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I've heard that Delaware is 1) safe heaven for litigation and 2) most forward-thinking in terms of business-related bureaucracy. Is that true? What makes West Coast companies incorporate so far from SV?



There's a ton of reasons to incorporate in Delaware vs. other locations. It's not necessarily a safe haven.

They have distinct courts set up for business-related cases. In most states, if you file a lawsuit, you may not end up in front of a judge that specializes in business law and litigation, which may or may not work to your advantage. In Delaware, you will. Every corporate law firm also has experience with Delaware code (many have dedicated DE code experts). Law firms have standard document templates for Delaware. Every VC has experience investing in Delaware corporations. Courts are highly funded in Delaware relative to most other states, so cases can proceed more rapidly. Even the court clerks are dedicated to corporate law.

There is very little incentive for start-ups to incorporate elsewhere.


This is true for most businesses as well. I would also add that Delaware's SoS has taken a very service-oriented approach to incorporation within the state. For example, you can generally form entities in Delaware as late as 9PM EST (imagine making a non-IRS federal filing past 5:00!). That's just how seriously Delaware takes it.

Below it is suggested that Delaware is cheaper, in fact it can be much more expensive for this reason.


Delaware has a specific court for corporate litigation, the Court of Chancery which is presided over by a judge. So questions are generally scheduled more easily, and decided more quickly. That they have a lot of companies incorporated there leads to both a lot of services for companies trying to incorporate there and a lot of case law which can be relied on to understand how bylaws will be interpreted when brought before the court. In places where there isn't a lot of case law you end up cutting a new trail and a lot of uncertainty in what the outcome would be.


One reason is that Delaware companies get their cases disputed at the state's specialized business court[0]. The trials are expected to be speedier and outcomes fairer.

[0] https://en.wikipedia.org/wiki/Delaware_Court_of_Chancery


In addition, there is a tremendous amount of case law in Delaware, whittling away the rough legal edges which may still remain in other jurisdictions.


IIRC, Deleware is so often the state of incorporation because the cost to incorporate is small (~$90-$300).


The cost of incorporation in Delaware is higher than in many states ($50 in Colorado, for example). ChuckMcM's cousin post pretty much covers the reasons. The only thing he left out was the 0% corporate income tax rate. Nevada often comes up for this reason as well.

edit (re grandparent): Delaware is definitely not a "safe haven" for litigation. It's more predictable for the basics, but it isn't going to prevent you from an Eastern Texas District Court summons.




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