Vol: 14, Issue: 4 2024

Page: 11-20

Why Incorporating A Company in NY/NJ is Better for Small Businesses Than in Delaware

Kunj Sheth

Received Date: 2024-08-20

Accepted Date: 2024-09-27

Published Date: 2024-10-29

http://doi.org/10.37648/ijtbm.v14i04.002

Delaware incorporation is expensive. Companies pay up to $180,000 a year for this simple privilege, more than any other state to form. Professors Marcel Kahan and Ehud Kamar's contentious work, Price Discrimination in the Market for Corporate Law, indicates that Delaware's yearly franchise tax gives it market strength in corporate charter competition. Professors Kahan and Kamar demonstrate that Delaware generates more money than merely charging a premium, but they also show that it price discriminates depending on how much each firm values incorporating in Delaware. This article applies Professors Kahan and Kamar's research to LLCs. This article examines the LLC tax, which is equivalent to the corporate tax, to determine how powerful Delaware is in the legal struggle for LLC charters. De Laware LLCs pay a $250 annual tax, not a franchise tax. This article illustrates that De Laware's LLC tax is not greater than its company franchise tax and does not price discriminate. But why? The report suggests that De Laware may have less market strength competing for LLC charters in multiple jurisdictions than for company charters. The essay suggests that LLC law's high contractibility and minimal legal ambiguity reduce Delaware's traditional competitive advantages—its expert judiciary and easy-to-contract laws. Since these two economic gains are gone, Delaware LLC law is not obviously better to company law. Delaware may not be able to charge more because other jurisdictions provide LLC legislation.

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