
The Case Against Delaware (2002) - ladon86
https://newrepublic.com/article/61902/rogue-state
======
poultron
Most of you focused on iteration and entrepreneurship should appreciate
Delaware simply for its incorporation status alone. Why does everyone
incorporate in Delaware do you ask? Is it some tax break or something purely
financial, as most people guess? Nope. It's because Delaware put a stake in
the ground a LONG time ago and said that they want to be the experts at
dealing with business law. So much so that they have their own special court
system brought over from England called the Court of Chancery, which iterates
its laws at a much faster pace than typical government to keep up with the
current business environment. This court system is comprised of Chancellors
and Justices who are known to be the best in the world at business law. And
when you take a close look at who elects the Court's officials, its strictly
divided into half Republicans and half Democrats, with mixed representation
from legal and non-legal backgrounds, same with politics. It's about as
unbiased as one can get. and from an experience perspective, the Chancellors
and Justices ONLY focus on business law cases. Would you want your business
case to be dealt with by a judge who just had a divorce case before yours and
a criminal case after yours? I wouldnt either.

And from a development perspective, Delaware made their own Division of
Corporations almost like a lean startup with the goal of making it the EASIEST
and FASTEST way to incorporate your business, with their business hours being
24/7 with international support. You can literally incorporate your business
in 15 minutes or less. Try doing that in your home state. Look into the
history of the Division of Corporations and the Court of Chancery if you're
interested, it's a fascinating story.

So at the end of the day, when you're incorporating a company and inspecting
your fiduciary responsibilities to your future employees, shareholders,
investors and customers... you want to make sure you incorporate wherever the
Business laws are most up to date, with a fast process, a quick judicial
system that plays the game by the books and will be swift and fair with a
proven track record of extensive experience. Delaware has made itself the no-
brainer solution to all of those problems.

And for that, we should thank them (regardless of how shitty their tolls are,
ha).

~~~
joe_the_user
Well,

That's certainly nice for corporations.

However, I would argue that situation runs directly against the broad tenants
of American Democracy. Specifically, that states should regulate their
internal commerce to some extent and the Federal government should regulate
the rest. Here, you have one state that allows an end-run around both
institutions (except for the minute number of people actually living in
Delaware).

~~~
lisper
> tenants

Tenets.

> states should regulate their internal commerce

That idea was invented at a time when the fastest way to travel or communicate
was by horse. In the age of the automobile, the airplane, and the internet,
there is barely any such thing as "internal commerce" any more.

~~~
brownbat
I'd add that there are competing constitutional priorities, one of ensuring
states can regulate their own affairs, and another of ensuring a common
market, and ensuring that the legal frameworks of the various states are
interlocking.

Balancing these two values is not trivial. Article 4 takes a shot, it's how we
got here.

Odd to claim it's antithetical to American democracy. These sorts of
compromises between union and independence, with all their odd imperfect
results, are pretty thoroughly baked in.

------
rayiner
> This is partly true, but it ignores the overriding factor: Incorporating in
> Delaware allows companies to operate under its laws and courts, which are
> the most pro-management in the nation.

This is inaccurate. Being familiar with both, I wouldn’t say Delaware is more
pro management than New York. Which makes me wonder what else in the article
is outright fabrication.

(The idea of “pro-management” corporate law is itself a bit misleading.
Delaware law governs the internal operations of the corporation and the
relationship to shareholders. Shareholders are the ones who decide what rules
will apply because they choose where to incorporate.)

~~~
chris_mc
>This is inaccurate

How so? I'm curious, as I don't know much about corporate law.

~~~
mirashii
[https://news.ycombinator.com/item?id=12320377](https://news.ycombinator.com/item?id=12320377)

An old thread, but the discussion covers a bit on how Delaware actually has
extremely pro-shareholder laws relative to other states, including requiring
disclosure of the cap table.

If we want to also talk about misleading, I think choosing a subset of the
reasons that businesses choose to incorporate in Delaware and selling them as
the sole or even primary reasons is pretty misleading. If you even do a short
Google search on why companies incorporate in Delaware, you'll find that one
of the top cited reasons boils down to predictability. Because Delaware has
been the place companies incorporated for so long, it has a long and
established set of case law and precedent, which brings of stability that
states with fewer corporations will need to build over time. Add in feedback
loop contributions, such as the amount of lawyers who have studied and are
experienced in the state's corporate law, and the choice continues to make
more sense even without the factors the author listed.

~~~
chris_mc
Thanks

------
froindt
If you're not from the northeast, the fact that Delaware is the state of
incorporation for so many companies is a huge pain point when bankruptcy is
involved.

For example, why should a company who exclusively does business within 200
miles of their headquarters be able to file bankruptcy thousands of miles
away? Is that the justice intended by our court system? Any parties involved
(suppliers, employees who are still owed money, and customers) must hire an
attorney to represent their interests, and furthermore must hire local council
in Delaware to be able to submit documents to the court.

~~~
nine_k
Would you suggest that a company must operate close to where it's registered?

How is it going to work with companies that operate across several states, and
gradually focus on more on other states than the place of the original
incorporation? Can they even close a branch in the state of the incorporation?

How important the convenience of the bankruptcy process is compared to other
processes related to a company?

~~~
SllX
Expensively.

This came to mind while I was reading your comment and this is not a position
I am actually advocating, but the law is malleable and reflects human will, it
doesn't confine it. If you wanted to make such a scheme work, you could
require a corporation incorporate in _each_ and _every_ State/Nation that they
conduct their business in. You could slice this down to what it means exactly
to do business in a State so every charge on a corporate credit card across
State lines doesn't have to mean you suddenly do business in that State.

If you wanted to close all the branches in the state of incorporation, you (as
in the many legislatures, not you specifically) could setup a process of
disincorporation and transfer of control to one of the subsidiaries.

The law is not a stone tablet handed down from on high, it is, in a literal
sense, whatever humans wish to make of it, and there are always processes for
changing the laws to fit whatever position you're advocating.

Now effective enforcement is another matter entirely, and without care and
consideration, there will always be knock on effects. In this case, requiring
incorporation in multiple jurisdictions would make the cost of doing business
more expensive, and liable to expose corporations to increased liability.

------
tomphoolery
It's not unprecedented. Only a few miles north, New Jersey basically ruined
I-95 for everyone who lives above Philly.

[https://www.bloomberg.com/news/articles/2018-08-20/after-60-...](https://www.bloomberg.com/news/articles/2018-08-20/after-60-years-i-95-is-
complete)

DE and NJ aren't really suitable states, they bring zero benefit as a separate
entity from their neighbors.

Disclaimer: I live in Philadelphia. Also, fuck Dallas.

~~~
Camillo
What a frustrating article! It doesn't explain anything about why the highway
was opposed, how the battle played out, etc.

The "old" map shows I-95 just ending, and doesn't show where it resumes. The
most obvious thing the map should do given the story is show what the old path
was and what the new one is, and it doesn't do that! The second most obvious
would be showing Mercer County, which is blamed in the article for blocking
the highway, but guess what, it doesn't show that either.

It sounds like there is an interesting story here, but that article utterly
fails at telling it.

~~~
pdonis
There are some good maps showing the changes here:

[http://www.raymondcmartinjr.com/njfreeways/Interstate_95_Gap...](http://www.raymondcmartinjr.com/njfreeways/Interstate_95_Gap_Map0.html)

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jessaustin
It seems strange that the falsehood about the gas tax wasn't corrected in the
text but rather in an endnote.

------
ur-whale
The article makes a case against states competing with one another.

I'd argue that competition is a very good thing in this case.

~~~
stretchwithme
Yes. When governments compete, you win. When you're stuck with only one
option, you're more likely to overpay.

Especially in a large popular state that is difficult to get away from in more
ways than one.

~~~
ur-whale
>Especially in a large popular state that is difficult

I agree, and states in the US being too big is the root cause of the headache.

~~~
stretchwithme
I think this is also a reason why business prospers so much in places like
Singapore and Hong Kong. Yes, not exactly democracies, but very easy to leave,
so rule of law was the way to go. People can vote with their feet. Whereas
tyranny on continents can really be entrenched for centuries.

------
will_brown
>making my way down I-95 in a rental truck...I screeched to a halt in front of
what turned out to be a two-hour backup in Delaware. Never having driven down
the East Coast, I at first assumed the traffic jam...But as my truck crept
forward I saw it was no accident at all but a deliberate
obstruction—specifically, a tollboth on the Delaware Turnpike.

Um...I-95 and the Delaware turnpike are not the same roadway. Somehow while
applying the brakes on I-95 the driver and truck magically transported from
I-95 to a 2hour traffic jam for a toll on the Turnpike?

~~~
rayiner
Also, when was this? I drove that stretch every other week when I lived in
Wilmington, and never hit a jam. Was this pre-Speedpass?

~~~
pdonis
_> Was this pre-Speedpass?_

It was before Delaware added fast through lanes for EZPass, so that only
people paying cash for the toll have to go through the booths.

------
jessaustin
If only the good people could be in charge of _everything_...

------
HaHa31
I was born and raised in Delaware, so I will give my quick take on it.

> The State of Delaware had turned the East Coast’s main traffic artery into a
> sweltering parking lot merely so it could exact a tribute from each driver
> crossing its miserable little stretch of concrete.

Wow, the author has a lot of emotion for a supposedly one-time problem.
Delaware pays for a little over 69% of its state and local road maintenance;
the tolls help pay for it.

> The practice of charging road tolls is an archaic holdover blighting much of
> the Northeast.

Roads cost money to maintain, and eventually, replace. Tolls are supposed to
help pay for this stuff.

> The whole paragraph on Gunning Bedford Jr.

Pointing fingers at anyone in the colonial era is objectively dumb. For
example, Roger Sherman, a representative for Connecticut, helped write the 3/5
compromise, where slaves were counted as 3/5 of a human for voting purposes.
Quick, Connecticut is evil incarnate, you should hate it.

> When the nation mobilized for the War of 1812, Delaware manufacturers, led
> by the du Ponts, demanded that their laborers be exempt from military
> service.

If the author did any research into the Du Pont company, they would know that
the mills were gunpowder mills. Now, why would everyone want gunpowder mills
to be run by their skilled employees in a war?

> Delaware voted against the Thirteenth, Fourteenth, and Fifteenth Amendments
> to the Constitution, which freed the slaves and gave them the vote and equal
> protection.

Yes, Delaware was racist, and some parts still are. However, as the author
makes clear, this is not specific problem for Delaware, but a systemic problem
throughout the US.

> Delaware also set itself apart through its fondness for medieval forms of
> punishment.

Okay, I honestly didn't know this stuff, and I did double check that it is
generally accurate. It is shitty, but still it was 60 years ago.

>If a state wants to charge drivers for the cost of maintaining roads, tolls
are a dubious way to do it—the traffic congestion they produce can be more
costly than the toll itself.

Outdated; easy-pass barely has any effect on traffic.

> The rant about tolls

Blah, blah, Delaware is malevolent; Delaware is an abstract entity that
doesn't have intent. It is a collection of any number of individuals who may
fit or not fit with the author's view of Delaware.

> To nonresidents, of course, it makes not a whit of difference that our tolls
> finance Delaware’s airports rather than its schools.

Ironic, Delaware has no commercial airports; as I have already said, Delaware
pays for a majority of its local and state road maintenance, which otherwise
would come from the federal government. Guess, where that federal tax money
comes from?

> Seizing the opportunity to exploit unwary consumers across the country,
> eight of the ten largest credit-card firms in the country now operate within
> Delaware. In the meantime, personal bankruptcy nationwide has risen
> sevenfold over the last two decades, and tens of millions of Americans send
> checks to Delaware every month.

There is no direct line of causation that the author even pretends to offer.
This is textbook misdirection. Of course, people send checks to Delaware
because that is where their banks are.

> But just after the Pennsylvania bank ceased its payday lending, a bank based
> out of Delaware opened up shop in its place.

I mean that could be related, but the author does not give enough evidence.

> The revenue stream is so large (relative to Delaware’s budget) that the
> state needs no sales tax.

Delaware also has quite high property tax; taxes are distributed differently
in every state. Some states have high income tax, some have high sales tax; it
doesn't matter which.

Okay, this is as far as a can stand to go. The author hates Delaware, I don't
know why.

~~~
wyclif
_Delaware also has quite high property tax_

Which is relative. Most Delawareans, as you no doubt know, regard DE state
property tax as low when compared to PA or NJ.

------
joelesler
It’s also highly inaccurate and exaggerates.

~~~
froindt
Do you have any more specific criticisms? This didn't add much to get
discussion started.

