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Most startups are incorporated as DE companies (most common) or in the state of their founding (e.g. California). This is because the laws in these states are w
by pge 10y ago
Most startups are incorporated as DE companies (most common) or in the state of their founding (e.g. California). This is because the laws in these states are well known and have been tested by a large body of cases that establish precedent. As a VC investor, having a company incorporated outside the US introduces additional legal risk.
- cloudjacker 10y agoThat awkward moment when the only law that the startup will be tested by will be labor contracts in the state they operate in, and EEOC law at the federal level, and other federal laws Making their jurisdiction of incorporation completely irrelevant as the VCs push for settlement quickly.
- harryjo 10y agoSure but why add EXTRA legal risk by incorporating in an X-factor state?
- cloudjacker 10y agoIt isn't extra legal risk. You simply have legal teams copying and pasting incorporation structures and contracts, now they're about to get all their company's financials leaked. Delaware's Court of Chancery isn't even a perk for 99.9% of businesses. Delaware's "body of case law" can be leaned on by courts in ANY state if there is a conflict that state has never seen before.
- MOARDONGZPLZ 10y ago> Delaware's "body of case law" can be leaned on by courts in ANY state if there is a conflict that state has never seen before. That's kind of how it works, but not to the effect you hope. Delaware law isn't binding outside of DE, so if another court looked at it, they would only use it as guidance. Versus if a DE court looked at it, they would use it as binding precedent. Which is the benefit of incorporating in DE. That law is out there and binding due to the large number of incorporations there and large body of case law that has developed. So answers to random questions are really known and agreed upon. Whereas with another state's court, if you can even get them to consider DE law, you're praying that they side with DE law, which isn't always the case. There's more risk. There is an advantage to incorporating in DE, whether you believe that or not. Even if the advantage is, like using Ruby or Node or something, that everyone knows the law and it's well settled and boilerplate. You don't have to reinvent the wheel.
- cloudjacker 10y agowhat you say is true, it is just not applicable to 99.9% of businesses. When you have a dispute over capital structure and disclosure to investors, then Delaware will be useful. And you can incorporate closer to when you get to that point. Reincorporation, foreign incorporation, and continuation corporations are valid ways to switch jurisdictions when you need it. Just reading Nolo.com and incorporating in DE for limited liability of your pet project, even your pet project that may get employees, isn't necessary.
- stillworks 10y agoI am not a lawyer but this is a fascinating topic... When you pull out the SEC record for the company and it shows a tax heaven address, isn't that address the place of incorporation of the company ? EDIT :And by pull out I mean, purchase the record from SEC. EDIT :Replied to my own post, corrected that.
- DINKDINK 10y ago>As a VC investor, having a company incorporated outside the US introduces additional legal risk. An interesting counterpoint, for many startups in the Bitcoin / Cryptocurrency space, incorporating /in/ the US is seen as a risk (to some). E.g. ShapeShift, Blockstream.