
Why do Y-Combinator startups incorporate in Delaware rather than California? - waleedka

======
e1ven
Deleware is great because it knows how to deal with businesses.

If I recall correctly, it's one of the only states that has a dedicates Court
of Chancery [1]- Essentially special courts that are focused on business law,
rather than being generalized.

This lets them build up a large body of precedent , but more, it means the
judges are going to be dealing exclusively with civil cases, and can can focus
on the needs of businesses.

Because of this, the court has come to be regarded as the countries experts
business law. [2]

[1] <http://www.delawoffice.com/chancery.html>

[2] [http://72.14.253.104/search?q=cache:l4-0NQmIQc0J:corporate-
law.widener.edu/ctofchan.htm+Court+of+Chancery+delaware&hl;=en&ct;=clnk&cd;=5≷=us&client;=firefox-a](http://72.14.253.104/search?q=cache:l4-0NQmIQc0J:corporate-
law.widener.edu/ctofchan.htm+Court+of+Chancery+delaware&hl=en&ct=clnk&cd=5&gl=us&client=firefox-a)

~~~
tcg
And, as I've heard it, the reason that Delaware has very favorable business
laws/legal system is that the DuPont company has been there since about 1800
(not too long after 1776 =). DuPont has been a huge company in a very small
state for a very long time. Early on, they were able to set up a very
favorable climate for themselves and thusly other corporations, and then
things have snowballed from there.

------
zaidf
Not sure how California is but read the Delaware wiki about why Delaware's
best for incorporation: <http://en.wikipedia.org/wiki/Delaware_corporation>

~~~
waleedka
Thanks. Quote from the wikipedia article: "Delaware's formation and annual
fees are substantially higher than most other jurisdictions." "Franchise taxes
in Delaware are actually far higher than in most other states"

And, on top of that, these startups must pay California taxes and other fees
because they're operating in CA (for the SF ones). Not to mention having to do
paperwork for two states, and then lose some of the incentives CA gives to
local corporations. For example, the minimum $800 franchise tax is waived for
the first year for CA corporations, but not for foreign ones operating in CA,
ASAIK.

So, with all that, there must be a compelling reason to incorporate in
Delaware!!! Anyone knows what that might be?

~~~
zaidf
I think the corporation-friendly court system is one of the biggest pluses.

-Zaid 

~~~
dpapathanasiou
According to my lawyer, the large body of prior precedent in Delaware is the
reason: i.e. if you ever wind up in a legal dispute, your attorneys will have
a good sense of how your case would be ruled, based on similar case
precedent(s).

------
shsung
The short answer would be because the Delaware courts are favorable toward big
business, much like New York. A long case history biased in favor of you, the
business, is much more useful to you than a case history biased in favor of
the consumer (California).

Legal troubles of any sort are a tremendous waste of expense and time and can
cripple any company, big and small. That alone is worth incorporating in a
company-friendly state.

------
zkinion
It is just the long history of case law make it a more "definate" legal venue.
Most laws in the US are determined by actual cases, in court, and not in the
actual written laws.

Nevada is also popular to incorporate in. I've always incorporated in Nevada
because of lack of state income tax and it's favors to small business.

------
pg
Most American corporations are registered in Delaware. It's just the standard
thing to do. I think because legal stuff works best there.

------
zach
Just to smooth things over for investors. They still have to register in CA
and pay California taxes if they operate in the state.

