Incorporating in the State of Delaware is the logical choice for a large number of companies we represent. Many founders think incorporating in their home state is the best option, however that is not always the case. There are several reasons companies incorporate in Delaware, some of which will be discussed below.
- Delaware Law
The State of Delaware has been the preferred home to large corporations and small companies from across the globe for many years. As a result, they have specialized courts that only deal with corporate disputes and issues. Delaware law is extremely predictable and is largely seen as business friendly. All Delaware judges are thoroughly trained in all sorts of business matters, so there is comfort knowing that the judge will be someone that knows exactly what they are talking about. This is not always the case in other jurisdictions. Decisions are generally issued via written statements, thus making it easier to review and ensures predictability. While many of the safeguards Delaware has in place wont effect a company until an issue arises, some even effect a company on day one. For example, the State of Delaware will allow a company to decide most operational issues for themselves. Other states like to dictate how a company should be operated and create sometimes burdensome and inapplicable restrictions on companies and its shareholders. Delaware is well known for providing maximum flexibility in the structuring and operation of business entities, including the allocation of rights, risks and duties among founders and shareholders.
Delaware does not require officers and directors names be listed in the formation documents. In fact, most of the time the documents merely list the attorney who filed them with the State of Delaware.
Delaware makes it extremely quick and easy to form an entity. Generally, filings will come back the same day. A handful of Delaware registered agents have direct connections to the Division of Corporation’s electronic database, and can file your company’s formation documents electronically. Formation in Delaware can not only be quick, but also cheaper than other jurisdictions. The initial formation costs, as well as all ongoing fees are generally among the most affordable in the country.
- Investor Expectations
Virtually every investor in the United States (and perhaps the world) is familiar and comfortable with Delaware law. Law students across the country study the Delaware corporation statute and the decisions of Delaware courts interpreting that law. As a result of their client’s needs and law school teachings, many lawyers are far more familiar with Delaware law then they are with their home jurisdiction. Many investors will require a company be incorporated in Delaware before making an initial investment. If you plan on raising funds from an investment bank or venture capital firm, you will likely be forced to become a Delaware entity. The cost of converting a foreign entity into a Delaware company is far more expensive than any initial formation costs.
These are just some of the reasons it may make sense to form your company in the State of Delaware. This blog post is not intended to provide legal advice. You should consult legal counsel to discuss the facts and circumstances of your particular situation.