When you are incorporating your company, one of the first things to decide is where you want to incorporate. Lots of companies choose Delaware – but why? There are a few reasons. One: Delaware corporate law allows corporations a lot of freedom and flexibility. Two: Delaware laws are investor-friendly, and many investors will require companies they invest in to be incorporated in Delaware. Three: Delaware has a huge body of corporate case law and a special Court of Chancery, so its court decisions are more predictable than in other states. Four: it’s easy to do business with Delaware. The state’s administration is a well-oiled machine and its agents are straightforward and efficient.
However, that doesn’t mean that you should run out and form your entity in Delaware or change your state of incorporation to Delaware. If you’re not doing business in Delaware, there are additional costs associated with registering in Delaware – one being that you need to pay for an agent for service of process. You also may need to qualify to do business and comply with other requirements in the state in which you’re actually working.
So Delaware is not a slam-dunk. Many of my clients find the most important factor in deciding whether to go to Delaware is whether they’ll be seeking investment. If so, they often decide to start in Delaware so they don’t have to switch later when VCs tell them they need to be in Delaware. If clients aren’t planning to seek institutional investment they often find it simpler to incorporate in their own state. After all, there’s no place like home.
