This is a common question that our attorneys often hear from Washington startups. While the specific answer will likely depend on your particular company and situation, there are a few factors to take into consideration when deciding on your state of incorporation. Some of these include the requirements of incorporation, the overall cost of incorporation, and the impact your decision may have on investors. In the end, keep in mind that you always have the option of first incorporating in Washington and then, if need be, converting into a Delaware corporation.

What Are the Requirements to Incorporate in Delaware and Washington?

Delaware and Washington have very similar incorporation requirements.

You can incorporate your business in Delaware by:

1. Choosing a name for your startup,
2. Preparing and filing a Certificate of Incorporation (which is usually associated with a minimum fee of $89.00) with the Delaware Department of State,
3. Appointing a registered agent, or a person who accepts legal papers on the corporation’s behalf,
4. Preparing corporate bylaws, or the rules for operating your startup,
5. Appointing directors and holding a board meeting,
6. Issuing stock to shareholders,
7. Filing an annual report and paying a franchise tax, and
8. Obtaining an employer identification number, or “EIN.”

Similarly, you can incorporate your business in Washington by:

1. Choosing a corporate name,
2. Preparing and filing your Articles of Incorporation (which is usually associated with a minimum fee of $180.00) with the Washington Secretary of State,
3. Appointing a registered agent,
4. Preparing corporate bylaws,
5. Appointing directors and holding a board meeting,
6. Filing an initial report with the Secretary of State and then completing an annual report and license renewal every year, and
7. Obtaining an EIN.

Note that Washington does not require you to issue stock in order to incorporate your business.

What are the Costs of Incorporating?

In general, it will cost you more to incorporate your startup in Delaware rather than Washington. Granted, the filing fee for incorporating in Delaware is less than the fee for incorporating in Washington. But you should be aware that you’ll incur other costs if you opt for a Delaware business.

For example, if you go forward and incorporate in Delaware, you’ll have to pay:

• Money for a registered agent service in Delaware (whereas if you choose Washington, you could have one of your company’s founders serve as the agent),
• Delaware taxes – in addition to Washington taxes, and
• Money to register to do business as a foreign entity in Washington.

According to some estimates, startups that incorporate in Delaware as opposed to Washington should expect to at least double their tax and regulatory obligations and expenses. If your startup is cash-starved (which many are), then it might make better sense to incorporate in Washington.

What About Investors?

There are some investors that prefer to fund Delaware startups rather than Washington startups. Delaware is widely known as a business-friendly state. As a result, many investors and venture capital firms are well-versed and comfortable with Delaware’s corporate laws.

But keep in mind that there are a host of Washington startups that succeed in raising money from investors. From our perspective, venture capital firms make their funding decisions on other factors that are not really related to the state where the startup is incorporated. Some of these include a startup’s

• business model,
• services,
• solutions to a perceived problem,
• technology, and
• competitive positioning.

Given this reality, note that you can always incorporate your startup in Washington and be just fine. And, If for some reason, though, you notice that investors are reluctant to invest in your business, then you can always convert to a Delaware corporation. Making this conversion can be straightforward and in some cases a bit complicated but manageable with the help of counsel. We don’t recommend taking this step without legal support.

More questions? Not sure where to incorporate your business? 

Foundry Law Group Is Here to Help!

The attorneys at Foundry Law Group have years of experience in helping businesses manage and protect themselves from risks and concerns. Our team follows the latest developments affecting our clients’ operations, and we apply that knowledge as we build proactive strategies for long-term protection. We are always here to help so make sure to contact our talented team now!