
Setting up a Corporation in Delaware vs. New Jersey
In our last business formation installment, we covered the factors you should consider when setting up a limited liability company in Delaware and New Jersey. We discussed how the process of forming this business entity differs in both jurisdictions. Today, we'll expand on that knowledge by offering detailed insights into the differences between setting up a corporation in Delaware vs. New Jersey. By reading this article, you'll understand how to form and conduct business using a corporation as your business entity type in both states. We'll evaluate the process based on the following:
Legal Framework and Business Environment
Incorporation Costs
Privacy and Disclosure Requirements
Join us below for more details.
Where Will You Form Your Corporation? Delaware or New Jersey?
Keep reading to understand the landscape when choosing where to incorporate your business.
Legal Framework and Business Environment
Before choosing either of these states, it's crucial to understand the legal frameworks that govern how corporations are formed, operated, and dissolved. This information can help you anticipate how disputes and legal issues might be resolved. Here's what you should know:
Delaware
Delaware is home to more than half of all publicly traded companies and 60% of all Fortune 500 companies. The foundation of the state's advantage lies in its General Corporation Law (DGCL). This legal framework governs the roles, duties, and relationships of those who manage and invest in any Delaware corporation.
The DGCL provides flexibility in corporate structuring, allowing businesses to customize bylaws and governance structures to meet specific needs. It also emphasizes the board of directors' authority, facilitating robust centralized management. Under Delaware law, corporations have significant leeway to define their own rules around board governance and corporate bylaws in their legal documents.
New Jersey
On the other hand, the New Jersey Business Corporation Act (NJBCA) is the statute governing the formation, operation, and dissolution of corporations within the state of New Jersey. While robust, the NJBCA tends to follow more conservative and standardized corporate practices compared to the DGCL. It offers a clear path to follow but is often less flexible than Delaware law, which has evolved to be more responsive to current business practices.
For instance, New Jersey law provides clear rules for the election of the board of directors and their terms. In contrast, Delaware allows corporations to define their own rules around board governance and corporate bylaws, offering greater flexibility.
Administrative Cost
Understanding the cost of incorporation and ongoing fees will help you manage your budget and make long-term financial plans. Here's how the costs for the incorporation process unfold in Delaware and New Jersey, as of October 2024:
Delaware
To incorporate in Delaware, you must file the Certificate of Incorporation with the Delaware Division of Corporations. The minimum filing fee is $89, but it may vary depending on the number of authorized shares or the par value of your corporation. Additionally, the state requires every corporation to maintain a registered agent with a physical address; the cost for this service typically ranges from $50 to $300 per year.
Your corporation must also pay franchise taxes, an annual fee paid by Delaware corporations. This tax is calculated using the authorized shares method or the assumed par value capital method. The minimum franchise tax is $175, but it can be higher depending on your corporation's size and structure. Finally, you must file an annual report, which costs $50.
New Jersey
In New Jersey, forming a corporation involves filing a Certificate of Incorporation, which costs $125. Like Delaware, New Jersey requires all corporations to have a registered agent who is available to receive legal documents. Hiring registered agent services typically ranges from $50 to $300 per year.
You must also file an annual report, costing $75 per year. While New Jersey does not impose a franchise tax on corporations, it does levy a Corporate Business Tax at the following rates:
6.5% for corporations with income under $100,000
7.5% for corporations with income between $100,000 and $1 million
9% for corporations with income over $1 million
It's important to note that New Jersey imposes a corporate minimum tax on all businesses, regardless of their profitability. This levy typically ranges from $375 to $2,000, depending on the type of corporation and their gross receipts. Understanding these costs will help you decide which state offers better administrative convenience and cost efficiency for your business entity.
Privacy and Disclosure Requirements
Privacy is important for business owners who prefer not to have their names and those of the corporation's directors publicly available. Here are the privacy and disclosure requirements for Delaware and New Jersey:
Delaware
Delaware does not typically require the disclosure of directors' and officers' names in public filings, offering better privacy and confidentiality for business owners. Additionally, shareholder records are not usually part of public filings, which can further enhance privacy. This means that when you file your legal documents with the Delaware Division of Corporations, you can maintain a higher level of anonymity. However, you are still required to have a registered agent in the state.
New Jersey
The Garden State emphasizes openness and accountability. It requires the disclosure of directors' names and addresses in formation documents, which become part of the public record. Certain corporate records may also be accessible to the public. While this promotes transparency, it may be a consideration if privacy is a priority for your business entity.
Conclusion
We hope this article has provided valuable insights into setting up a corporation in Delaware vs. New Jersey. Understanding the differences in legal frameworks, costs, taxes, and privacy requirements can help you make an informed decision about where to incorporate your business. Whether you prioritize flexibility, cost efficiency, or privacy, choosing the right state for your corporation is a crucial step in your business journey. We invite you to join us for the next article in our series, which will talk about the essence of registered agents for your business.
Are you wondering about any of the issues mentioned above? Please email us at Info@staturelegal.law or call (732) 320-9831for assistance.
At Stature Legal, we give business owners the clarity they need to fund, grow, protect, and sell their businesses. We are trustworthy business advisors keeping your business on TRACK: Trustworthy. Reliable. Available. Caring. Knowledgeable.®
Explore Our Business Formation Series
Dive deeper into the essentials of establishing and managing your business in New Jersey with our comprehensive series:
Learn why this series is essential for business owners in New Jersey and how it will guide you through every critical step of the formation process.
In What State Will You Form Your Business?
Explore the implications of choosing New Jersey or other states for your business formation.
What Type of Business Will You Form in New Jersey?
Understand the various business structures and determine which suits your needs.
Setting Up an LLC in Delaware vs. New Jersey
Compare the benefits and challenges of forming an LLC in these states.
Setting Up a Corporation in Delaware vs. New Jersey
Assess the factors influencing your choice between these two states for corporate formation.
Who Will Be the Registered Agent of Your Business?
Learn about the role and importance of a registered agent in New Jersey.
Where Will You Operate Your Business?
Consider the legal and practical aspects of selecting your business location.
What Will Be the Principal Office Address of Your Business?
Determine the significance of your principal office address and compliance requirements.
How Will Your Business Be Treated for Tax Purposes?
Gain insights into tax classifications and their impact on your business.
Will Your Business Protect You from Liability?
Understand the liability protections offered by different business structures.
What Are Various Types of Business Insurance Policies?
Explore essential insurance policies to safeguard your business.
Government Resources and Financial Support for NJ Businesses
Discover available resources and support for New Jersey businesses.
Protecting Your Business: Legal Insights on Intellectual Property in NJ
Learn how to protect your intellectual property rights in New Jersey.
Important Employment Laws in New Jersey
Stay informed about key employment laws affecting your business.
Employer Record-Keeping Requirements in New Jersey: What Business Owners Need to Know
Understand the record-keeping obligations for employers in New Jersey.
Contracts 101: Interpretation and Enforcement of Contracts Under NJ Law
Get acquainted with contract laws and how they affect your business dealings.
Conclusion: When Is New Jersey Right for Your Business?
Reflect on the advantages of establishing your business in New Jersey.
Each article is crafted to provide you with the knowledge and tools necessary for successful business formation and operation in New Jersey