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In which State should My Startup Incorporate?

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This post about the state in which a startup should incorporate brings together points I have made in earlier posts (please see below) and is based on a comment I made on another Quora participant’s answer.

I admit to having a point of view that differs from that of many other lawyers. However, as explained toward the end of this post, my point of view results directly from the types of clients that I serve.

My approach: Incorporate in the state in which you are doing business, unless there is a good reason to do otherwise [in which case the other state chosen probably will be Delaware].

Traditional approach, strong version: Always incorporate in Delaware.

Traditional approach, moderate version: Incorporate in Delaware unless there is a good reason to do otherwise.

A major reason for incorporating in DE is because that is what many institutional investors (VCs, etc.) require. That is not a relevant consideration for most of my clients – indeed for most entrepreneurs – because they never will be attractive to institutional investors. Similarly, most of my clients don’t care about how well-developed DE corporate law is, directors’ power relative to that of shareholders, etc. That is why my approach considers DE the exception and is, in effective, the mirror image of the traditional approach, moderate version.

The bottom line: I work with each client to figure out which state of incorporation makes the most sense given that client’s particular requirements.

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Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

  1. 2/16/2013 | 7:49 pm Permalink

    If a business only operates online can it incorporate in Delaware and not have to foreign qualify in another state?

    • 2/17/2013 | 5:06 pm Permalink

      Even an “online-only” business can have real-world activities. One needs to assess whether those activities constitute “doing business” for the purpose of qualifying in the state where individual conducting the business is located.

  2. 2/24/2013 | 11:32 pm Permalink

    Hi Dana,
    I am planning an online matrimonial portal service, where I don’t have much “real-world” activities happening. I will have a physical address in California where my clients can send the payment/check (if they are not using online payment). I was planning to register business in DE. Since my check collection address is given as CA address, do I need to register business in CA as well?