Why Delaware Remains the Default US Incorporation Destination
More than 1.9 million businesses are incorporated in Delaware, including approximately 68% of all Fortune 500 companies and the vast majority of US venture-backed startups. The reasons are structural and enduring, not a matter of historical accident.
Delaware's Court of Chancery is a specialised court that has handled corporate disputes for over 200 years. It has no jury, is staffed by expert judges (chancellors) with deep corporate law expertise, and is known for fast and predictable resolution of corporate disputes. The accumulated body of Delaware corporate case law is the most comprehensive and well-developed in the world, giving lawyers, investors, and founders confidence about how legal questions will be resolved.
Additional advantages include the Delaware General Corporation Law (DGCL), which is highly flexible and regularly updated, the availability of the Series LLC structure, no state corporate income tax for companies not doing business in Delaware, and strong investor preference for Delaware structures in funding transactions.
Explore our full US company formation hub or see our US corporate tax guide.
LLC vs C-Corp: The Critical Choice
This is the most consequential decision in US company formation, and it must be made at the time of formation. Converting from one structure to the other later is possible but involves cost and complexity.
| Factor | Delaware LLC | Delaware C-Corp |
|---|---|---|
| Federal tax treatment | Pass-through (profits taxed at owner level) | Double taxation (corporate + dividend tax) |
| VC/institutional investor compatible? | Generally not (VCs structurally prefer C-Corp) | Yes (the VC standard) |
| Self-employment tax on earnings | LLC members typically pay 15.3% SE tax on their share of profits | Shareholders taxed only on salary and dividends, not on retained profits |
| QSBS exclusion (up to $10M gain tax-free) | Not available to LLC owners | Available under IRC Section 1202 |
| Governance documents | Operating Agreement (flexible, private) | Certificate of Incorporation + Bylaws |
| Management structure | Member-managed or manager-managed (flexible) | Board of Directors + Officers (fixed structure) |
| Conversion path | Can convert to C-Corp if needed | Difficult to convert back to LLC |
| Annual franchise tax | USD 300 flat (due June 1) | USD 175 minimum, up to USD 200,000 (Authorized Shares Method) |
Who Should Choose a Delaware LLC
The Delaware LLC is the right choice for non-US founders who:
- Do not plan to raise institutional venture capital from US VCs
- Operate a consulting, freelance, e-commerce, or services business
- Want simplicity in governance and minimal ongoing compliance
- Derive no US-source income (in which case the LLC may have zero federal tax liability)
- Plan to use the company as a vehicle for holding digital assets, intellectual property, or as a corporate payment gateway
For a single-member LLC owned by a non-US person with no US-source income and no US permanent establishment, the US federal tax exposure may be zero. The LLC is treated as a disregarded entity for tax purposes, and a non-US person's foreign-sourced income is not subject to US federal tax. However, important filing obligations still exist (Form 5472 and Form 1120 pro forma), and compliance should not be ignored.
Who Should Choose a Delaware C-Corp
The Delaware C-Corp is the right choice for founders who:
- Plan to raise venture capital from US investors (VCs typically require C-Corp structure and will request conversion if you come in as an LLC)
- Want to be eligible for Y Combinator, Techstars, or other US accelerators
- Want to issue stock options to employees under standard equity plans (ISO options are only available to C-Corp employees)
- Want access to the Qualified Small Business Stock (QSBS) exclusion, which allows founders who hold qualifying C-Corp stock for 5+ years to exclude up to USD 10 million of capital gains from federal tax
- Are building a business with a clear path to a US IPO or M&A exit
Step-by-Step Delaware LLC Formation
- Check name availability: Use the Delaware Division of Corporations name availability tool (icis.corp.delaware.gov) to verify your desired company name is available. The name must include "Limited Liability Company," "LLC," or "L.L.C."
- Appoint a registered agent: Every Delaware company must maintain a registered agent with a physical Delaware address to receive legal and official documents. Popular registered agent services include Registered Agents Inc (approximately USD 50/yr), Northwest Registered Agent (approximately USD 125/yr), and Incfile (approximately USD 119/yr).
- File Certificate of Formation: File with the Delaware Division of Corporations online via corp.delaware.gov. The filing fee is USD 90. Same-day or next-day processing is typically available. For expedited same-day processing, an additional fee applies.
- Draft an Operating Agreement: Delaware does not legally require an LLC to have a written Operating Agreement, but it is strongly recommended. Banks and payment processors often require it during account opening. It defines ownership percentages, management authority, profit distribution rules, and procedures for adding or removing members.
- Apply for an EIN: An Employer Identification Number (EIN) is required to open a US bank account, file US taxes, and hire employees. Non-US residents without a Social Security Number (SSN) must apply differently — see the EIN section below.
- Open a US bank account: With your EIN and Certificate of Formation, you can open a US corporate bank account. See the banking section below for your options as a non-US founder.
- Track annual obligations: Delaware LLCs pay a flat USD 300 annual franchise tax due June 1 each year. There is no annual report requirement for LLCs (unlike C-Corps). Late payment incurs a USD 200 penalty plus 1.5% monthly interest.
Step-by-Step Delaware C-Corp Formation
- File Certificate of Incorporation: File with the Delaware Division of Corporations. The filing fee for a C-Corp is USD 89 for up to 1,500 authorized shares. Choose your authorized share structure carefully, as it affects future franchise tax calculations.
- Issue founder shares: After incorporation, issue shares to the founders at a nominal par value. Document this properly to establish clean capitalization records for future investors.
- Adopt corporate bylaws: Bylaws govern how the company operates, including board composition, voting procedures, and officer roles. Standard startup bylaws are available from legal form repositories or through corporate service providers.
- Hold organizational board meeting: Formally elect officers (President, Secretary, Treasurer), adopt bylaws, approve the issuance of founder shares, and establish the fiscal year. Record this in written minutes.
- Apply for EIN, open bank account: Same as for LLC.
- Consider 83(b) election: If founders receive shares subject to vesting, file an 83(b) election within 30 days of share issuance. Missing this deadline is one of the most expensive mistakes startup founders make, as it can result in large ordinary income tax bills as shares vest.
Getting an EIN as a Non-US Resident Without an SSN
An EIN is essential and obtaining one without a Social Security Number is possible but requires effort. The process:
- Complete IRS Form SS-4 (Application for Employer Identification Number). Download from irs.gov.
- Call the IRS International Line at +1-267-941-1099. This line is open Monday through Friday, 6am to 11pm Eastern Time. Wait times can be long.
- When connected, state: "I am a foreign person applying for an EIN for my [LLC/corporation] that was recently formed in Delaware. I do not have a Social Security Number or ITIN."
- The IRS agent will ask for your name, address, company name, state of formation, type of entity, principal business activity, and the reason for applying. Have your Certificate of Formation ready.
- The agent will issue your EIN verbally on the call, followed by a written confirmation letter (CP 575) sent to your mailing address.
Alternatively, several corporate service providers and EIN specialists offer EIN application services for USD 50-150, handling the IRS call on your behalf. Processing typically takes 2-4 weeks for phone applications.
US Bank Accounts for Non-US Resident Founders
Banking is the most frequently cited challenge for non-US founders with Delaware companies. Our research shows the following options are viable:
| Provider | Type | Non-Resident Account Opening | Requires US Address? | Requires SSN? | Notable Features |
|---|---|---|---|---|---|
| Mercury | Banking-as-a-service (backed by Choice Bank) | Yes, fully online | No | No | Most popular for international founders; free; integrates with Stripe, Brex, Gusto |
| Relay | Banking-as-a-service (backed by Thread Bank) | Yes, fully online | No | No | Strong expense management; free base plan; good for e-commerce |
| Stripe Atlas | Bundle service (bank via Evolve Bank) | Yes, part of Atlas bundle | No | No | Bundles Delaware C-Corp formation + EIN + bank + Stripe; USD 500 all-in |
| Wise USD Account | Payment service (not a bank) | Yes, online | No | No | US routing + account number for receiving USD; not a bank account but widely accepted |
Mercury has become the default choice for international founders with Delaware LLCs and C-Corps. The application is entirely online, there is no minimum balance requirement, and the account can be opened in 1-3 business days. Mercury is integrated with all major startup financial tools and is accepted by Stripe, Brex, Ramp, and other fintech platforms.
Delaware Franchise Tax: Avoiding the Trap
Delaware's franchise tax is real and can be surprisingly large for C-Corps with many authorized shares if the default calculation method is used.
For LLCs: A flat USD 300 per year, due June 1. Simple and predictable.
For C-Corps: Delaware uses two methods, and you should always calculate both and pay the lower amount.
- Authorized Shares Method (default): Charges USD 175 for up to 5,000 shares, then USD 350 for 5,001-10,000 shares, then USD 85 for each additional 10,000 shares. A startup with 10,000,000 authorized shares would owe approximately USD 85,000+ under this method.
- Assumed Par Value Capital Method: Calculates tax based on the company's total gross assets divided by total issued shares, multiplied by authorized shares, to determine assumed par value, then applies a rate of USD 400 per USD 1,000,000 of assumed par value capital. For most early-stage startups with limited gross assets, this method results in the minimum tax of USD 400-175 per year.
Our analysts consistently see non-resident founders receiving Delaware C-Corp franchise tax notices for tens of thousands of dollars and panicking. In almost every case, the company simply used the Authorized Shares Method by default. File using the Assumed Par Value Capital Method, and the tax typically drops to the USD 400 minimum for early-stage companies.
Beneficial Ownership Information (BOI) Reporting
The Corporate Transparency Act, which came into force on January 1, 2024, requires most US LLCs and C-Corps to file Beneficial Ownership Information (BOI) reports with the Financial Crimes Enforcement Network (FinCEN).
Who must report: Most LLCs and C-Corps incorporated in the US, unless they qualify for one of the 23 listed exemptions (large operating companies, SEC-reporting companies, regulated entities, etc.).
What must be reported: Each beneficial owner with 25% or more of the company's ownership or who exercises substantial control must be reported, including their full legal name, date of birth, residential address, and government-issued ID document number (passport or driver's license) with a copy of the document.
Deadlines: Companies formed before January 1, 2024 had until January 1, 2025 to file. Companies formed after January 1, 2024 must file within 30 days of formation. Penalties for non-filing are USD 500 per day up to USD 10,000.
Note: BOI enforcement was subject to legal challenges in 2025, with court injunctions temporarily pausing the filing requirement for some companies. Founders should monitor current FinCEN guidance at fincen.gov for the latest status of enforcement.
Wyoming vs Delaware: When Wyoming Wins
| Factor | Wyoming LLC | Delaware LLC |
|---|---|---|
| Annual franchise tax | USD 60 minimum (based on assets in Wyoming) | USD 300 flat |
| State income tax on LLC | None | None |
| Charging order protection | Strongest in the US (exclusive remedy) | Strong but not exclusive |
| Beneficial ownership disclosure | No public disclosure of members | No public disclosure of members |
| VC/investor familiarity | Low (investors less familiar) | Very high |
| Best for | Asset holding, real estate, privacy-focused structures | Operating businesses, startups |
Wyoming is the better choice for holding companies, real estate investment vehicles, and structures where asset protection and lower annual fees are priorities. For any business seeking US investment or operating in the tech ecosystem, Delaware remains the standard.
Tax for Non-US Owners of Delaware LLCs
For non-US founders, the US federal tax treatment of a Delaware LLC depends critically on whether the LLC earns effectively connected income (ECI) or income from US sources.
- No US-source income, no US permanent establishment: A non-US person receiving their share of LLC profits that are entirely foreign-sourced (services provided outside the US, software sales to non-US customers, etc.) generally owes zero US federal income tax on those profits.
- US-source income or ECI: If the LLC earns income effectively connected with a US trade or business, the non-US owner pays US federal income tax at ordinary rates (up to 37%) on their share of ECI, and must file a US tax return (Form 1040-NR).
- Filing obligations regardless of tax owed: Single-member LLCs owned by non-US persons must file Form 5472 (information return for 25% foreign-owned US corporations) along with a pro forma Form 1120. Multi-member LLCs file Form 1065. These are reporting requirements even if no tax is owed.
Full Cost Breakdown: Delaware LLC for Non-US Founders
| Item | One-Time Cost (USD) | Annual Recurring (USD) |
|---|---|---|
| Certificate of Formation filing fee | 90 | 0 |
| Registered agent | 0 | 50-125 |
| EIN application service (optional) | 50-150 | 0 |
| Operating Agreement (template) | 0-200 | 0 |
| Mercury bank account | 0 | 0 |
| Delaware annual franchise tax (LLC) | 0 | 300 |
| US tax return preparation (Form 5472 + 1120) | 0 | 500-1,500 |
| Total Year 1 | 340-640 | - |
| Total Year 2+ (annual) | - | 850-1,925 |
For cross-jurisdiction comparison, see our country comparison tool. For full US tax analysis, see our US corporate tax guide.