Incorporate Delaware: homestate versus out of state incorporation decisions

2007-03-08 10:33:40

( Business )



A recent study looking into the question of state competition found that the following factors influence and explain decisions about where to [incorporate your business]

Why would you find it more attractive to incorporate in one state as opposed to another?

When firms decided to incorporate, choosing their home state was the factor that influenced them the most: not only because of the corporate law of the state but also because of its geographical position.

Companies located in the state were more interested in the benefits of the corporate law of the state than companies who were based in another state.

The choice to incorporate in a home state was especially made by smaller and older companies as well as by companies who by remaining in – state reduce costs and obtain local favors.

However, companies did not choose to incorporate in a home state, which customized its corporate law system to their type of business.

Of particular interest was the position that Delaware held in the corporate market. Although most companies chose to incorporate in their home state, if a company chose out of state incorporation, a significant percentage chose to incorporate Delaware

Only a small percentage of firms chose not to incorporate Delaware: and largely these companies didn’t choose another state to incorporate in. There isn’t a national market for out-of-state competition. Rather, when you chose to [incorporate your business] the study showed that you would most likely choose to incorporate Delaware or a home state.

What are the legal and other characteristics of a state that make it attractive to you should you decide to [incorporate your business]?

States with a democratic bias and activist judges are less likely to be chosen

Having a lot of antitakeover laws means that a state is more attractive to companies wishing to incorporate. These laws attract both in state and out-of state incorporation. In fact the states that have all these laws are very competitive and those who have none do very badly in the corporation market.

Contrary, however, to common belief about state competition, the few states that had antitakeover laws which are seen as being against the interests of the shareholders did not suffer in the incorporation market, in that they did not actually chase firms away.

Taking these findings into consideration, ant takeover protection and state competition should not be considered mutually exclusive. There is an important link between these laws and the decision to [incorporate your business], which needs to be carefully considered in any future analysis of state competition as it relates to takeover law.
These are not the only issues, however, when deciding to [incorporate your business] whether to incorporate Delaware or to incorporate in your home state.

There are other features, which have not been mentioned which influence incorporation decisions with regard to the incentives of state competition, which should also be considered


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