4 ms·

They are often trying to dodge their local state’s regulations, though.

_--__--__ 6mo ago
Incorporating in Delaware was initially attractive because of usury laws that matter to a small number of business sectors. The charitable take is that most corporations want to comply with a state's regulations because unintentional compliance violations are painful and expensive, and it is relatively easy to be confident that you are compliant as a Delaware corp.
- eichin 6mo ago
  When I last did it, there were two wins for a tech startup incorporating in delaware: * it's easy and well-documented - the main thing you have to remember is to check the boxes that say this is an actual company, and not a holding company for a boat (where the real tax dodging is) * it was reported to make acquisitions easier (as the company acquiring you would either also be a Delaware corp or it would be more straightforward even if they weren't.)
  - kube-system 6mo ago
    Yes it is highly preferable for mergers/acquisitions/financing because the law is well established and widely known in those industries. If you run into some legal question somewhere down the line, investors and their lawyers will be much more comfortable with Delaware law than some other state who may not have clear language on the books and/or have never tested that particular situation in court before.
    - detourdog 6mo ago
      That is really a wild thing. A culture of legal belief based on precedent. It's as if one is joining a club that has rules of business conduct clearly documented.
      - kelnos 6mo ago
        That doesn't seem wild at all. Laws are written by humans, and, as such, there's inherent ambiguity. Given that, would you rather have a case tried in a court that has only tried a handful of other cases, or would you rather be in a court that has handled a mountain of cases, with lots of information as to what the law really means, as it has played out in real-life scenarios? Being tried under a legal regime where there is a ton of past history seems a lot easier to reason about than one where there isn't much. > It's as if one is joining a club that has rules of business conduct clearly documented. Well, yes. The law is the law, sure, but the "documentation" is much more than just the law, as written.
        detourdog 6mo ago
        It's wild because the obvious choice to me would be to incorporate in the state or commonwealth where the primary work is done. Choosing to incorporate in state that is nothing more than choice of court system to be bound to me is not obvious. Many people in this thread cite most court systems are the same yet some people choose to incorporate in Delaware. I happen to be incorporated in Massachusetts because that is where I live.
      - kube-system 6mo ago
        Is it any more wild than a system where ambiguity is decided at random by whichever judge you happen to have?
      - sidewndr46 6mo ago
        That is basically how the entire common law system works in North America. Except in the places not using common law
  - Quarrel 6mo ago
    Agree with your take, very similar to what I heard. However, we were strongly told that for early stage startups, some (CA) VCs would only bother looking at CA or DE companies.
- kelnos 6mo ago
  Not sure about initially, but the big benefit to Delaware today is essentially network effects: so many companies are and have been incorporated in Delaware that there is a mountain of case law and precedent, so corporate legal teams can have a very good idea of how rulings will go if the company is taken to court under Delaware law. The state's judicial system is also set up very well at this point to handle the cases put in front of it. (It also doesn't hurt that most businesses also find Delaware's business law to be reasonably fair and advantageous. Musk notwithstanding, of course.)
dhosek 6mo ago
When I had a C-corp in the 90s for a magazine I was publishing, my dad’s cousin insisted that I should incorporate in Delaware or Nevada. The thing is that because I was operating in California, especially at the small scale that I operated, it did nothing for me at all really. I would still pay California taxes and be subject to California regulations. Mostly it would make a difference if I were sued. (Obligatory disclaimer that these are ~30-year-old memories of some dumb 20-something’s understanding of the law at the time.)
- nickff 6mo ago
  It might also make a significant difference if you sold the company, which is one reason why many companies move to Delaware when they are looking for an acquirer.
adrr 6mo ago
No. Its because has chancery court which is a court based on equity not a court based on common law.
- skissane 6mo ago
  > No. Its because has chancery court which is a court based on equity not a court based on common law. This is somewhat confused. Most common law jurisdictions merged their courts of law and courts of equity into a single unified court system long-ago; Delaware is unusual in not having done so But if you bring an equitable cause of action, courts in other jurisdictions will apply equity to decide it. And Delaware’s Court of Chancery applies common law as well. There are real advantages to Delaware’s judicial system from a corporate perspective-a specialised court system can be more responsive because it isn’t weighed down with other types of cases, doesn’t have juries, offers judges with deep experience in that specific area of law, etc. But it isn’t purely due to keeping separate equity courts; other jurisdictions could get similar results by establishing specialised courts for particular types of cases, without necessarily having to rely on the old law-vs-equity jurisdiction to draw the line.

Incorporating in Delaware was initially attractive because of usury laws that matter to a small number of business sectors. The charitable take is that most corporations want to comply with a state's regulations because unintentional compliance violations are painful and expensive, and it is relatively easy to be confident that you are compliant as a Delaware corp.

eichin 6mo ago
When I last did it, there were two wins for a tech startup incorporating in delaware: * it's easy and well-documented - the main thing you have to remember is to check the boxes that say this is an actual company, and not a holding company for a boat (where the real tax dodging is) * it was reported to make acquisitions easier (as the company acquiring you would either also be a Delaware corp or it would be more straightforward even if they weren't.)
- kube-system 6mo ago
  Yes it is highly preferable for mergers/acquisitions/financing because the law is well established and widely known in those industries. If you run into some legal question somewhere down the line, investors and their lawyers will be much more comfortable with Delaware law than some other state who may not have clear language on the books and/or have never tested that particular situation in court before.
  - detourdog 6mo ago
    That is really a wild thing. A culture of legal belief based on precedent. It's as if one is joining a club that has rules of business conduct clearly documented.
    - kelnos 6mo ago
      That doesn't seem wild at all. Laws are written by humans, and, as such, there's inherent ambiguity. Given that, would you rather have a case tried in a court that has only tried a handful of other cases, or would you rather be in a court that has handled a mountain of cases, with lots of information as to what the law really means, as it has played out in real-life scenarios? Being tried under a legal regime where there is a ton of past history seems a lot easier to reason about than one where there isn't much. > It's as if one is joining a club that has rules of business conduct clearly documented. Well, yes. The law is the law, sure, but the "documentation" is much more than just the law, as written.
      - detourdog 6mo ago
        It's wild because the obvious choice to me would be to incorporate in the state or commonwealth where the primary work is done. Choosing to incorporate in state that is nothing more than choice of court system to be bound to me is not obvious. Many people in this thread cite most court systems are the same yet some people choose to incorporate in Delaware. I happen to be incorporated in Massachusetts because that is where I live.
    - kube-system 6mo ago
      Is it any more wild than a system where ambiguity is decided at random by whichever judge you happen to have?
    - sidewndr46 6mo ago
      That is basically how the entire common law system works in North America. Except in the places not using common law
- Quarrel 6mo ago
  Agree with your take, very similar to what I heard. However, we were strongly told that for early stage startups, some (CA) VCs would only bother looking at CA or DE companies.
kelnos 6mo ago
Not sure about initially, but the big benefit to Delaware today is essentially network effects: so many companies are and have been incorporated in Delaware that there is a mountain of case law and precedent, so corporate legal teams can have a very good idea of how rulings will go if the company is taken to court under Delaware law. The state's judicial system is also set up very well at this point to handle the cases put in front of it. (It also doesn't hurt that most businesses also find Delaware's business law to be reasonably fair and advantageous. Musk notwithstanding, of course.)

dhosek 6mo ago

When I had a C-corp in the 90s for a magazine I was publishing, my dad’s cousin insisted that I should incorporate in Delaware or Nevada. The thing is that because I was operating in California, especially at the small scale that I operated, it did nothing for me at all really. I would still pay California taxes and be subject to California regulations. Mostly it would make a difference if I were sued. (Obligatory disclaimer that these are ~30-year-old memories of some dumb 20-something’s understanding of the law at the time.)

nickff 6mo ago
It might also make a significant difference if you sold the company, which is one reason why many companies move to Delaware when they are looking for an acquirer.

adrr 6mo ago

No. Its because has chancery court which is a court based on equity not a court based on common law.

skissane 6mo ago
> No. Its because has chancery court which is a court based on equity not a court based on common law. This is somewhat confused. Most common law jurisdictions merged their courts of law and courts of equity into a single unified court system long-ago; Delaware is unusual in not having done so But if you bring an equitable cause of action, courts in other jurisdictions will apply equity to decide it. And Delaware’s Court of Chancery applies common law as well. There are real advantages to Delaware’s judicial system from a corporate perspective-a specialised court system can be more responsive because it isn’t weighed down with other types of cases, doesn’t have juries, offers judges with deep experience in that specific area of law, etc. But it isn’t purely due to keeping separate equity courts; other jurisdictions could get similar results by establishing specialised courts for particular types of cases, without necessarily having to rely on the old law-vs-equity jurisdiction to draw the line.