More than half of the Fortune 500 companies are incorporated in Delaware.

2 points by boop 15 years ago | 2 comments

More than half of the Fortune 500 companies are incorporated in Delaware. The reason? It is cheap and the taxes are low and you don't need to live in Delware.

This just doesn't smell right. It is like one of those tax loopholes that major corporations take advantage of.

What are your thoughts on Delaware incorporation?

ryanwaggoner 15 years ago |

Actually, I don't think those are the primary reasons, as I believe corporations pay taxes where their HQ is and other operations are, not where they incorporated (or they would just incorporate in one of the states with no corporate income tax). I think Delaware is popular because the laws are friendly to corporations and there's a lot of case law for precedent, so it's lower risk for possible litigation in the future.

http://en.wikipedia.org/wiki/Delaware_General_Corporation_La...

hga 15 years ago | |

Yes, it has absolutely nothing to do with taxes. In fact, in some state like Virginia (when I last investigated this) you have to pay extra to the state for an out of state incorporation.

The key is not so much "friendly to corporations" (that gets complicated, especially when corporations sue each other) but I might say as "sane, stable and speedy" (I think, for the latter; at the very least they have a separate Court of Chancery that handles an important subset of corporate issues). This is a big business for the state government (1/5 of state government revenue) and the associated firms that do their part and they do their best to keep things on track and be efficient (I used to work for a company that sold one or more high speed Kodak ImageLink scanners to the state in the early '90s).

The case law you cite speaks to the stability concern. Companies aren't so much interested in "friendly" as they are in "a known quantity". When the rules of the game are stable, you can plan with some degree of confidence.