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.
- Why (not) Incorporate in Delaware?
- Why are So Many Corporations Formed in Delaware?
- Do VCs care where my company is incorporated?
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.