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.

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