Delaware's General Corporation Law

The Delaware General Corporate Law provides a number of benefits to businesses that incorporate in that state.

The Delaware General Corporation Law is contained in the Delaware Code under Title 8, Chapter 1 and governs business in Delaware. With more than 50 percent of all publicly traded companies in the United States incorporated in Delaware, the state’s business laws are highly favored by small and large corporations. Additionally, more than 60 percent of Forbes 500 companies have filed their articles of incorporation in Delaware.

Background

In 1899, the first Delaware General Corporation Law was enacted, giving the state a long history of business-friendly legislation. Successive amendments further provided benefits to corporations doing business in Delaware attracting more businesses to set up shop in the state.

Nationwide Applicability

By Supreme Court precedent, the U.S. judicial system favors the laws of the state where a company is incorporated in litigation that involves that company. One such precedent is found in Edgar v. MITE Corp, in which the Supreme Court decided the laws of Illinois--the state where MITE was incorporated--trumped the laws of California in a lawsuit, despite the fact that the company’s headquarters was located in California. This set of precedents has become known as the Internal Affairs Doctrine and ensures that companies incorporated in Delaware will be subject to Delaware’s more business-friendly laws, rather than those in more stringent states.

Articles of Incorporation

Delaware regulations are considerably more lax than those of other states. For example, the Delaware General Corporation Law allows one person to hold all of the corporate offices in the company and the offices do not need to be held by shareholders, while most states require at least three shareholders to hold those offices, such as vice-president, president, and chief executive officer. Additionally, the corporation is not required to identify the officers by name or provide their addresses on the articles of incorporation.

Conducting Business

Companies that are incorporated in Delaware are not required to have offices or employees in that state and those companies that do not actually conduct business in Delaware are not required to pay state corporate income taxes. Additionally, shareholder and board meetings can be conducted through the Internet or some other means of distance communication. The law does require that a local resident, such as an attorney or a locally based company, register as an agent of that corporation.

Corporate Litigation

Business-related legal matters are heard in a special Delaware court called the Court of Chancery. Established by Subchapter 8 of the Delaware General Corporation Law, it is an equity court that specializes in business issues like liability and bankruptcy. These courts do not require juries, so decisions are left to a judge, who is usually a specialist in business law, so the court is efficient in matters of fact and law. Additionally, since juries are often considered to be sympathetic to individuals in lawsuits with corporations, the Court of Chancery is considered beneficial to corporations.

References

• Deleware Code, Title 8, Chapter 1-General Corporate Law
• Justia U.S. Supreme Court Center: Edgar v. MITE Corp.
• Loyola Law School: Explaining the Internal Affairs Doctrine
• Forbes: The First State in Corporate Law
• Before Competition: Origins of the Internal Affairs Doctrine, Frederick Tung, Boston University School of Law