10 Reasons Why Delaware is the Leading Formation State

Delaware, with over 500,000 domestic corporations, LLCs and other entities ' including more than 50% of the country's publicly traded corporations and 58% of the Fortune 500 ' is without question the leading formation state in the country. According to the “Delaware's Business Entity Laws” seminar currently running as part of CT Corporation's 2004 seminar series, there are numerous reasons why business owners, managers and lawyers choose Delaware. Ten of those reasons are:

1. Delaware's corporation, LLC and other entity laws are modern. Delaware, for example, was one of the first states to amend its corporation law to allow directors to participate in meetings via teleconference and shareholders to participate in meetings by means of “remote communications.”

2. Delaware's entity laws are flexible. The statutes give management choices in deciding what actions to take ' rather than requiring actions. For example, Delaware's LLC and LP laws do not require those entities to provide indemnification or appraisal rights, but allow the managers, members or partners to decide whether these rights should be available.

3. The entity laws are predictable. Major changes in the statutes or the principles under which they were drafted are unlikely. This is evidenced by the fact that the state Constitution requires a two-thirds vote of legislators for any amendment to the corporation law, while requiring a majority vote to amend most other state statutes.

4. Delaware's legislature considers and enacts amendments to the entity laws every year, thereby ensuring that they stay current and able to meet rapidly changing needs.

5. Delaware responds quickly to unpopular court decisions. For example, shortly after the Delaware Supreme Court held directors liable for breaching their duty of care in Smith v. Van Gorkom, 488 A.2d 858 (Del. Supr. 1985), the corporation law was amended to allow corporations to limit the liability of directors for breaches of the duty of care.

6. Delaware's Chancery Court ' the trial court that hears cases involving an entity's internal affairs and the rights and liabilities of its managers and owners ' has expertise in corporate and business entity matters.

7. The Chancery Court is an equity court. Therefore, it can fashion remedies appropriate to the particular needs of the litigants and facts of the case, can render decisions very quickly, has no juries, and does not award punitive damages.

8. Delaware has an extensive body of corporate case law. The larger the body of case law, the more guidance management has in assessing the legal consequences of its acts.

9. Delaware's filing office ' the Division of Corporations ' considers its role to be that of a revenue producer for the state. As such it is committed to making sure revenue from business entity filings, document requests and annual taxes does not drop due to problems in the filing office.

10. Delaware has a unique public/private partnership between its Division of Corporations and corporate service companies. The Division of Corporations gives qualified corporate service companies access to its computer system. This allows entities using these companies to make their filings and obtain documents without the delays often experienced in other states.

Delaware, with over 500,000 domestic corporations, LLCs and other entities ' including more than 50% of the country's publicly traded corporations and 58% of the Fortune 500 ' is without question the leading formation state in the country. According to the “Delaware's Business Entity Laws” seminar currently running as part of CT Corporation's 2004 seminar series, there are numerous reasons why business owners, managers and lawyers choose Delaware. Ten of those reasons are:

1. Delaware's corporation, LLC and other entity laws are modern. Delaware, for example, was one of the first states to amend its corporation law to allow directors to participate in meetings via teleconference and shareholders to participate in meetings by means of “remote communications.”

2. Delaware's entity laws are flexible. The statutes give management choices in deciding what actions to take ' rather than requiring actions. For example, Delaware's LLC and LP laws do not require those entities to provide indemnification or appraisal rights, but allow the managers, members or partners to decide whether these rights should be available.

3. The entity laws are predictable. Major changes in the statutes or the principles under which they were drafted are unlikely. This is evidenced by the fact that the state Constitution requires a two-thirds vote of legislators for any amendment to the corporation law, while requiring a majority vote to amend most other state statutes.

4. Delaware's legislature considers and enacts amendments to the entity laws every year, thereby ensuring that they stay current and able to meet rapidly changing needs.

5. Delaware responds quickly to unpopular court decisions. For example, shortly after the Delaware Supreme Court held directors liable for breaching their duty of care in Smith v. Van Gorkom , 488 A.2d 858 (Del. Supr. 1985), the corporation law was amended to allow corporations to limit the liability of directors for breaches of the duty of care.

6. Delaware's Chancery Court ' the trial court that hears cases involving an entity's internal affairs and the rights and liabilities of its managers and owners ' has expertise in corporate and business entity matters.

7. The Chancery Court is an equity court. Therefore, it can fashion remedies appropriate to the particular needs of the litigants and facts of the case, can render decisions very quickly, has no juries, and does not award punitive damages.

8. Delaware has an extensive body of corporate case law. The larger the body of case law, the more guidance management has in assessing the legal consequences of its acts.

9. Delaware's filing office ' the Division of Corporations ' considers its role to be that of a revenue producer for the state. As such it is committed to making sure revenue from business entity filings, document requests and annual taxes does not drop due to problems in the filing office.

10. Delaware has a unique public/private partnership between its Division of Corporations and corporate service companies. The Division of Corporations gives qualified corporate service companies access to its computer system. This allows entities using these companies to make their filings and obtain documents without the delays often experienced in other states.