis balls from Vietnam for $10m and sold them to the California subsidiary for $80m, this is actually illegal. It's called transfer (mis)pricing. The general principle is that such pricing should be at arm's length. But for some reason it's totally fine for IP. Not only does this avoid state taxes but it is the basis for big tech companies dodging federal taxes by transferring their IP to Irish subsidiaries and then paying "royalties". So I'm a big fan of two reforms: 1. Profit apportionment. If 20% of your revenue comes from a particular state or country, that jurisdiction gets to tax 20% of your profit. This whole transfer pricing nonsense has to end and it's the real cause of the race to the bottom; and 2. Much higher property taxes for real estate owned by corporations rather than individuals. Corporate anonymity with real estate is a real scourge and drives speculative bubbles, money laundering and simply parking money in real estate, none of which does anyone any good.
  • meowkit 5y ago
    1) How does this get enforced? What stops Ireland, Camans, Monaco, or Luxembourg (note: I am not familiar with the most popular tax havens) from continuing to have low corporate tax rates? 2) How to prevent corporations from paying individuals/employees to manage property? Or giving them a cut?
    • yokaze 5y ago
      > 2) How to prevent corporations from paying individuals/employees to manage property? How should managing the property make them tax exempt? Do they transfer the ownership?
      • dsr_ 5y ago
        Let's say that BigCo wants to buy a $50M office building on the outskirts of the capital city of Taxis, where corporate owners of real estate are taxed at 8% of the market value of the property each year but individual owners are taxed at 1% per year. BigCo writes a contract with Jane Schmidt, a citizen of Taxis. BigCo will loan Jane $50M to buy an office building, and Jane will lease the building only to BigCo. At the end of thirty years, Jane will have paid back the loan via the payments that BigCo has made, including necessary maintenance (handled by a BigCo subsidiary) and insurance (handled by BigCo's main insurance company). BigCo will also pay all reasonable and actual legal fees arising from Jane's ownership of the building. The contract provides that at any three year boundary or in the event of Jane's death, BigCo can direct Jane or her estate to sell the building to an entity of BigCo's choosing; Jane will get a fee but owe the remainder of the sale price to BigCo. Jane is happy because she makes some money for the next three to thirty years. BigCo gets to avoid 7/8ths of the tax burden in exchange for a much smaller sum going to Jane. BigCo doesn't show the building as an asset but as a rent expense plus an income-generating loan. At the end of the contract, BigCo directs Jane to sell the office building to Steve Jones for the current market price of the building, Steve having a similar deal in place with another company.
• CivBase 5y ago
  Loopholes like this are why I balk when any politician talks about raising corporate taxes. I agree that businesses should pay more, but until loopholes like this get plugged I don't believe it will do any good. At best it's a way to placate voters without accomplishing anything of value. At worst, it can make our horrifically complex tax code even more complex, making it even easier to hide loopholes.
  • tomschlick 5y ago
    Its the same thing with the upper tax brackets. People point to the 50's and say "look we taxed the rich at a much higher rate!!1" but what they miss is that there were so many loopholes that the rich didnt pay anywhere near that rate. Loopholes are the lifeblood of corps / billionaires. No one will fix them though because thats where their campaign contributions come from.
    • bigfudge 5y ago
      In the UK at least this isn’t actually true. The studies done use tax records to estimate effective tax rates, not just published tax rates.
    • toyg 5y ago
      The rich paid more in the ‘50s, because the alternative (the USSR) was worse. Moving money was slow and risky; if you parked your cash in a friendly Caribbean island, there were no guarantees that tomorrow that island would not see a Moscow-backed revolution and your stash would go up in smoke. Nowadays the world is largely stable. Running conflicts are largely ethnic in nature, hence limited to specific areas. Capital is welcome everywhere, and you can move money in and out of a country with a click. So it makes sense for the rich to shop around, like we do when buying insurance through a comparison website.
• tzs 5y ago
  > In Delaware, there are 2 huge registered agent firms: > CT Corporation (1209 Orange Street) is home to 285k+ businesses, including Walmart, Apple, and Coca-Cola Apple may be using that firm for something, but Apple is not incorporated in Delaware. Their state of incorporation is California according to their SEC filings, and has been since at least as far back as 1994.
  • jagger27 5y ago
    It seems the only mentions of Apple being incorporated in Delaware are from news articles and infopieces like TFA, no actual documents showing they are.
    • ghaff 5y ago
      It doesn't seem to be the case. From their last 10-K: "The Company is a California corporation established in 1977."
  • djcapelis 5y ago
    Apple has state based branches registered in many states that it does business: https://opencorporates.com/companies/us_ca/C0806592/statements/branch_relationship_subject https://opencorporates.com/companies/us_ca/C0806592/statemen... These are so irrelevant to the California corporation that Apple has argued in court that there’s no corporate nexus in Delaware and so litigation there is not a valid venue: https://finance.yahoo.com/news/judge-single-apple-store-makes-061827679.html https://finance.yahoo.com/news/judge-single-apple-store-make... It didn’t work, but the ruling was based more around the existence of a retail store there than anything else.
    • evancox100 5y ago
      Yes, came here to post this. No evidence that Apple is incorporated in Delaware. How many other companies did they get wrong?
• bradleyjg 5y ago
  A lot of people getting hooked on the tax part, some on the anonymity part, but don’t underestimate the friendliness of Delaware courts to boards of directors. Things like staggered boards, share classes with extraordinary rights, poison pills and so on have all easily passed muster in Delaware and might well not have in a different state.
• arjawn 5y ago
  Have learned a ton about LLC formation in Delaware + other states from working on https://startpack.io https://startpack.io. tl;dr if you live in the US form an LLC in your home state, if you don't Wyoming is a very popular option for online, digital businesses / ecommerce businesses, and Delaware is so popular because, in my opinion, it has "prestige" but as an international resident, you won't automatically get tax savings by being in Delaware vs Wyoming for example (if you don't have a physical presence in the US) If you live in the US -> form an LLC in the state you live in. If you form an LLC outside of your home state you’ll be required to register that out-of-state LLC as a Foreign LLC in your home state. For example, if you form an LLC in Nevada (but you don’t live there), then you’ll be required to register that Nevada LLC in your home state (as a Foreign LLC) in order to do business in your home state. This means you now have 2 LLCs (one in Nevada and one in your home state) so you have to pay 2 State filing fees and 2 Annual report fees If you don't live in the US -> you can form in any state. If you are an online digital business Delaware and Wyoming are the two most popular states. Delaware is the most popular state in the US for business formation. I think part of this is because of 1) the prestige of creating a "Delaware C Corp" in the state and 2) it does have a very solid business reputation. However if you are an international, online business, Delaware might not be the best option if you are trying to save $. In Delaware there is a $300 annual payment due to the state each year. Wyoming is extremely popular for LLC formation for international residents because of the lower ongoing annual fees ($50 vs $300 in Delaware). Wyoming has also built a reputation as one of the most popular state for non-residents who are online businesses or e-commerce businesses. Also dont sleep on Wyoming's prestige as well; it has a friendly business environment and has even been called "The Switzerland of the Rocky Mountains." Again the thing here which is important to highlight is you end up creating twice the work / twice the costs if you live in the US and form an LLC outside of the state you "do business in" so be careful here! And internationally, if you're forming an LLC, you can choose any state and if you don't have a physical presence in the US, you actually might not have a US tax filing requirement, but you do have an informational filing requirement if you are a foreign owned US Single Member LLC (Form 5472/1120). If you are a foreign owned multiple member LLC, you file a partnership return. And if you are an LLC that elects to file as a C Corp you file a C Corp return!
  • throwaway483284 5y ago
• djoldman 5y ago
  It seems like there are many situations where a company is definitely following all laws and is extracting value or relative value by making certain decisions that have tax or other advantages. It also seems like the general public directs outrage or anger at these companies in response to these decisions. Why the anger at the companies and not the lawmakers who made the system in which the companies are legally operating? Is it difficult to look up who moved the laws forward? Is it just because it's easier to point fingers at a company?
  • tenebrisalietum 5y ago
    Here's how I think the average joe sees things. Most people here may not fall into this category, but certainly know people who do: A) Politicians only listen to money; even ones that are on your side; laws therefore are skewed towards those who have money. B) Companies donate large sums of money to politicians; therefore they listen to companies. C) Very rich individuals also donate large sums of money, but the average joe can't figure those names out on their own and will rely on rumor mills from social media, and media propaganda from his/her political tribe. So people will get mad at companies first because they are more visible and the fact that it's more possible for a non-rich person to get people to stop spending money at a corporation than making a lawmaker do what you want.
  • artem247 5y ago
    There are many levels to this but generally there is an idea that politics and especially laws like these are shaped by those who benefit from them the most - big businesses who can afford lobbying. In terms of theory there is a Marxist notion of 'ruling class'. In regards to capitalism Marxists think that ruling class of capitalism is big business, not the State itself. Politicians are in a weaker position and just implement the will of the captains of the industry. That is rather extreme notion but still one can see traces of it in society. And it generally goes both ways - companies have poor (but legal) working conditions and oppose any legislation or action that would change it by being anti-union, by funding thinktanks that do studies that prove raising minimal wage would lead to overall decrease of jobs etc.
  • jokethrowaway 5y ago
• lmeyerov 5y ago
  We are a pretty normal delaware c corp . If optimizing for not paying taxes, we'd probably focus on states like Texas, and divest from anyone and anything in California, but we haven't. Bigger than our taxbill is our accountant, lawyer, etc bills, and in turn, their jobs get easier with delaware: they know it & it doesn't change as much as say California. More than taxes is day to day like big multiparty contracts , equity management, and more existentially, potential m&a. delaware law isn't federal law, but everyone knows it and follows it, so close enough. it might feel expensive to start and maintain, but probably isn't when you look back at your actual costs. in addition, legal counsel will pressure you to reincorporate if you don't, which would be a double cost. would be my default choice if doing it again: only want to innovate in so many things, and unlikely for this to be one of the most important areas of the business to be extra clever on.
  • gamblor956 5y ago
    Also, since the Wayfair decision, pretty much any interstate income is taxable where the customer is located if you do enough business in that state (usually an income threshold, but in many states its a number-of-transactions threshold). Locating in Delaware literally saves you nothing in paying taxes; indeed, it actually costs a tiny bit more, tax-wise, than locating in your primary state of business. But on the note of other compliance expenses: being incorporated in Delaware increases your compliance costs. You're now subject to suit in Delaware and whatever states you actually do business in (including especially whatever state your HQ is located in). So, for example, you don't avoid exposure to CA law if you have CA customers (and many state consumer protection rights can't be waived by a ToS or by a signed contract). And you don't need to be incorporated in Delaware to include a jurisdiction clause in your B2B contracts. Delaware is useful in the limited situation that you are a corporation with a complicated capital structure that needs a management-friendly, shareholder-averse court system.
• D13Fd 5y ago
  The Delaware Court of Chancery is among the best in the world, if not the very best, and Delaware’s corporation law is extremely well developed, far ahead of most other states. When they teach corporation law in law school, they usually teach Delaware law. It’s the most advanced in the country.
  • kahirsch 5y ago
    Could you be a little more specific about what you mean by "best" and "most advanced"?
    • deleted 5y ago
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    • deleted 5y ago
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    • gamblor956 5y ago
      It's neither the best, nor the most advanced. It has two centuries of law pretty much focused on upholding management at the expense of all other parties' interests (including non-management shareholders). Today, most new companies form as LLCs, which are regarded as the "most advanced" form of business entity for legal and tax purposes. In that regard, Wyoming is generally considered to have the "most advanced" law because many governing LLC concepts and regulations originate there first.
      • JumpCrisscross 5y ago
        > Wyoming is generally considered to have the "most advanced" law This is a novel opinion. In my experience, non-Wyoming residents self identify as being unable to afford Delaware’s franchise tax. That, combined with its shallow bench, means one can blast an adversary out of the water by retaining the majority of Cheyenne, Casper and Laramie’s legal talent before pressing your cost advantage.
        • gamblor956 5y ago
• praptak 5y ago
  Tax havens are parasites on tax systems of other countries but tolerating a similar shtick within a single country is a separate level of fucked up.
  • ipaddr 5y ago
    Corporate tax havens, income tax havens, property tax havens, sadles tax havens are all part of the one side of this system. On the opposite side you have over serviced areas, daily door to door mail delivery, public transit, universal health care all available in over taxed havens. The federated nature of united states allows each state to set different tax rates / service levels. These states compete with each other to attract people / capital. The nature of how the system works means tax havens are not parasites. They are part of an ecosystem system that competes. The freedom to make those changes is what makes them successful over a system who would limit that. On the country level its more extreme with currency havens.
  • VWWHFSfQ 5y ago
    Do you consider places like Texas and Florida to be "tax havens" because they are increasingly attracting more and more people to move there from places like California and New York for personal tax advantages?
    • praptak 5y ago
      Only to the degree to which those people avoid taxes on money that they actually make in other states.
• marktheknife 5y ago
  The tax part is pretty inaccurate. If you use business IP and transfer it to Delaware you will not avoid California tax on income from that IP. The unitary business and formulary apportionment approach of California income tax (also the dominant approach of multistate income tax in other states) easily beats that strategy, by treating formally separate entities as one for taxation. The sort of income shifting described in the article works better in international taxation since there the dominant approach is a “separate accounting” aka separate entity approach. Indeed, even the Geoffrey case the article notes is famous for Geoffrey losing in South Carolina, and having its income taxed in that state. Nonbusiness income is taxed to commercial domicile, which does promote moving headquarters to a tax haven. But much less income is considered nonbusiness income than you’d expect, and further commercial domicile is a separate concept from place of incorporation. By far the dominant reason for Delaware as a corporate place of incorporation is its well developed corporate law and courts. It is more favorable to corporations in part, but not excessively so—VCs would not be pressuring corporations to incorporate in Delaware if it purely screwed shareholders at the corporation’s benefit. There are also estate planning and asset protection benefits of using Delaware (and certain other states) LLCs.
  • jawns 5y ago
    Exactly right. I'm a Delawarean, and in my former career as a journalist I wrote about this phenomenon. It's all about the courts. It is a risk mitigation strategy for businesses. Having extensive, well-defined case law makes things more predictable.
    • toyg 5y ago
      One of the peculiarities of the US is how you guys managed to effectively bootstrap industrial districts at continental level for the weirdest meta-stuff, from newspapers to movies to corporate accounting.
      • ghaff 5y ago
        Newspapers? I would have said those were pretty distributed. Yes, a couple of the big national ones are in NYC, but that's where the population is. Finance is certainly another example. Obviously at least a certain subset of tech. Oil. Is this really that unusual though? And, to the degree it is, how many other large countries have the same sort of distributed large population centers?
• AngryData 5y ago
  The exact kind of thing interstate commerce law exists. And yet we instead fraudulently use it for the war on drugs and restricting what can be produced and sold in-state.
• dmckeon 5y ago
  Delaware is not the only US state that has tuned its laws to attract certain types of business and financial activity: https://www.theguardian.com/world/2019/nov/14/the-great-american-tax-haven-why-the-super-rich-love-south-dakota-trust-laws https://www.theguardian.com/world/2019/nov/14/the-great-amer...
• notriskfree 5y ago
  Because so many large American corporations; are heavily involved with Farming chickens.
• AndrewKemendo 5y ago
  Here's the simple answer for startup founders (at least when I was raising money in 2014-2015): Institutional VC won't take you seriously otherwise
  • divbzero 5y ago
    For founders seeking VC funding, the “simple answer” accidentally omitted above is: Delaware C corporation.
• loosetypes 5y ago
  I’d recommend the book Moneyland. The focus is more on international, rather than inter-state, arbitrage of legal systems by persons/corporations but is there really that much difference between the rationale for putting an HQ in Dublin and incorporating in Delaware if the goal is selectively operating under favorable legal frameworks? Bonus, I’d never put together that offshore is just a socially acceptable alternative for the word pirate a la pirate radio.
• LeonM 5y ago
  I did YC startup school (twice, actually), and one of the first courses was about the legal aspects of setting up your company. The talk basically said "just register in Delaware", without explaining why. For me as a European (and many other non-US founders in my SuS group) the course material was basically useless. But we did have a good discussion afterwards on loopholes, and why they exist in such way in the US. As I understand it, Delaware is what Dublin is to Europe.
  • pottertheotter 5y ago
    I'm not sure what country you're from, but do you feel that there are less tax loopholes there?
    • LeonM 5y ago
      I'm from the Netherlands. I don't know much about tax loopholes though. I do remember reading about some loophole possible through the Netherlands, called the 'Dutch Sandwhich' [0] hence why there are supposedly a lot of companies with just a postbox address in Amsterdam (we call these 'postvakbedrijven' in dutch). Not sure what the extend of this loophole is, or if it is still possible to exploit. I wouldn't bet my company on it though, I prefer just to pay tax in my own country. I see it as my contribution to society. [0] https://en.wikipedia.org/wiki/Dutch_Sandwich https://en.wikipedia.org/wiki/Dutch_Sandwich
• jokethrowaway 5y ago
  I'm always blown away by how high taxes are in the USA. A federal corporate tax of 21% - and states can tax you even more? Meanwhile you can incorporate in Europe paying 10% (or 5% in Malta, if you setup a holding company, or 4% in Canary Islands if you invest 50k-100k and hire 3-5 people). The UK is taxing companies at 19% (even if it's due to increase to 25% to cover COVID's expenses).
  • rebelidealist 5y ago
    Furthermore, dividends are double taxed again at 20%
  • pyb 5y ago
    0% in Estonia if you don't distribute the profits as dividends.
• paxys 5y ago
  Most of the stuff in this article is misleading or straight-up wrong. Delaware isn't a tax haven, and most companies will see zero tax benefit from incorporating there. The reason they do so is that Delaware corporate law is now the de facto US corporate law. Lawyers, auditors, tax professionals etc. all study Delaware's codes in school, no matter which state they come from. The entire ecosystem is extremely mature and up to date. Most other states on the other hand don't even recognize modern corporate governance. Try resolving a conflict between founders/investors about voting rights, class A vs class C shares, bylaws etc. in a court in North Dakota or Mississippi. Delaware is, for better or worse, the corporate law version of silicon valley. Unless registration and regulation of corporations starts happening at the Federal level (which is unlikely), it will continue to be so.
• commandlinefan 5y ago
  Just FYI, Joe Biden was a Delaware senator from 1972-2008.
• anitil 5y ago
  As often happens, Planey Money has an episode on exactly this [0] (from 2016, so could be out of date). There's also some followup episodes at the bottom of that link. They even name their company 'Delawhoo', which I think is quite charming [0] https://www.npr.org/sections/money/2016/03/16/470722656/episode-390-we-set-up-an-offshore-company-in-a-tax-haven https://www.npr.org/sections/money/2016/03/16/470722656/epis...