Delaware is the second-smallest state within the U.S. But it’s home to greater than 60% of Fortune 500 corporations, the state says, including Google parent company Alphabet, Amazon, CVS Health, and CNBC parent company Comcast.
“[Delaware] has a number of appeal for principally three fundamental reasons: convenience, flexibility and predictability,” Roey Gilberg, corporate counsel for LegalZoom, told CNBC.
One of Delaware’s major benefits is its Court of Chancery, which is a separate court system specifically for handling corporate cases.
The court is “widely respected as an authority on business matters trusted by each business and legal communities, truthfully, all around the world, as a spot where the foundations are well developed,” Gilberg said.
The predictable case law also gives investors peace of mind. More than 90% of U.S.-based corporations that went public in 2021 were registered in Delaware, in response to the state.
Delaware law can be attractive to many small businesses.
Cleanster.com, a platform for locating cleansing services for homes and short-term rentals, is incorporated in Delaware despite each co-founders being based in Montreal, Canada.
“When you should go global and you’ve got incorporated in Canada, nobody goes to have a look at you in any respect,” said Cleanster.com co-founder and CEO Gloria Oppong. “Delaware protects each ourselves, the entrepreneurs, and in addition the investors eventually which might be going to be joining on.”
In addition to the attractive court system, Delaware provides some tax incentives for businesses, but saving on taxes will not be enough of an incentive for small businesses to include in Delaware.
“It’s a misnomer that Delaware is a tax haven for companies,” said Gigi Tewari, assistant professor at Widener University Delaware Law School. “So many individuals imagine that, I should incorporate my business in Delaware because I’m going to avoid wasting a lot on corporate tax. Actually, Delaware is on the upper end for corporate tax.”
Watch the video above to learn more about why so many businesses are flocking to Delaware.
