You may have noticed that many businesses are incorporated in the State of Delaware. In fact, according to a 2018 report, nearly 1.5 million legal entities are incorporated in the state, including 67.8% of all Fortune 500 companies. You may wonder why so many US companies – especially those that look for outside funding – are incorporated there. One reason is that Delaware’s courts, laws and policies make it an attractive state for businesses to incorporate in.
Delaware has a special court, the Court of Chancery, that rules on corporate law disputes without juries. Thus, this special court ensures that corporate law cases do not get slowed down by non-corporate cases clogging up the docket. As a result of the court’s procedure and pace, judges sitting on the Court of Chancery have unique competence and a deep understanding of the law.
There is also a bi-partisan consensus among lawmakers in Delaware to keep their corporate law modern and up to date. As a result, lawyers across the country study Delaware law, and it is thus the common denominator for corporate lawyers and businesses nationwide. Delaware corporate statutes are also generally business-friendly and make the process of incorporation expedient.
Lastly, Delaware’s tax law gives corporations several legal ways to minimize their tax bills. For example, companies who are only incorporated in Delaware, but do business elsewhere, do not have to pay state corporate income tax. Additionally, companies incorporated in Delaware do not have to pay taxes on profits on royalty payments, trademarks, or copyrights.
When we tell this to many founders, they ask, “Fine, but what does this have to do with me? I just want to get off the ground, prove out my ideas and start having some cash flow.” = Our answer: ”Great questions.” We will deal with it in our next blog.