Take a Great Advantage of Delaware Incorporation
Delaware is the recognized leader in corporate, limited liability, and limited partnership law. The owners and operators of a Delaware corporation or limited liability company are not required to be identified in the public records of the State. Also, Delaware has a minimal corporate franchise tax (as low as $175.00 per year) that is not based on income. In addition, there is no Delaware income tax for Delaware corporations or limited liability companies that do not do business in Delaware.
Delaware is recognized as having a favorable tax climate. It has no sales tax, no personal property tax, and no intangible property tax on corporations. In addition, there is no taxation upon shares of stock held by non-residents and no inheritance tax upon non-resident holders, no tax on inventories and no tax on process machinery or equipment, and no personal property tax, no unitary tax, no State-level real property tax. Also, the corporation may keep all of its books and records outside of Delaware. You or your client can take advantage of these benefits through the use of a Delaware corporation.
By utilizing a Delaware corporation to own your boat or aircraft rather than owning it as an individual, you may be able to shelter yourself from the above-mentioned taxes. Many boat or aircraft owners recognize that a sales/use tax will be due in the State they are actually keeping or using the vessel. They also understand that under ordinary circumstances, when they choose to sell the vessel, the new owner will have to pay a sales tax on the purchase of the vessel. With this in mind, they can choose to put the vessel into a Delaware corporation and pay the tax in the corporate name (deriving other benefits incorporation has to offer, such as limited liability). When the vessel is subsequently put up for sale, the owner has the flexibility of selling the vessel as an asset of the corporation or selling the entire corporation, of which the vessel is an asset. The sale can be accomplished by simply transferring the shares of stock in the corporation over to the new owners. This arrangement can be very attractive to the prospective purchaser because the title to the vessel has not changed hands - it is still registered with the corporation. Therefore, no sales tax may be assessable on the transfer, and no re-registration costs are incurred. Additional tax savings may be realized if the vessel is used for business purposes.
Also, Delaware offers an extremely attractive tool for corporate tax planners -- the passive investment company. Corporations whose activities within Delaware are restricted to the management of income from intangible assets (such as marketable securities, intellectual property, intercompany debt, and subsidiary stock) are exempt from Delaware income tax. Delaware passive investment entities may achieve state tax savings in other states as well. The creative corporate state tax planner can use this simple exemption in many ways to great advantage.
Partnerships, sole proprietorships, and shareholders of S Corporations are not subject to State corporate income taxes. Individuals carrying on business as partners, sole proprietors, or who are shareholders of S Corporations are liable for personal income taxes imposed by the State only on their proportionate share of partnership, proprietorship, or S Corporate income.
A Delaware Limited Liability Company (LLC) is a hybrid business entity designed to combine the advantages of a corporation with the tax advantages of a partnership. Like a corporation, the owners of an LLC are not personally liable for the LLC's debts and obligations. Like a partnership, an LLC can be treated as a pass-through entity for tax purposes. Beginning in 1997, the IRS no longer taxes these entities as corporations. They permit the LLC to elect whether taxation as a partnership or corporation best fits the needs of its business and its Members. This may be advantageous for those who cannot meet the IRS requirements for an "S" corporation and desire the pass-through tax treatment.