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As a non-American, I am slightly boggled by the bit about Delaware. I kind of, sort of knew about Delaware, but the idea that every startup incorporates there?
by cannam 12y ago
As a non-American, I am slightly boggled by the bit about Delaware.
I kind of, sort of knew about Delaware, but the idea that every startup incorporates there? Are all the SV startups nominally Delaware businesses? Can someone point to a nice potted summary of why a startup should incorporate there?
- UVB-76 12y agoFrom what I understand, Delaware is just a corporate tax haven. Around half of all public corporations are incorporated in the state [1] [1] http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html http://www.nytimes.com/2012/07/01/business/how-delaware-thri...
- Iftheshoefits 12y agoIn both states in which I've participated in the operation of a business the rule is that any business which has operations in the state has to register and pay taxes in that state. Maybe VC firms require it, but to me incorporating in Delaware just means I'd have to keep track of another set of corporate regulations in addition to the ones in the state I actually do business in (currently California).
- gamblor956 12y agoGenerally, there's no good reason to incorporate in Delaware unless you plan (or need) to take advantage of its unique corporate laws for legal conflicts in which you have the ability to determine jurisdiction. Otherwise, you simply end up subjecting your startup to the laws of Delaware and whatever state the startup is located in. (Tax-wise, you save little by incorporating in Delaware over a true corporate tax haven like Nevada, and you still owe state income taxes in whatever state the startup is actually located.)
- jwb119 12y agoMaybe if you're a regular cash flow business. But if you're seeking VC money, you absolutely should be incorporating in DE or you risk running into the headache described in the article, IMO.
- gamblor956 12y agoI agree, but that's only because VCs generally demand that the business be incorporated in Delaware.
- jwb119 12y agoWhy Corporations Choose Delaware: http://startuplawjournal.com/2013/04/04/why-corporations-choose-delaware.html http://startuplawjournal.com/2013/04/04/why-corporations-cho...
- TheCoelacanth 12y agoOne big reason is that Delaware has a separate court for deciding matters of corporate law. That court has decisions made exclusively by judges instead of juries. That makes legal proceedings related to corporate law less time consuming, less expensive and more predictable.
- tim333 12y ago"One reason is the bi-partisan political consensus in Delaware to keep the Delaware corporation statute modern and up-to-date, and to rely on Delaware's corporate law specialists for advice in how to do this." "The other major reason corporations choose to incorporate in Delaware is the quality of Delaware courts and judges. Delaware has a special court, the Court of Chancery, to rule on corporate law disputes without juries." according to http://www.newsworks.org/index.php/local/brandywine-to-broad/18206-why-do-so-many-corporations-choose-to-incorporate-in-delaware http://www.newsworks.org/index.php/local/brandywine-to-broad... I guess they kind of specialise in doing the corporate stuff efficiently.
- jliptzin 12y agoWhenever I tell someone that I'm incorporated in Delaware I usually get some snarky remark about being a tax dodge. I still don't understand why people think it's a tax dodge.