Why do so many Startups Incorporate in Delaware?

“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.