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Q: Incorporating in Delaware ( Answered 2 out of 5 stars,   1 Comment )
Subject: Incorporating in Delaware
Category: Business and Money > Finance
Asked by: fooly-ga
List Price: $15.00
Posted: 19 May 2004 02:19 PDT
Expires: 18 Jun 2004 02:19 PDT
Question ID: 348682
Why do so many companies incorporate in Delaware? What are the legal and
tax benefits? ($15)
Subject: Re: Incorporating in Delaware
Answered By: juggler-ga on 19 May 2004 02:59 PDT
Rated:2 out of 5 stars

I have located several explanations of the general, legal and tax
benefits of incorporating in Delaware:

Delaware Corporations Advantages of Incorporating in Delaware

Also see:
"Advantages To Incorporating in Delaware:
1. The cost to incorporate in Delaware is one of the lowest in the country.
2. There is no corporate income tax for corporations incorporated in
Delaware but not transacting business in the state.
3. Delaware maintains a separate corporate law court system, called
the Delaware Court of Chancery, that does not use juries, but only
uses judges appointed for their knowledge of corporate law.
4. One person can hold all officer positions of the
corporation-president, secretary, and treasurer-and serve as the sole
director. These names are not required to be listed in the articles of
5. Shareholders, directors, and officers of the corporation need not
be residents of Delaware.
6. Shares of stock owned by persons outside of Delaware are not
subject to Delaware taxes."
source: Delaware


"Delaware has focused on making itself attractive to corporations in
order to bring in large revenues from corporate income taxes,
franchise taxes and corporate work. Other states, such as Nevada,
noting Delaware's success, have amended their corporate statutes to
develop the lowest required standards for corporate activity. Despite
such competition, Delaware has remained the state of choice for
corporate formation for a number of reasons.
 First, Delaware's "business-friendly" statute makes corporate
transactions easy to accomplish. Second, Delaware law provides a set
of jurisdictional rules that make it possible for a corporation to sue
most defendants in Delaware. Third, and most important, is the long
history and sophistication of Delaware's unique, specialized Court of
Chancery, which handles only corporate disputes. Finally, many lawyers
who have experience with Delaware's laws and court system recognize
that there are risks in forming a corporation under the laws of other
states, fearing that things may go badly in the relatively uncharted
waters of other jurisdictions."

"Delaware is well known as a corporate haven, and many major
corporations are chartered in Delaware because the state charges no
corporate taxes not operating within the state and has laws and courts
that are seen as friendly to corporations. Because of the large number
of major corporations chartered in Delaware, the courts in that state
are generally regarded as more experienced in the application of
corporate law than the courts of other states. Disputes over the
internal affairs of Delaware corporations are frequently filed in the
Delaware Court of Chancery, which is the only separate court of equity
(as opposed to law) in any U.S. state. Because it is a court of
equity, there are no juries, and its cases are decided by the "judges"
whose actual title is "chancellor" (the chief one) or vice-chancellor
(the others, of whom there are currently four)."
source: Wikipedia

From William T. Allen, Esq., Former Chancellor of the State of Delaware:

"Why do so many corporations choose to incorporate in Delaware? Is it
for tax advantages, as the ill informed tend to guess? Perhaps it is
because the corporation law and the Delaware courts that interpret it
are committed to favoring corporate management to the disadvantage of
investors, as the more cynical (or "realistic" as they might think)
tend to believe...

...Let me identify four principal factors:

(1) The Political Climate. Delaware is a mildly conservative state.
Respect for the institution of private property and freedom of
contract are deeply ingrained. Delaware's public life is marked by
high respect for incumbency and a distrust of violent swings. Its
corporation law has long had this characteristic as well. Continuation
and predictability are high values of the corporation law. This value
is presumably reassuring to investors and managers alike...

(2 ) A second special factor of the Delaware system is its small,
specialized bar of corporate lawyers and a highly developed
corporation law. These lawyers are quite expert in the Delaware
corporation law and active both in its application and in its
statutory application. They act as protectors and guardians to the
statutory law of corporations...

(3) A third and most important factor is the highly efficient and
expert organization and operation of the Division of Corporations
under its Secretary of State. No state does offer to lawyers,
corporate secretaries and others quick and accommodating service of
the professionals in the Delaware Division of Corporations...

(4 ) The last factor in this system is the Delaware judiciary which
includes Delaware?s unique Court of Chancery. The Court of Chancery is
a very unusual court: It is small; only five judges. Each for a
twelve-year term. Judges who sit individually. There are no juries, no
punitive damages (ever) and its jurisdiction is limited (no crimes, no
torts, no family law problems). It largely adjudicates business
problems: contracts, including licensing agreements, partnership
agreements, corporation law matters and fiduciary duties generally."
source: William T. Allen, Esq., Former Chancellor of the State of Delaware"

search strategy:
corporations "delaware because"
advantages "incorporating in delaware"

fooly-ga rated this answer:2 out of 5 stars

Subject: Re: Incorporating in Delaware
From: pinkfreud-ga on 19 May 2004 22:58 PDT
I thought this was an excellent answer. Most informative. I'd wondered
about this, and now I have an understanding of the matter.

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