After more than 25 years of experience with various Delaware Holding Companies, we realize that establishing a valid and substantial presence in Delaware is essential. Substance will minimize the possibility that other states will be successful at taxing the income of the DHC.
We recommend the following steps be taken to establish a substantial nexus within Delaware: own or lease office space, furniture, office equipment, and have a Delaware phone. Use this Delaware address for corporate stationery, correspondence, filing of payroll and tax returns, and storage of corporate holdings and records. Set up one or more Delaware bank accounts, through which income is collected and disbursed for all DHC operations, dividends, and loans.
It is essential to retain a Delaware employee (or independent contractor) with the education and experience to manage a DHC. The performance of real and meaningful activities should include: check signing authority, wire transfer authority, and sufficient authority to transact all corporate business of the DHC between Board of Director meetings. Duties should include the documentation of corporate transactions, accounting functions, and a working knowledge of the intangibles managed. In many instances, it is advantageous to have this Delaware employee serve on the Board of Directors of the DHC. These duties are absolutely essential to operating a DHC as an entity separate and distinct from its parent company and affiliates.
Recently, Delaware Holding Companies have received increased attention from other state revenue departments. It has been proven time and again the best way to protect DHC income tax savings is to create as much nexus in Delaware as possible by establishing each holding company as a valid corporation controlled and managed in Delaware.