Why Delaware?

 

Why do so many company register in Delaware?

 65% of all Fortune 500 companies, and half of the listed companies in the US are registered in the state of Delaware... Apple, Viacom, Ford, Alphabet, Amazon...

For countries that mostly don't have a lot of natural resources or talent to monetize, a few of them are designed to become attractive for business registration through liberal and secretive banking operations (such as Switzerland), tax breaks and anonymity of shareholding (Cayman Islands)... and in the US, there is the state of Delaware that attempts to do just that

Judicial System: In the rest of the US, the law follows a jury system, where an entire panel of good samaritans decides collectively on whether someone is guilty or not... Now, this is not the best for business corporations, who would prefer legal experts to take legal decisions and not just good-hearted humans.    For this reason, Delaware follows a system of Court of Chancery. this means judges who are experts on corporate matters decide on legal disputes. The Delaware law has such a robust library of case laws to use as examples to settle cases that the process is much more predictable and fast compared to that in other US states.

Tax Benefit: US has a system of Central (Federal) Taxes and State Taxes... and Delaware does not impose State Taxes on companies that are not operating their business in Delaware (they are only registered there, but operating elsewhere).   This leads to massive tax savings for companies. However, there is a Delaware Franchise Tax, which is a fixed fee paid annually to have a registered company in the state. The amount varies based on the type of entity and the no. of shares - quite like the MCA in India has its filing fees. Kind of.

Secrecy: Delaware allows you to file your shareholders' detail in a secretive manner, where others would not be able to pull it out in exchange for a small government fee.

VC Preference: Almost all big VC investors in the US will ask you to set up a Delaware corporation because the state has the option of preferential voting rights for investors that are preferable and predictable. Plus, fundraising paperwork is much smoother and faster.