Corporate & Securities Law

Delaware is Suffering: Will Incorporation Fees Increase?

By Ryan Roberts

I’ve blogged before about the benefits of incorporating in Delaware. Thus, I was somewhat shocked to see the Deal Journal blog about how Delaware is becoming another victim of the credit crunch. I never thought about how much revenue Delaware receives from its Division of Corporations, but the article contained this statistic:

Delaware?s Division of Corporations contributed $700.8 million in revenue to the state in fiscal 2007. That was about 22% of the state?s total revenue.

According to Mark Roe, a Harvard Law Professor interviewed in the Deal Journal article, most of the Division of Corporations revenue comes from corporate franchise tax fees:

The current situation is that Delaware?s corporate tax base is eroding. On Delaware, it can have a big effect because Delaware gets about one-sixth to one-quarter of its state budget from corporate franchise fees.

Thus, If I’m reading the article correctly, Delaware doesn’t take in a lot of revenue from new incorporation fees. Delaware’s incorporation fees vary (click here for Delaware’s corporate fee schedule), but usually fall well below states like Texas which charges $300 for a new LLC or corporation. So will Delaware raise its incorporation fees to help make up the decreased Division of Corporations tax revenue?

The problem with raising incorporation fees is that Delaware needs to attract new filings, especially from out-of-state businesses. Raising incorporation fees would obviously not be a step in that direction. But it may be a better alternative, at least politically, than raising the state sales or corporate income tax.

And even if Delaware doubled or tripled its new incorporation fees, it wouldn’t affect a potential recommendation whether new startup company should incorporate in Delaware.

Full post as published by The Startup Lawyer on January 08, 2009 (boomark / email).