It's just industry standard for capital raises. All corporate attorneys learn DE law when they go to law school and are expected to know it if they practice corporate law. A Colorado attorney doesn't know California law and a California attorney doesn't know New York law, but if they do corporate legal work, they're all expected to know how to deal with DE law.
Nobody knows Nevada or Wyoming law. I don't even think Wyoming attorneys know Wyoming law.
DE's court of chancery is also very sophisticated with respect to corporate legal issues. That makes it the venue of choice for investors, which means it has become the venue of choice for those seeking investment.
But in terms of states and their processes for filings, DE is a total pain in the butt. You have to pay an expedited filing fee just so that they can process your filing in less than a week. Their system is counterintuitive and clunky. You better like elevator music if you ever want to talk to a human. Sometimes they reject filings and just don't bother to tell you. It's all opaque and antiquated.
I would also add from a founders standpoint - the infrastructure Delaware has supporting their business incorporations division has been miles above any other state I have worked with. They pick up the phone when you call! The files and forms are (relatively) easy to find. Supporting firms like registration agents are plentiful and straightforward for Delaware.
I'm a longtime Delawarean and in my past life as a journalist I wrote about why the state is such a corporate haven.
The short answer is that companies incorporate in Delaware to mitigate risk.
The slightly longer answer is that the Delaware courts that deal with corporate legal matters are much more predictable than comparable states. There is voluminous settled case law, and so when you incorporate in Delaware, it is a safe option, a known quantity, relative to other states.
That's why VCs and other investors want the company to be incorporated in Delaware. It's not just because everybody else is doing it; it's to mitigate legal risk.
When we look at consumer products, we sometimes consider the total cost of ownership. Maybe a pair of sneakers is not the cheapest, but it lasts longer than a budget pair, so it has a lower cost of ownership over the lifetime of the product. Delaware might not be the cheapest state to incorporate in, but it has the legal equivalent of a low cost of ownership over the life of the business.
I mean it is because everyone else is doing it. Because everyone else incorporated in Delaware, that's where the case law is well established, all existing contracts are written in terms of DE corporate case law, etc. etc.
We all could have picked Road Island or New York instead. But for historical reasons it was Delaware.
Yes, that's correct. Companies originally flocked to Delaware because it was relatively easy to incorporate there, and then the volume of registrations begat the volume of case law, which begat more registrations because of the favorable legal environment.
My point was that it's not just because it's trendy or a matter of conformity. It is a risk-management strategy.
Everyone hates Facebook but everyone uses it. Why? That's where the people are. Same for Instagram, Reddit, etc.
Everyone hates JavaScript. Buggy and counter intuitive. Mess in all the different browsers - historically. But everyone uses it because everyone uses it so it gets the community.
Maybe Delaware is the best... or a victim of circumstance. Or being good enough and one of the early states to get that foot hold.
Not an attorney, but as someone with a startup incorporated in DE—it's just the default. Delaware has very good and well-understood corporate law and a judicial system that is able to handle complex corporate cases.
If you're fundraising as a Delaware C Corp you will face no questions about that, but if you've done something else you will need to explain why to your potential investors (and they will probably push you to reincorporate).
Delaware Court of Chancery also holds the doctrine of shareholder supremacy, where execs actually have an obligation to maximize shareholder interests. Other states don't recognize it or allow balancing other stakeholder priorities.
There are limitations on the number of owners and the amounts and type of stock you can issue as other types of corporations. Delaware doesn't require you to disclose all owners and investors and they have a court of chancery that is business friendly.
