You’ve heard the chorus: “You must incorporate in Delaware.” It’s legal dogma, a default setting in law firm operations everywhere. As seasoned attorneys, we know the stats: over 65% of Fortune 500 companies and a vast majority of US public companies call Delaware their legal home. The prevailing wisdom suggests that it is the only smart move for a business destined for growth. 

Let’s be honest with each other; this one-size-fits-all advice, often delivered without a deep analysis of a client’s operations, is a prime example of the outdated ‘best practices’ that adds unneeded stress to our practice and our lives.

We’ve all been there: advising a client on a path that seems right on paper, only for them to face unexpected compliance burdens and tax complexities down the line. 

At Mavacy, we believe in a different approach; one built on bespoke strategy, not default settings. We’re here to cut through the noise and offer the unvarnished truth about Delaware incorporation, for you, the lawyer advising the client, or the lawyer managing the firm’s own structure. The goal isn’t just to practice law; it’s to practice it with purpose and predictability, allowing us to build a more sustainable future.

Continue reading for a pragmatic look at the real pros, the significant pitfalls, and the strategic guidance you need to provide to your clients—and, perhaps, to your own firm.

The Court of Chancery: Why Delaware Still Matters (and When)

Delaware didn’t become the “Incorporation Capital” by accident. Its advantages are real and significant, particularly for a specific type of business trajectory. 

The most compelling reason is not tax-related at all; it’s jurisdictional. Delaware boasts a specialized Court of Chancery, a dedicated business court that handles complex corporate disputes without a jury. Its judges are experts in corporate law, and the sheer volume of case law means unparalleled predictability. For a lawyer, predictability is gold. It allows for clearer counsel, fewer surprises, and more stable outcomes for clients. When advising a startup seeking venture capital, that predictability gives investors “comfort and confidence” in their investment, making it a non-negotiable requirement for many VCs and angel investors.

The “Tax Benefits” (With a Catch)

Yes, Delaware has favorable tax laws for specific situations.

• No Corporate Income Tax for Out-of-State Operations: If a business is incorporated in Delaware but has no physical presence or operations within the state, it generally doesn’t pay state corporate income tax.
• No State Sales Tax or Intangible Asset Taxes: Delaware also has no state sales tax, investment income tax, or personal property taxes. It generally doesn’t tax royalty payments or other intangible assets for non-operating companies.

These benefits are appealing, but they are often misunderstood as a total tax shield—a myth that can lead to significant headaches down the road.

The Pitfalls: Dispelling the Myths and Avoiding the Traps

The “dark side” of partnerships isn’t always a courtroom drama; sometimes, it’s a tax notice from a state you didn’t anticipate. Relying solely on the default Delaware option can create unnecessary operational and compliance burdens that contribute to the very burnout we are all trying to avoid.

The most common trap is the infamous Delaware Franchise Tax surprise. It’s an annual tax that can be nominal for small companies or steep for larger corporations if calculated incorrectly. The method you choose (Authorized Shares Method vs. Assumed Par Value Capital Method) can mean the difference between a $400 bill and a $200,000 bill. Getting this wrong is an administrative failure that clients won’t soon forget. 

Managing these details is part of the operational strain that weighs on firm owners.

The myth of escaping taxes is the biggest reason clients are advised to incorporate in Delaware. The truth? No business is exempt from paying taxes in the states where it actually operates and generates revenue (its “nexus”).

States have become increasingly sophisticated in identifying economic nexus. If your client is a tech company in California, a retail chain in Texas, or a service provider with remote workers across five states, they will owe taxes and face compliance requirements in all those jurisdictions.

Incorporating in Delaware while operating in your original jurisdiction requires dual compliance, meaning you’ll also have to register as a foreign entity in every operational state. 

That’s double the administrative work, the annual reports, and the registered agent fees. This kind of inefficient, low-value work can drain the energy of a busy legal practice.

Actionable Advice for Guiding Clients

The “give first” culture at Mavacy means providing genuine, high-value insights to our peers. When a client asks “Should I incorporate in Delaware?”, your answer shouldn’t be automatic.

• Perform a Needs Analysis, Not a Default Setting: Go beyond the standard intake form. Understand their full business model: Where are their employees? Where are their customers? What is their actual revenue stream? What is their real long-term funding strategy? A local LLC is often simpler and more cost-effective for a small, geographically concentrated business.
• Focus on the Right Tool for the Right Job: If a client plans to seek significant institutional venture capital, Delaware is likely the correct path because the investors demand it. For most other businesses, a different state of incorporation might be more efficient. Your value lies in making that distinction, not in following the herd

A Call to Clarity and Strategic Counsel

Smart legal advice is based on a clear-eyed view of the facts, not on outdated hype. By navigating the nuances of Delaware incorporation with precision and integrity, we not only better serve our clients but also build a more sustainable and meaningful legal practice for ourselves. We can move past the administrative “chaos” and toward the “clarity” that allows us to thrive.

If you’re an attorney facing operational strain, burnout, or looking for a way to scale your practice without sacrificing your autonomy or well-being, we understand. We’re a firm built by lawyers, for lawyers, who believe there is a better way.

Contact us today for a confidential conversation about how you can integrate your practice with the Mavacy movement. We’re dedicated to helping lawyers turn vision into structure and momentum into mastery.