Five Reasons Why Companies Incorporate in Delaware
More than half of the companies in the Fortune 500 are incorporated in the State of Delaware. I am often asked why.
Although the state is the second smallest in the nation, it has been the preeminent place for businesses to incorporate for more than a century. In fact, according to the Delaware Division of Corporations, over one million business entities designate the state as their legal home since the early 20th century.
What makes Delaware such a popular place to incorporate?
1. Delaware has the most advanced and flexible business formation statutes in the U.S. that allow businesses to maximize profits.
2. Delaware’s Court of Chancery has written most of the modern U.S. corporation case law, providing businesses with greater predictability and less risk.
3. There are no residency or citizenship requirements in order to form a Delaware Corporation or Limited Liability Company (LLC).
4. Delaware doesn’t charge sales tax, corporate income tax, or personal taxes if the business operates outside of the state.
5. Delaware corporations and LLCs can access Delaware’s courts to resolve disputes (regardless of where their operations are located).
The state’s pro-business heritage dates back to 1899, when Delaware adopted its General Corporation Law aimed at attracting more businesses to the state. Before the rise of general incorporation acts, forming a corporation required a special act of the state legislature. General incorporation allowed anyone to form a corporation by simply raising money and filing articles of incorporation with the secretary of state. The statue simplified the legal process of incorporation and granted certain tax advantages.
With an initial investment of $1,500, Christopher Ward, a young Wilmington attorney, establishedDelaware Incorporators’ Trust Company to assist companies with incorporation and act as their registered agent. Around the same time, Josiah Marvel, the leader of the American Bar Association, Delaware Bar Association, and Delaware State Chamber of Commerce, began a similar firm to register companies as corporate entities within the state.In 1920, Ward and Marvel joined forces to create Corporation Service Company (CSC) to work exclusively with Delaware corporations. Business grew steadily and CSC, the parent of The Company Corporation, helped enhance Delaware’s reputation as the “Corporate State.”
The Delaware General Corporation Law is one of the most advanced and flexible corporation statutes in the U.S. Additionally, the Court of Chancery rules on corporate law disputes without juries. The result is fast action. Delaware Corporations do not typically get bogged down on dockets behind numerous non-corporate cases. Legal disputes tend to be addressed promptly by judges who specialize in corporate law. This is very attractive to businesses of all sizes in a multitude of industries. As a result, many American attorneys are well versed in Delaware business law.
Further, the politicians in the state are generally classified as “pro-business,” and residents are aware that much of the Delaware’s revenue is derived from corporation franchise taxes. All these factors have helped enhance Delaware something of a “brand name” for business incorporation for the past century right up until today.
E.J. Dealy is CEO of The Company Corporation, the small business unit at Corporation Service Company® (CSC®), which incorporates tens of thousands of new businesses annually and provides ongoing compliance services to 200,000 companies located throughout the U.S.
[Tweet “Five Reasons Why Companies Incorporate in Delaware via @Company_Corp for @BusinessTips”]
Share This Article:
About E.J. Dealy
E.J. Dealy is CEO of The Company Corporation, the Small Business Unit at Corporation Service Company® (CSC®), which incorporates tens of thousands of new businesses annually and provides ongoing compliance services to 200,000 companies located throughout the U.S. Dealy previously served as CSC's vice president for corporate development. Before joining CSC, Dealy was president and…