Delaware vs. California: Corporate Laws
Lubna Jahangiri Esq. and Rohan Niranjan, Legal Intern and Co-Authors
September 12, 2024

Finding out which state to incorporate one’s business is an important step for any company. For many years now, Delaware has been considered the best state to incorporate in. However, recently, California has made strides in exhibiting itself to be a strong environment to start a business. Both states have their pros and cons related to this issue, and each company must make a unique decision tailored to their business on which factors are more important to them.


Delaware is known to be extremely legally and economically friendly to businesses, and it is the reason the state houses almost two million businesses. Delaware corporate law is known to be flexible with respect to shareholder rights and company structure (Stripe). It is known to be a merger friendly state and valuable for those investing in venture capital or private equity. Delaware also has its own, unique court called the Court of Chancery dedicated to corporate issues. The Court of Chancery makes decisions only through judges, which are assigned based on merit, and it has been established for many years now (Stripe). Delaware is also known to be a tax friendly state. It does not have income tax for businesses which are based outside of Delaware. In addition, any company that is incorporated in Delaware but does not practice business in the state, does not have to pay the state’s corporate income tax (Stripe). Company shareholders who do not live in Delaware also do not need to pay taxes on their shares. Investors are also more likely to invest in Delaware businesses due to their business and shareholder friendly laws and easy access to incorporation. Despite all these benefits to incorporating in Delaware, there are also a few downsides to doing so. Regardless of whether a business practices in Delaware or not, any company that incorporates there must pay an annual franchise tax which can range from $175 to $200,000 (Stripe). In addition, any company in Delaware that is incorporated but does not practice there, is required to identify as a foreign entity and will therefore be subjected to much more paperwork (Stripe). Finally, Delaware’s corporate laws are known to be advantageous to larger companies but are not friendly toward smaller businesses and startup companies. This may deter some people from starting and incorporating a business in Delaware.


Incorporating business in California also has various different benefits. California businesses which do business inside the state are especially at an advantage. This is because local businesses obviously do not need to identify as a foreign entity in California, and therefore they will have to deal with far less paperwork (Stripe). In addition, California businesses have higher credibility and name recognition with distributors, investors, and customers because of the value that California’s market has. Furthermore, California law is also known to shield minority shareholders from unfair or discriminatory practices or treatment (Stripe). Finally, California is well known for startups and innovation, especially in the technology sector centered around Silicon Valley. Many of the corporate laws in California tend to be more favorable towards up-and-coming businesses incorporated in the state. While there are great pros to incorporating in California, there are also some cons which may concern business owners. California has a higher base level of minimum taxes, which is about $800 annually regardless of the company’s income (Stripe). In addition, California is also generally stricter and more scrutable with laws involving privacy, labor, and EPA standards (Stripe). California’s high cost of living and tax laws are also a major deterrent from businesses setting up shop in the state.

Overall, both Delaware and California have strong advantages and disadvantages of incorporating a business in each respective state. A business owner must make a choice of where to incorporate based off of factors which are important to them. Delaware is known for flexible corporate laws, the respected Court of Chancery, increased privacy for businesses, and being friendly to investors and large corporations. On the other hand, California corporate law is protective of its employees, highly credible, and better for new businesses and startups. Finding a state to incorporate one’s business is a crucial decision and both Delaware and California are good options.


Works Cited

Stripe. (2023a, November 29). Incorporating in Delaware vs. California: How to decide. Stripe. https://stripe.com/resources/more/incorporating-in-delaware-vs-california 


Before you establish your business, it is vital to meet with our legal team. We can discuss your specific situation and any business needs you want to meet. The San Ramon business formation lawyers at Jahangiri Law Group, APC take as much time as is necessary to make sure that you are secure in your decision.


JAHANGIRI LAW GROUP handles matters involving contracts (written and oral), trials, arbitrations and appeals in the areas of business, corporate, commercial, and real estate litigation, and transactional law. We offer services to diverse cultures and can assist in Urdu, Hindi, Punjabi and Spanish. We are based in San Ramon, California, but provide services throughout the entire San Francisco Bay Area. We are open from 9:00 a.m. to 5:00 p.m., Monday to Friday. To make an appointment please call 925-574-0100.

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