What’s with Delaware?

Posted by on Jun 11, 2013 in Your Entity

As a startup who’s in the initial stages of forming an entity, or as a current business owner with an entity already in place, you may wonder at some point why so many people decide to incorporate or form their LLC’s in Delaware, rather than their home state.

So, what is it with Delaware?  What makes Delaware so attractive from a business owner’s standpoint?  There are many answers to this, many of which are too complicated or boring to get into in a forum such as this, but there are many reasons why you may want to consider incorporating your company or forming your LLC in Delaware.  While we highly suggest you discuss your business plans with an attorney before making the decision, we thought we would at least highlight some of the reasons why people choose to use Delaware, rather than–say–Tennessee where we are located, to form their LLC’s.  Given the breadth of the topic, we will stick with LLC’s for now and address Corporations later.

A recent study in the Oregon Law Review** discusses the top reasons cited by attorneys who recently chose Delaware as their state for forming an LLC. Chief among the reasons for choosing Delaware are:

1) Judicial infrastructure: development of LLC case law and perceived judicial expertise;

2) Freedom of contract and the ability to waive fiduciary duties in Delaware;

3) Limitations on the rights of creditors of members;

4) Limitations on the rights of transferees of membership interests;

5) Less of a liklihood for “piercing the corporate veil” and losing limited liability;

6) Less rights given to minority interests.

*Note: Please understand that just because we cited these reasons for choosing Delaware does not mean that these features are not also present in Tennessee’s or some other state’s LLC statute.  We list them only because these were the results of the survey discussed in the Oregon Law Review.  Again, if you’re curious about how your current LLC structure may fit in or relate to the Delaware structure, please contact an attorney.

**The name of the article is “Why Delware LLC’s?,” Franklin A. Gevurtz.  91 Or.L.Rev.57.