When someone says “start-up,” we usually visualize Silicon Valley, San Francisco’s South of Market district, or other locales like Austin, TX. But those in the know focus on the tiny state of Delaware as the place where start-up dreams materialize into formal companies. If you ever wondered why Delaware has a reputation as being idyllic for business formations, here are three overarching reasons why:
Beneficial Business Environment
From the ground up, Delaware lives and breathes business. Its legislature has a reputation for regularly modernizing its corporate laws. As a result, the laws emanating from the state are noted for their clarity and flexibility, probably due to the fact that corporate law specialists provide guidance in drafting.
At the other end of the chain, Delaware’s Dapartment of State, Division of Corporations offers online name reservations with credit card payment processing to speed up business formations, as well as reasonable expedited turnaround fees (compared to California).
Predictable Legal Outcomes
Delaware’s legal system can lead to predictable legal outcomes for a number of reasons. First, it boasts a court dedicated to corporate law disputes (The Court of Chancery) which is staffed by judges wielding extensive experience in corporate matters and bolstered by a large body of case law. Second, because of the Court of Chancery’s specialization, cases can be resolved in a timely and competent manner, aided in no small part by the fact that juries are not employed. Finally, because judges issue written opinions after a case is tried, litigation is often eschewed because corporate counsel can “read the tea leaves” of published opinions to accurately predict how a court would rule.
Many investors insist that companies they have a stake in keep their investments private. In this regard Delaware has an advantage over many other jurisdictions because it does not require directors or officers to be named in the company formation documents. Thus, it is not surprising that many investors prefer to invest in companies organized in Delaware.