Delaware Business Corporation Law
More than 50 percent of all publicly traded companies in the U.S. were incorporated in Delaware in 2009, including 63 percent of Fortune 500 companies, because of low corporate taxes and laws that generally favor business. The Delaware General Corporation Law, which is found in Title 8, Chapter 1 of the Delaware code, is the state statute governing the activities of corporations.
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Background
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The Delaware General Corporation Law was first enacted 1899, giving Delaware a long history of providing a business-friendly environment as a way of attracting more business to the state. Since then, Delaware has become known as a corporate haven.
Forming a Corporation
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Relaxed regulations regarding the formation of corporations are among the biggest incentives for companies to incorporate in Delaware. Subchapter 1 of the Delaware General Corporation Law does not require corporations to identify their board members in the articles of incorporation, nor are they required to provide their home addresses. Additionally, board members do not have to be company shareholders and may meet via distance methods, such as correspondence, rather than hold face-to-face meetings in the state. Unlike in many other states, one individual can hold all the key offices in a corporation.
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Doing Business in Delaware ... or Not
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A company that is incorporated in Delaware is not required to have offices in the state, though Subchapter 3 does require that a registered agent be based in the state and this agent can be a local business or lawyer. Additionally the corporation is not required to pay corporate income taxes if it does not conduct any business in Delaware.
Claims and Litigation
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Subchapter 8 of the Delaware General Corporation Law creates a system of equity courts that hear only business-related legal matters, such as liability and bankruptcy. This is called the Court of Chancery. Decisions in the Court of Chancery are made by a judge who specializes in business law without the aid of a jury. This is largely seen as being more efficient and more business-friendly because plaintiffs often side with individuals in lawsuits with corporations.
National Significance
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Because of Supreme Court decisions that established that corporate law is state law, the laws of the state where a business is incorporated usually take precedence over those of any other state regarding claims and other corporate matters. This is referred to as the “Internal Affairs Doctrine.” In Edgar v. MITE Corp., 457 U.S. 624 (1982), the Supreme Court held that the law of Illinois, where MITE Corp. was incorporated, prevailed over the law of California, where it was headquartered. As such, the General Corporation Law is the law applicable in claims and other litigation for many businesses in the United States, even in lawsuits brought in courts in other states.
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References
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