Forming a Business Entity: New Jersey, New York, Pennsylvania or Texas vs. Delaware

Clients often ask whether they should form their business entity in Delaware. Delaware is an ideal jurisdiction for public companies and private companies with venture capital and private equity investors. However, Delaware may not be ideal for a local business operating in New Jersey, New York, Pennsylvania, or Texas. For example, if a business is formed in Delaware, but will be operated in another state, the business will have to file papers and pay initial and likely annual fees in two states. For many clients, forming a business in New Jersey, New York, Pennsylvania or Texas is perfectly acceptable. This paper describes some of the advantages and disadvantages of forming a business entity in Delaware, and then outlines the initial and annual costs involved in forming a corporation or limited liability company in New Jersey, New York, Pennsylvania, Texas, and Delaware.

There are some advantages of being a Delaware company, but they are probably not important to most small businesses operating in New Jersey, New York, Pennsylvania, or Texas. The advantages are:

• Delaware business entity statutes are frequently amended to keep them current.
• There is a large body of Delaware case law.
• The Delaware courts have a reputation for handling complex business entity issues.
• Many attorneys and investors have knowledge of, and are comfortable with, Delaware law.
• The names and addresses of a corporation’s initial board of directors are not required to be included in the certificate of incorporation filed with the State of Delaware.

There are some disadvantages of being a Delaware company operating a business in New Jersey, New York, Pennsylvania, or Texas. The disadvantages are:

• The company must pay initial and likely annual fees to two states—Delaware and the other state where the company actually operates its business.
• The company must pay an annual fee to a third party to serve as the registered agent in Delaware.

DISCLAIMER: This paper is for general information purposes only. It does not constitute legal advice, and cannot be used or relied upon as a substitute for legal advice regarding a specific matter. Legal advice should be obtained from a qualified attorney licensed to practice in the jurisdiction where that advice is sought.

Initial and Annual Costs of Forming a Business Entity

*       A foreign entity is an out-of-state entity seeking authorization to do business in the state.

**     For domestic benefit corporations only.

***   For domestic and foreign restricted professional LLCs only.

**** Amount of franchise taxes due depends on various factors. Learn more at https://comptroller.texas.gov/taxes/franchise/.

 

Sources:

NJ Filing Fee
https://www.state.nj.us/treasury/revenue/gettingregistered.shtml

NJ Annual Fees
https://www.njportal.com/DOR/AnnualReports/Home/FAQ#90

NY Filing Fees
https://dos.ny.gov/fee-schedules

NY Annual Fees
https://www.tax.ny.gov/pit/efile/annual_filing_fee.htm
https://dos.ny.gov/authority-foreign-business-corporation#top
https://dos.ny.gov/application-authority-foreign-limited-liability-companies

PA Filing Fees and Annual Fees
https://www.dos.pa.gov/BusinessCharities/Business/Resources/Pages/Fees-and-Payments.aspx

TX Filing Fees
https://direct.sos.state.tx.us/help/help-corp.asp?pg=fee

TX Annual Fees
https://comptroller.texas.gov/taxes/franchise/

DE Filing Fees
https://corpfiles.delaware.gov/AugustFee2024.pdf

DE Annual Fees
https://corp.delaware.gov/paytaxes/
https://corp.delaware.gov/alt-entitytaxinstructions/