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 www.Pinskylaw.ca • View topic - Why Canadian Start-ups Should Incorporate in Delaware

Why Canadian Start-ups Should Incorporate in Delaware

Post about incorporation issues

Why Canadian Start-ups Should Incorporate in Delaware

Postby Pinskylaw.ca » 27 Jan 2016, 15:52

Federal and provincial governments have gone to great lengths to make Canadian corporations statutes internationally competitive. As a result, in terms of corporate governance, Canadian-incorporated companies operate fairly efficiently on a day-to-day basis. However, depending on a company’s long-term business plan and investors’ potential exit scenarios, there are a number of factors that may weigh in favour of United States incorporation. Some difficulties that can be avoided by incorporating in the United States only tend to arise when a company is sold due to Canadian income tax laws. If your potential customers are predominantly located in the United States and if you are planning eventually to sell your start up to a United States company, it makes sense to incorporate two corporations - one in Canada and another in Delaware. The Canadian company owns all Intellectual Property, and gives an exclusive Intellectual Property License to the Delaware company. The Canadian company is eligible for SR&ED credits, IRAP funding, BDC programs, and other federal and provincial incentives. The Delaware company attracts United States Startup programs and treatment, investment and other perks. Your Canadian corporation will employ your employees, design and develop your products and services and will also benefit from the generous start up tax credits offered in Canada, while your Delaware corporation will sell products and services of the Canadian corporation in the United States.

Below are the reasons why incorporation in Delaware is beneficial:

1. International Reputation

Delaware is universally recognized as the most corporate-friendly U.S. state and the best place to incorporate a business in the United States. Over 65% of Fortune's 500 companies and 50% of companies registered with the New York Stock Exchange and NASDAQ are Delaware companies.

2. Public Records

LCC
Information about names and addresses of Members and Managers of a Delaware LLC is not available on public records of the Delaware Division of Corporations (except if listed in the Certificate of Formation or in any other corporate document filed). During organization process, there is no obligation to provide this information to the Delaware Division of Corporations.

Corporation
Information about names and addresses of Shareholders, Directors and Officers of a Delaware Corporation is not available on public records of the Delaware Division of Corporations (except if listed in the Certificate of Incorporation or in any other corporate document filed). During incorporation process, there is no obligation to provide this information to the Delaware Division of Corporations. However, on March 1 of each year, any Corporation must file an annual corporate report, which contains the name and address of Directors and Officers of the Corporation.

3. Investment Required

No minimum capital investment in the Company is required. In addition, shares issued may have no par value.

4. Bank Account

The Company has no obligation to have a bank account in the State of Delaware.

5. Headquarters

The Company has no obligation to have its headquarters in the State of Delaware, nor to conduct any business in this State. Actually most shareholders, directors and officers of Delaware companies never set foot in this State. The sole obligation for the Company doing business somewhere else than Delaware is to be represented by a Registered Agent in Delaware. The Company may also have a mailing address in Delaware.

6. Shareholders, Directors and Officers

The same person can be Shareholder, Director and Officer (e.g. President, Vice-President, Secretary and Treasurer) of a Delaware Company. In addition, there is no obligation for Shareholders, Directors and Officers to reside in Delaware nor to hold any meetings there.

7. Freedom of Directors

Directors can establish the price they wish for the sale of the Company's shares. They can also adopt, modify or repeal any Company bylaw.

8. Corporate Income Tax

If the Company does not do business in Delaware, it does not have to pay any income tax to the State.

9. Personal Income Tax and Sales Tax

If a Delaware Company shareholder does not reside in the State, he has no tax to pay to pay concerning the Shares. In addition, there is no sales tax in Delaware.

10. Favorable Legislation

Delaware adopted a whole set of corporate laws which are very favorable to companies and which recognize contractual freedom. The "General Law Corporation" of Delaware is one of the most evolved and flexible corporate laws in the United States.

11. Specialized Courts

The Courts of Delaware and, in particular, the Court exclusively dedicated to corporate businesses (Court of Chancery), are unique in the United States. They are backed by over 200 years of jurisprudence, ensuring predictability and stability of legal decisions.

12. Incorporation Costs and Annual Tax

The incorporation costs of a Delaware Company are among the lowest in the United States. In addition, the annual Franchise Tax is comparable to any other state Franchise Tax.
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