The First State’s Big Business Beginning
Back in the late 1800s, something interesting was happening down in Delaware. While New Jersey had been the go-to place for corporations, Delaware’s lawmakers saw an opportunity brewing. In 1897, Delaware amended its constitution to permit incorporation under general law instead of by special legislative mandate, and in 1899 adopted a general corporation law modeled largely after New Jersey’s approach. Think of it like watching your neighbor’s successful lemonade stand and then setting up your own with even better features. These developments, in addition to the written opinions issued by Delaware’s Court of Chancery, helped make Delaware a natural home for corporations looking to leave New Jersey after that state adopted more restrictive laws related to corporations and trusts in 1913.
The Numbers Don’t Lie
Today’s Delaware is absolutely packed with businesses – it’s almost comical when you think about it. In the fall of 2023, Delaware surpassed a record milestone now with more than 2 million total business entities calling the first state their corporate home. That’s roughly twice as many corporations as there are actual people living in the state! In 2023, Delaware saw a total of 298,165 new business formations. To put this in perspective, imagine if every single person in a medium-sized city suddenly decided to start their own company in one year.
Fortune 500 Companies Call Delaware Home
Delaware remains the domicile of choice for Fortune 500 companies, with nearly 67.6% of these corporations incorporated in the state. We’re talking about roughly two-thirds of America’s biggest and most successful companies choosing Delaware as their legal home. An impressive 80% of all U.S. initial public offerings (IPOs) in 2023 were registered in Delaware. When companies like Maplebear Inc., doing business as Instacart, a grocery delivery service, which went public on September 19, 2023 choose Delaware, it sends a clear message about where the action is.
The Secret Weapon: Court of Chancery
Delaware’s Court of Chancery is the nation’s preeminent business court. What makes this court special isn’t just its fancy name – it’s how it works. The Court of Chancery has no juries, so all cases are decided by the Chancellor or a Vice Chancellor, who explain their decisions in comprehensive and reasoned written opinions. Chancellors rely on more than 200 years of case law (history) in making their rulings. This tends to make the decisions of the Chancellors more predictable than decisions made by juries, and makes businesses more confident of a decision based on law and precedent rather than emotions and prejudices.
Delaware’s Legal Framework Advantage
The DGCL offers predictability and stability. Think of Delaware’s General Corporation Law like a well-written instruction manual that actually makes sense. Instead, the DGCL includes a few important mandatory requirements to protect investors and otherwise provides flexibility for corporations to carry out their business. The Delaware legislature every year reviews the DGCL to ensure its ability to address current issues. It’s like having a smartphone that gets regular updates to fix bugs and add new features.
Tax Benefits That Actually Matter
Delaware does not impose a corporate income tax on revenue earned outside the state, as long as the company does not conduct business in the state. For many businesses, this is huge – imagine not having to pay state corporate income tax on money you make everywhere except Delaware. Delaware does not charge tax on the sale of goods or services to consumers. This means that Delaware businesses don’t need to collect or remit sales tax to the state, simplifying accounting and compliance. Delaware does not have an inheritance or estate tax, and stock in a Delaware corporation owned by non-residents is not subject to Delaware taxation upon death.
Privacy Protection for Business Leaders
Delaware’s corporate privacy laws offer a high level of confidentiality for businesses, making it an ideal state for those who value discretion. When you file the certificate of incorporation to start your company in Delaware, you don’t need to disclose your directors’ and officers’ names to the state, allowing you to keep your personal information out of the state’s public records. Compare this to states like California where anyone can look up your company’s leadership team online for free, and you’ll understand why privacy-conscious entrepreneurs love Delaware.
The Investor Magnet Effect
If you’re looking for angel investors or venture capital funding, there’s a good chance they’ll prefer that you incorporate in Delaware. In some cases, investors may even require incorporation in Delaware as a condition of their investment. Venture capitalists and angel investors often require Delaware C corp status before investing due to its predictability and favorable governance. It’s like being part of an exclusive club that investors already know and trust. This experience makes legal outcomes much more predictable, which also makes it more likely that your Delaware startup could get funding opportunities from angels, venture capitalists, and investment firms.
Speed and Efficiency in Business Formation
Delaware also provides an efficient process for forming a corporation, since business filings can be expedited and approved within 1-2 hours. In our fast-paced business world, being able to officially start your company in just a couple of hours is pretty remarkable. Delaware’s Division of Corporations of the Delaware Secretary of State processes corporate filings—such as certificates of incorporation, charter amendments, certificates of merger, and franchise tax documents—quickly and effectively. It’s like having express checkout at the grocery store, but for starting a business.
The Historical Foundation Story
In 1792, designed to handle cases requiring equitable remedies, such as disputes over trusts, estates, and contracts, the Delaware Court of Chancery is created as a separate equity court. In 1899, Delaware enacts its General Corporation Law, establishing a business-friendly legal framework. This attracted companies to incorporate in Delaware, gradually focusing the Court of Chancery on corporate law matters. What started as a general court for various disputes gradually evolved into America’s premier corporate court system. This transformation began in the early 20th century when Delaware adopted business-friendly incorporation laws. Companies from across the U.S. started incorporating in Delaware, giving the Court of Chancery jurisdiction over many of their legal disputes.
Modern Challenges and Adaptability
But 2024 saw the Chancery Court wade into some murky waters, upending decades of market practice and expectations about what Delaware law means—some of these decisions nullified corporate decisions based on predictable and established market practices. Even Delaware isn’t perfect, and recent court decisions have raised some eyebrows in the business community. These salutary amendments will ensure that Delaware law gives full respect to the good-faith decisions of independent directors and recognizes the primacy of disinterested stockholders when they vote for a transaction. We support these proposed amendments as a step toward restoring confidence in Delaware’s corporate law, and as confirmation that Delaware remains able and willing to address the concerns of its corporate constituents as they arise.
The Corporate Transparency Act Impact
It is what led to the passage of the Corporate Transparency Act (CTA), which came into effect at the beginning of 2024. I encourage all business entities to learn about the requirements of the CTA and to come into compliance if they haven’t already done so. The business world doesn’t stand still, and neither does Delaware. New federal requirements like the Corporate Transparency Act show how the regulatory landscape keeps evolving, but Delaware continues adapting to these changes while maintaining its business-friendly reputation.
Global Recognition and International Appeal
Because of the extensive experience of the Delaware courts, Delaware has a more well-developed body of case law than other states, which serves to give corporations and their counsel greater guidance on matters of corporate governance and transaction liability issues. No state comes close to Delaware in the depth and breadth of corporate case law, and Delaware cases are routinely cited by courts in every state. It’s like having the most comprehensive encyclopedia of business law that other states regularly reference when making their own decisions. When foreign companies try to find a foothold in United States business operations, they find it much more convenient through Delaware due to the tax treaties. Delaware has quite some tax treaties with other countries which will reduce the burden of tax on the foreign countries when it comes to international transactions. If a business registers itself in Delaware, it will be able to take advantage of these treaties and avoid having to pay tax twice on profits made through international trade, or from foreign investment.
Delaware’s journey from a small East Coast state to America’s corporate capital wasn’t an accident – it was the result of smart lawmaking, consistent court decisions, and a genuine understanding of what businesses need to thrive. With over two million companies now calling Delaware home, the First State has proven that sometimes the smallest packages contain the biggest opportunities.
