Why Delaware?

Venture capitalist Brad Feld answers the question:

First, Delaware’s large body of business laws helps a company plan carefully to avoid a lawsuit.  Certainty is "power" and one can generally be "more certain" about a particular legal outcome in Delaware compared to other states.  While we might not agree with a decision made by Delaware courts, it is at least nice to know what the ground rules are, which are much less clear in most other states.

Next, Delaware courts have the ability to deal with complex cases. In general, their reputations is at least as good, if not the best, in the country.  Some of the courts adjudicate with jury trials, so in addition to the mitigated expense factor, their decisions are generally well-developed and easy to read.

Furthermore, most corporate attorneys are clued into Delaware law in addition to the particular state they practice in.  For instance, Jason assures me that he is as comfortable with California legal issues, as well as Delaware law, despite the fact that he has never set foot in the state (quick – name the bordering states.) 

Finally, the infrastructure of Delaware allows for most administrative functions and filings to occur at a much more rapid pace and at less expense than other states.  For instance, Delaware was among the first to accept faxes as legally binding, thus greatly improving the speed of incorporations and amendments to corporate documentation.

So why don't more states compete with Delaware by having well-defined business laws, courts with high expertise, etc.?  It's not like states don't compete in some ways, like offering tax breaks to woo new factories.  Any thoughts?

Comments

[SportsBiz]

Other states are beginning to compete with Delaware, especially on the tax front, which I notice that Feld doesn't mention. Nevada, in particular, has revamped its corporate statutes to compete with Delaware and has a far more favorable tax structure. The problem is that Delaware has been at this far longer than any other state and you just can't create a body of decided case law overnight.

You can create a statutory framework and Nevada has done that, but without the explication provided by settled case law, the uncertainty will still give practicioners pause. That is probably sufficient for Delaware to maintain its favored status for the foreseeable future.

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Before its coastline was first explored by Europeans in the 16th century, Delaware was inhabited by several groups of Native Americans, including the Lenape in the north and Nanticoke in the south. It was initially colonized by Dutch traders at Zwaanendael, located near the present town of Lewes, in 1631 Delaware was one of the thirteen colonies participating in the American Revolution and on December 7, 1787, became the first state to ratify the Constitution of the United States, therefore becoming known as The First State.

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Over time, the Constitution has been amended, and the interpretation and application of its provisions have changed. The general tendency has been toward centralization and incorporation, with the federal government playing a much larger role than it once did.

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