Delaware corporation
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A Delaware corporation is a corporation chartered in the U.S. state of Delaware. Delaware is well known as a corporate haven, and thus, over 50% of US publicly-traded corporations and 58% of the Fortune 500 companies are incorporated in the state.[1]
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[edit] Legal benefits
Because of the extensive experience of the Delaware courts, Delaware has a more well-developed body of case law than other states, which serves to give corporations and their counsel greater guidance on matters of corporate governance and transaction liability issues. Disputes over the internal affairs of Delaware corporations are usually filed in the Delaware Court of Chancery, which is a separate court of equity (as opposed to a court of law). Because it is a court of equity, there are no juries, and its cases are heard by the judges, called chancellors. There is currently one Chancellor and four Vice Chancellors. The court is a trial court, with one chancellor hearing each case. Litigants may appeal final decisions of the Court of Chancery to the Delaware Supreme Court.
The status of Delaware as a corporate haven is not recent: following the example of New Jersey who enacted corporate-friendly laws at the end of the 19th century, Delaware played the game of fiscal competition by adopting in 1899 a general incorporation act aimed at attracting more businesses.
More broadly, many U.S. states have usury laws limiting the amount of interest a lender can charge, but Federal law allows corporations to 'import' these laws from their home state. Delaware (amongst others) has relatively lax interest laws, in effect allowing banks to charge as much as they want, hence the preponderance of credit card companies and other lenders in the state.
However, other states such as Nevada are more friendly to corporations in certain respects, especially in offering protection from hostile takeovers.
[edit] Tax benefits
Some mistakenly believe that Delaware's preeminance is related to the fact that Delaware charges no income tax to corporations not operating within the state. However, in this respect Delaware is no different from other states, as no state charges income tax on out-of-state income.
A state does levy a franchise tax on corporations incorporated in it. Franchise taxes in Delaware are actually far higher than in most other states [1], which typically charge little or nothing beyond corporate income taxes on the portion of the corporation's business done in that state. For instance, Nevada does not have a franchise tax. Delaware's franchise taxes supply about one-fifth of its state revenue.[2]
[edit] Disadvantages to Delaware Corporations
- Delaware's formation and annual fees are substantially higher than most other jurisdictions.
- The Delaware Division of Corporations charges a fee to tell you the status of an entity. This is unusual as they are de-facto charging a fee to tell you if you actually owe a fee. An analogy would be if you were to call a creditor and they charged you $10.00 to tell you whether or not you actually owed them anything.
- The Delaware Division of Corporations is known for showing preferential treatment to certain registered agent service providers.[citation needed]
[edit] References
- ^ Delaware Division of Corporations
- ^ Delaware 2005 Fiscal Notebook - State General Fund Revenues by Category (F.Y. 2002 - F.Y. 2005)
