Risks of Establishing a Delaware Corporation

Delaware, USA, is a globally renowned location for company registration, attracting numerous international businesses due to its flexible corporate laws, low tax rates, and well-established legal system. However, despite its significant advantages in business convenience, there are also potential risks behind the scenes, especially in terms of compliance, taxation, and legal issues. In recent years, with the strengthening of global regulation on multinational corporations, issues related to Delaware companies have gradually come into focus.

First, tax compliance risks are one of the main challenges faced by Delaware companies. According to a report from The Wall Street Journal in June 2025, the Internal Revenue Service IRS is intensifying its review of foreign entities, particularly shell companies registered in Delaware but not actually operating there. These companies may be used for tax evasion or profit shifting, drawing the attention of tax authorities. For example, some multinational companies establish subsidiaries in Delaware and transfer profits to low-tax jurisdictions, a practice that has drawn the attention of the U.S. Treasury and may lead to future tax reforms.

Second, insufficient legal transparency is another major concern for Delaware companies. Although the state's corporate law is considered the most flexible and favorable to businesses, it can also allow some companies to exploit legal loopholes to avoid responsibilities. In January 2025, the U.S. Securities and Exchange Commission SEC issued a report highlighting inadequate information disclosure by some Delaware companies, pointing out that certain companies used ambiguous language or intentionally concealed key data in their financial disclosures. This not only increases investor risks but may also trigger regulatory investigations.

Cross-border legal conflicts are also a significant issue. Since Delaware companies are typically registered as U.S. entities, they may involve operations in multiple countries. If companies fail to properly address legal requirements across different jurisdictions, they may face multiple legal liabilities. For example, at the end of 2025, a Chinese tech company's subsidiary registered in Delaware was fined heavily by European regulatory authorities for failing to comply with the General Data Protection Regulation GDPR. This shows that even if a company is registered in Delaware, it cannot ignore the legal requirements of other regions.

Moreover, the complexity of corporate governance structures also poses a risk. Delaware's corporate law allows relatively loose shareholder agreements and board structures, which provide flexibility for businesses but can also lead to internal management confusion. In May 2025, a U.S. court heard a shareholder dispute case involving a Delaware company, where an early-stage enterprise faced long-term litigation due to unclear shareholder rights. This case highlights that improper design of corporate governance mechanisms can lead to serious legal consequences.

In addition, anti-money laundering AML and financial crime risks should not be ignored. In recent years, global AML regulations have become stricter, and Delaware companies have been classified as high-risk by some international financial institutions due to the lack of strict customer due diligence KYC procedures. In October 2025, Interpol released a report indicating that some Delaware companies were involved in illegal fund flows, suggesting that these companies might be used for money laundering activities. Although most companies operate legally, this phenomenon undoubtedly raises additional concerns for investors and partners.

At the same time, trademark and intellectual property IP risks are also issues that Delaware companies need to pay attention to. Due to the relatively simple registration process in Delaware, some companies may register trademarks without sufficient market research, leading to trademark infringement or duplicate registrations. In March 2025, the U.S. Patent and Trademark Office USPTO reported several legal disputes caused by improper trademark registration, some of which involved Delaware companies. These cases remind companies to pay attention to IP protection when registering their businesses.

Finally, the risks of company dissolution and liquidation should also be taken seriously. Many companies choose to dissolve their Delaware entities due to poor performance or strategic adjustments. However, failure to complete the liquidation process according to regulations may result in debt disputes or legal liabilities. In August 2025, a U.S. federal court ruled on a case where a Delaware company was still held responsible for debts after its dissolution, emphasizing the legal rigor required during the company dissolution process.

In summary, although Delaware's legal environment and business convenience attract many enterprises, its potential risks should not be overlooked. From tax compliance to legal transparency, from cross-border operations to corporate governance, and from anti-money laundering to intellectual property protection, each aspect could become a hidden danger for business development. When choosing to establish a company in Delaware, enterprises must fully assess their needs and seek the support of professional legal counsel to reduce possible risks.