Choosing An LLC Jurisdiction: New York vs. Delaware

Forming a Limited Liability Company (“LLC”) is a popular choice for many company founders, typically offering liability protection, pass-through taxation, and flexibility. However, choice of LLC jurisdiction (the state in which the LLC is formed) is important and should be considered in light of the various costs and benefits afforded by each relevant jurisdiction. For startups and many other companies, Delaware and New York are two common choices, each with its own unique advantages and considerations.

Delaware

Delaware is known for its business-friendly legal environment, making it a magnet for the formation of LLCs and corporations alike. One of the primary benefits of choosing Delaware as LLC jurisdiction is its Court of Chancery, a court dedicated exclusively to business disputes and staffed by judges with deep experience in corporate law. This specialized court system often results in quicker resolutions to business disputes, with a well-established body of law providing more predictability in legal outcomes.

Additionally, Delaware offers a streamlined registration process and relatively low annual fees; at the time of this writing, the annual franchise tax is a flat rate of $300 for LLCs, irrespective of income level. However, a factor to take into consideration is the requirement of many states for companies formed in other states (so-called “foreign companies”) to register or otherwise qualify to do business in their state. Such registration and/or qualification is typically accompanied by a fee. As many companies incorporating in Delaware maintain their places of business in other states, the payment of such fees is quite common. 

New York

New York is a popular choice for startups and other companies to choose as LLC jurisdiction, perhaps most commonly in cases where such companies will maintain a principal place of business in New York. Being a major global commercial hub, New York offers its own set of advantages. Physically operating in New York can enhance credibility and prestige, given its status as a financial and cultural center, and companies in New York also benefit from the ability to access local markets and networks directly.

However, choosing New York as LLC jurisdiction can come with higher costs. There is a publication requirement, under which LLCs must advertise their formation in two newspapers for six consecutive weeks, which can cost upwards of $1,000, depending on the county. The annual filing fee is on a sliding scale based on gross income, and there may be additional costs associated with state tax rates and other regulatory requirements. However, for companies operating in New York, incorporating in New York avoids the requirement of registering for—and paying a fee for—foreign qualification.

Choosing An LLC Jurisdiction

Ultimately, whether Delaware, New York or any other state, the choice of LLC jurisdiction should consider the nature of the business, where it will primarily operate, and other factors (including factors not discussed in this Insight). Those interested in forming an LLC are encouraged to seek the advice of competent legal counsel when undertaking this important step in their business journey.