“Why do so many startups incorporate in Delaware” is one of the questions entrepreneurs and startup founders ask us the most. As co-founders or business partner(s) sit around a table and discuss the best ways to bring their startup to life, one of the topics that usually pop up is entity formation.
There are at least a half-dozen reasons startups and businesses choose to incorporate in Delaware over other states. Among the most important reasons that startups choose to incorporate in Delaware are: (1) favorable business tax regime; (2) more predictable legal outcomes in the corporate law realm; (3) a specialized court (Delaware Chancery ) for corporate law disputes; (4) well-established and robust protections for Directors, Shareholders, and Officers; (5) quick and efficient corporate services from the Division of Corporations; (6) corporate statutes allow more flexibility for a corporation than other states. These are some of the reasons more than 50% of publicly traded companies are incorporated in Delaware and more than 60% of the fortune 500.
While there are other benefits which not listed above, some cons exist as well. Among the cons are (1) additional costs, including a registered agent, extra franchise taxes, and foreign qualification fees, and (2) extra reporting requirements.