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CT Expert Insights: Why Delaware is an Attractive State to Form a Business

Large businesses and financial institutions often choose to incorporate in Delaware because of their easy to follow business entity laws and fast customer service. In addition to the simple business entity laws, Delaware has a special court system run by business experts appointed directly by the governor, and the largest body of business case law. Their customer service is known for speed, and offices stay open until midnight four nights a week. Learn why businesses should consider forming in Delaware, even if they don’t have a physical location there. 

 

TRANSCRIPT

Greg: Hi, I’m Greg Corombos. Our guest this week is Alan Stachura. Senior Manager of Government Relations at CT Corporation. In the past, we’ve discussed why it’s important to pick the right state to set up your business. Today, we’re going to specifically look at why Delaware is such an attractive option for business owners. Alan, thank you for being with us today.

Alan: Absolutely.

Greg: There are a lot of reasons why Delaware is attractive to business owners, and we’re going to go through several of them. Let’s talk first of all about how Delaware’s business entity law sets itself apart from other states.

Alan: Delaware’s entity laws are very clear, concise, and easy to follow. They attempted to make them usable for the average human so that people could open the law book and understand what was there. In fact, they’ve made them so easy to follow that many jurisdictions have adopted portions or all of their business entity statutes. It’s frequently updated, and it’s very established, and well understood around the globe.

Greg: And when it comes to a court system, Delaware has something pretty special compared to other parts of the country. Why is their court system so good at this?

Alan: Delaware has a unique court system. Their Court of Chancery is an equity court that’s been around since 1792. The judges are expert in business law. They are appointed by the governor and they serve 12-year terms. Once they’re on the court, they tend to stay for the bulk of their career. Because the judges don’t have to do as much research--they’re business experts--they tend to get through the cases much faster than many other courts. There are no jury trials or punitive damage awards--a huge benefit for the entities having things heard. In fact, last week we celebrated the 225th anniversary of the chancery court. So it’s certainly stood the test of time.

Greg: Wow, it certainly has, for well over two centuries. So, given how quickly they can process these cases, there really is a body of case law that’s impressive there that’s also helpful to business owners.

Alan: Absolutely. Delaware’s Court of Chancery has the largest body of case law available for business cases. It’s the most complete, most comprehensive. It is the basis for all Delaware business cases, most U.S.non-Delaware business cases, and many international cases around the globe.

Greg: Then when it comes to other assistance for business owners and even corporations, there’s something called the Delaware Division of Corporations. Briefly explain what that is, and how it’s so helpful to business owners.

Alan: The Delaware Division of Corporations is the group of individuals that work day in and day out to process all of the orders that take place and need to be filed in the state of Delaware. In Delaware, the Division of Corporations is unique when compared to the other jurisdictions. In fact, they’re open until midnight Eastern Time, Monday through Thursday, and 10:30 p.m. Eastern Time on Friday. They want to make themselves available for when their customers around the globe need them. Also, in many cases, Delaware can do things much faster than many other jurisdictions. They have a 30-minute expedited service to get your filings back as quickly as possible. And they have many other specialized services that can get things done quite quickly. They are also very customer service oriented, so make the transactions a little more easy and smoother than some of their competing jurisdictions.

Greg: Making it not difficult to deal with the state is a huge advantage for business owners, but there are also ongoing issues--not just setting up shop--but issues like compliance. With most business owners, this is one of the most maddening things. You have to do it because there could be huge penalties if you don’t. But it’s a drag and a distraction from other aspects of running your business. So talk about Delaware’s flexibility when it comes to compliance.

Alan: Delaware definitely has compliance rules just like every other jurisdiction. But Delaware has mechanisms that allow for a certain amount of flexibility, especially when things don’t go as expected. Delaware has a comprehensive corrections statute. The corrections statute allows you to correct any inaccuracy or defect in a previously filed document. They also have specialized services--such as a Certificate of Validation--that allow you to correct certain aspects on a corporation’s official filing record. Delaware’s mechanisms make it so that when something doesn’t go as planned, there are options in order to fix it. And some of those options don’t exist in other jurisdictions.

Greg: When it comes to name recognition, that’s something that’s usually helpful to businesses, business owners. When it comes to a state, that seems a little different, since it’s obvious that most people are aware that Delaware exists. But given their reputation, what comes with that name recognition?

Alan: Delaware is widely known across the globe as the expert in incorporating--really the place to be. So even if folks don’t know some of the benefits, or some the reasons why [they should] be in Delaware, they’ve been told over and over by their attorneys, by their accountants, even by friends who may have incorporated that Delaware is the place to be. Delaware’s name is widely recognized. It’s the law that’s taught in law schools across the country. And really between the court system, the level of service, and that brand recognition, it’s so widely known as the place to incorporate.

Greg: And given what you’ve said about their long history of having an advantageous business climate, really going back to the 1700s, is Delaware still head-and-shoulders above the rest of the states when it comes to being a great place to set up shop? Or are the other states finally realizing what Delaware is doing right and catching up?

Alan: Well a lot of states are working to increase their market share, for sure. Delaware currently has 67% of the Fortune 500 companies. Number two place goes to New York State, and they have 4% of the Fortune 500 companies. So Delaware wins in terms of market share on those larger entities. Some of the bigger states--let’s say, New York, California, Florida--certainly have more total entities on file. But when we’re talking about the major players around the globe and the major financial institutions, the vast majority of them have opted to use Delaware. And they’ve stayed with Delaware for quite a period of time.

Greg: Alan, there may be some folks watching or listening to us and thinking, Well this sounds great. But, I’m nowhere near Delaware, and my customer base is nowhere near Delaware. So what do you have to have to legitimately set up shop there? Can you just put your headquarters there? Or do you need a substantial physical presence to do that as well?

Alan: So you don’t need a physical presence in Delaware to incorporate in Delaware whatsoever. Of course, Delaware would love if you were physically located there. However, you can simply file your Certificate of Incorporation or your Certificate of Formation. You can appoint a registered agent such as CT Corporation. We’ll act on your behalf by receiving any official legal documents or any lawsuits that would come in, and then forward them onto you. And you can go about doing business in whichever jurisdiction you would like, and still have all the benefits of being incorporated in Delaware. So that physical presence is not required.

Greg: Talk just a little bit more about how to get rolling. Anything else specifically in Delaware you need to know before jumping into this and talk a little bit more about how CT can help.

Alan: So CT can help you obtain the forms, we can help you complete the forms. We can get the forms filed with the state. Once you’re in fact a valid entity, then we can work with you to do all of the items you may not think about, such as federal employee identification number and obtaining the business licenses you would need in order to legitimately operate. After that, every year you’re going to have to do an annual report or a franchise tax payment or an annual tax payment. And those are all items that CT can take care of for you as well.

Greg: Alan, making life easier for the business owner is what we’re all about. Thanks very much for this good news and great advice, and thanks for your time today.

Alan: Absolutely. Thanks.

Greg: Alan Stachura. Senior Manager of Government Relations at CT Corporation. I’m Greg Corombos

 

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