Insight: Why Should I Form My Business in Delaware?

When forming a business entity, one of the most important early decisions is choosing the right jurisdiction in which to organize. A question I frequently hear from clients is: “Why should I form my business entity in Delaware?” While there’s no one-size-fits-all answer, Delaware has long been the go-to choice for businesses of all sizes—from early-stage startups to Fortune 500 companies. Below are some of the key reasons why Delaware continues to be the gold standard for entity formation:

• PRO-BUSINESS – Delaware is known to be pro-business and pro-contract. This can make complicated corporate governance matters a bit easier to navigate. In other words, in most cases, the principals of the business are free to contractually establish a governance structure that they feel is appropriate.
• PRIVACY – Delaware doesn’t require company owners, officers or directors to publicly disclose personal information. If you search for a business entity on the Delaware Division of Corporation’s website, you simply won’t find any information on the management or ownership of the company (one caveat, you could order (for a fee) a copy of the certificate of incorporation, which could give you some of this information). This differs from jurisdictions like Massachusetts, where a simple search will give you addresses and names and officers and directors, as well as certain ownership information.
• CASE LAW – The Delaware Court of Chancery specializes in corporate law, offering a large body of case law and well-established precedents. So, there is a lot more guidance as to how a court might interpret, react or decide on an issue if you find yourself in a contested or adversarial situation.

• FAMILIARITY – Most large corporations are formed in Delaware. Hence, there is a bit of ‘instant’ credibility from third parties such as bank’s or institutional investors if you’re incorporated in Delaware. Additionally, more or less for the reasons described above, if you intend on raising capital from institutional investors, it is almost a prerequisite that your entity be formed in Delaware.

While small geographically, Delaware packs an unrivaled punch in the world of corporate law.  Whether you’re a startup or a large corporation, Delaware provides some material legal benefits and simplicity that may help your business thrive. Of course, there are some situations where a Delaware entity might not be the right choice. That’s a topic for another post!

If you have any questions about entity formation or other corporate law matters, feel free to email me at dwittmann@rubinrudman.com.