Why Incorporate in Delaware?
Delaware is known for being a state where companies go to incorporate. According to the Delaware Division of Corporations, nearly a million businesses have made Delaware their legal home, including more than half of the Fortune 500 companies. Why is Delaware so popular for corporations, and should you incorporate there as well?
Flexible Law – Delaware’s corporate laws are designed to provide the maximum flexibility to corporations and shareholders. The climate is decidedly anti-regulatory, with the goal being to let corporations run smoothly. Legal environments in other states can be quite the contrary.
Court of Chancery – Delaware has a separate equity court to deal with corporate law and lawsuits involving corporations. Corporations do not have to face juries, who may be prone to side with the “little guy” and “stick it to the corporation.” Instead, parties in Delaware’s Chancery Court face judges who are experts in corporate law and take the time to develop well-reasoned legal opinions. And with no backlog of civil lawsuits and criminal cases, your lawsuit may run more smoothly and efficiently and reach a resolution more swiftly.
Anonymity – Delaware incorporation offers a measure of protection from the public about who the owners of the company are, which is an important feature for some.
Delaware is a small state that benefits from being pro-business and receiving all that franchise tax. All of these features feed upon themselves and make Delaware ever more corporate-friendly. Delaware has more lawyers and law firms working exclusively in corporate law, and most advancements and developments in corporate law happen here, whether in the legislature or in the courts.
There are benefits to incorporating in your home state where your principal place of business is located. It is usually easy to do, and it is often less expensive in the long run. If you incorporate in another state, you may still have to register in Alabama as a “foreign corporation.” Registering in two places means paying annual fees in both states, so any money you saved by filing in a low-fee state is lost. Also, if you have to register in Alabama, you will lose the benefit of anonymity you thought you had when you incorporated in Delaware. There may be a certain cachet to being a “Delaware corporation,” but to those for whom it matters, being an Alabama company may be important as well.
Delaware incorporation works best for large, public companies, or for Internet and tech start-ups that have the potential of going big with an IPO. If you are trying to attract investors and venture capital, it may be necessary to incorporate in Delaware whether you want to or not. Other states have pro-business climates and favorable tax laws too, like Nevada and Wyoming, for instance.
This decision is a complex matter depending upon tax considerations and a host of other issues. Attorney Lana Hawkins of The Hawkins Law Firm has over 20 years in business and corporate law handling incorporations and entity formation as well as initial public offerings, mergers and acquisitions, securities law compliance, and much more. Associate Rachel Jarrett has a B.B.A. in addition to her law degree and is active in the Business Law section of the Alabama State Bar. If you are considering whether to incorporate your business in Alabama, Delaware, or some other state, contact The Hawkins Law Firm to sit down with one of our experienced business law attorneys and find the solution that works best for you.