Why are so many corporations incorporated in Delaware? Yes, the tiny state of Delaware has been the most popular jurisdiction for corporations for close to or over a century for large, publicly traded multi-state corporations. I have read that close to 60 percent of the largest 500 United States corporations are Delaware corporations and that generally close to one half of the corporations listed on the New York Stock Exchange are Delaware corporations. So why are so many large corporations incorporated in Delaware? A few of the potential reasons will be outline below.
Relative to many other states, Delaware’s basic corporate code gives more leeway and flexibility to corporate managers in regards to the operation of the corporation. Delaware has increased and enhanced flexibility in its merger and acquisition provisions. The differences can be so great and pronounced that it is not uncommon to find large companies change their jurisdiction and place of incorporation to Delaware shortly before a large acquisition to take advantage of certain Delaware corporate law and provisions.
In addition to flexibility and advantageous laws, Delaware has also developed a sophisticated body of precedent in regards to corporate law issues and corporate matters. This body of law may be due to the expertise of the judges in limited jurisdiction trial courts, the Delaware Court of Chancery, and the justices on the Delaware Supreme Court. The case law in Delaware may be considered to be particularly useful in mergers or acquisitions that are more likely to cause issues with shareholders and these grievances and matters end up in court. Understanding how a court will view certain transactions and situations can be very advantageous to corporate officers and directors as well as legal counsel when considering certain business transactions and options. In some respects, given the strong precedent, you have a very strong understanding of the position the court is likely to take, which assists in making certain business decisions. Delaware case law will control Delaware corporations and is many other states, may also act as precedent.
Other states, may have heavier and more strict regulations giving shareholders a stronger set of voting rights and appraisal rights for example, and thus may not provide as much appeal to incorporate within. For example, California typically has been known as a state with more corporate regulations and thus not as incorporator friendly as a state such as Delaware.
For certain businesses, the place of incorporation may never make much of a difference and for other corporation, where the incorporate may someday greatly impact corporate decisions and corporate transactions. When forming a business, the business owners should consult with a business attorney to discuss their state of incorporation.
You can schedule a free consultation with a Denver business attorney by contacting the McGuire Law Firm. The McGuire Law Firm offers a free consultation to all potential clients. Please feel free to contact The McGuire Law Firm to discuss your business questions, matters and issues with a business attorney.
See this link regarding incorporating in Delaware: Inc DE