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]

1 Legal benefits
2 Tax benefits
3 Disadvantages
4 References
5 External links

[edit] Legal benefits

Delaware began to stand out as a corporate haven when its laws began to give corporate management notable latitude in its powers to operate and control the corporation. This latitude has frequently come at the expense of the shareholders' ability to control the corporation (which they own). As the popularity of Delaware as a corporate home grew, Delaware also became known for the professionalism of its corporate governance lawyers and courts.

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. As of 2008, there are 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, which enacted corporate-friendly laws at the end of the 19th century to attract businesses from New York, 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.^{[citation needed]} 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.^{[citation needed]}

[edit] Tax benefits

Some believe^[who?] that Delaware's preeminence is related to the fact that Delaware charges no income tax on corporations not operating within the state.

A state may levy, however, a franchise tax on the corporations incorporated in it. Franchise taxes in Delaware are actually far higher than in most other states which typically charge little or nothing beyond corporate income taxes on the portion of the corporation's business done in that state. Delaware's franchise taxes supply about one-fifth of its state revenue.^[2]

[edit] Disadvantages

The Delaware Division of Corporations charges a fee to tell you the status of an entity; in other words, they charge a fee to determine whether or not a fee is owed.^{[citation needed]}