There’s a common perception that Delaware is the best state in which to incorporate – and sometimes it is. However, sometimes it isn’t.
Delaware has a long history of offering corporations a robust legal system that strongly favors business. For example, it has a Chancery Court that exclusively deals with corporate law – without requiring a jury. Delaware’s corporate laws protect the privacy of director and shareholder identities, remove royalties and other intangible assets from taxation, endow officers and directors with considerable flexibility, and provide important advantages for minority stockholders (namely, cumulative voting).
Given Delaware’s dominance on the corporate landscape for so long, it’s easy to understand why it’s often an automatic default for incorporation. But it’s also easy to miss why incorporating in another state might make more sense for a startup.
For instance, if you’re not planning on raising funding or going public, then it could be more sensible to incorporate in the company’s home state. For certain types of companies, it’s not only the best option, but also the only one.
Of course, this answer can’t substitute for legal advice. How a company should be structured is something that needs to be carefully considered as part of a legal consultation since a business lawyer is going to be able help you identify potential blindspots.
Even if you don’t incorporate in Delaware and later find the need to do so, converting to a Delaware C-corp is relatively easy.
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