[grandalf]

If you want to raise funding, Delaware is considered the least likely to add any hair to your deal.

There are jurisdictions with lower fees, though. If you really want to avoid taxes why not just incorporate in an offshore tax haven?

[hugh3]

If you really want to avoid taxes why not just incorporate in an offshore tax haven?

If this is advantageous, why do I hardly ever hear of it happening?

[enduser]

In general, investors like the businesses they invest in to be incorporated in strong, stable countries with stable governments in jurisdictions with a long history of favorable corporate case decisions. Delaware is the top choice not because it is the most favorable tax-wise, but because of the history of corporate cases tried in Delaware courts. Contrast Nevada, which has somewhat more favorable tax and privacy situations for corporations but a corrupt legal system (hello, casinos). Nobody wants to invest in Nevada corporations.

If you take your startup offshore, where will the court cases happen if things go wrong?

[JimmyL]

Delaware has the Delaware Court of Chancery (http://en.wikipedia.org/wiki/Delaware_Court_of_Chancery), which is where most business-related issues are heard in the state. It's got a long and established record of well-understood precedents, professional management, and no juries. This make is much easier for corporate lawyers to figure out how a case will go, and then react accordingly.

It's slightly favorable tax-wise (it's got a relatively simple code) and had a high cap on interest (which banks can no longer export, IIRC) - but mostly it's the judicial system that makes it popular.

[grandalf]

excellent points. This is why most firms choose Delaware.

[peterb]

Most people/companies are discrete about tax avoidance. Personally I like paying taxes, it buys civilization.

[grandalf]

If you consider that most of the money collected in taxes is paying for shady military operations in the middle east, I'd say taxes destroy civilization.

[sbov]

20% of federal expenditures are for defense. The oft-sited 50% is discretionary budget, which doesn't include things such as social security, welfare, etc.

[grandalf]

Not to nitpick, but:

- 20% is still the biggest single item in the budget.

- Many military-related expenses are not being paid for at present and will need to be paid for with future taxes.

[smokeyj]

Financing a government usually isn't a start-ups primary concern. "Civilization" is bought by innovation and entrepreneurship, not politicians and taxes.

[mtviewdave]

Nonsense. The basis of "civilization" is the just rule of law, and protection from external threats. Which are paid for by your taxes. Without these things, it would be impossible to create technology startups.

[prodigal_erik]

This. IMHO anyone who doesn't like the taxes that maintain their surroundings, has an ethical obligation to relocate rather than avoid paying. Hell, tax money hired the guys who created the Internet.

[hugh3]

Most folks who complain about taxes aren't objecting to the very existence of taxes, merely the fact that they're excessive, largely spent on things that they shouldn't be, and disproportionately lumped upon a small sector of the population. Few would complain about, say, a flat 10% tax rate to support basic infrastructure, courts, police, et cetera.

On the other hand, there are folks who genuinely believe that taxes should be zero. They're welcome to move to Somalia.

[cvg]

A company must make a good amount of money to do this. There is a overhead in structuring this: lawyers who do international inc., physical presence, banks, etc.

Larger companies will often do this by setting up a corporation in Ireland. They get a favorable tax rate, 12.5%, and a legit and stable place to park their European cash flows.

My resource for looking up tax havens is, http://www.lowtax.net/lowtax/html/jurhom.html

[travisp]

Another reason is that it doesn't often actually save you money in taxes. If you are operating in California, you'll still pay taxes in California even if you are incorporated in Bermuda. What it might save you money on is paying taxes on revenue from foreign operations. The United States generally taxes domestic companies on this, while other countries do not usually, putting international American-incorporated companies at a slight disadvantage in this respect.

[grandalf]

it's risky bc the IRS doesn't like it. A lot of mainstream companies do it though.