Essentially, the term “Delaware corporations” (also known as Delaware LLCs, Incs & S Corps) are companies that are legally registered in the American state of Delaware. Despite being one of the smallest US states, over 50% of US publicly listed corporations are incorporated there.
Why Delaware?
In the US, each state has its own basic corporate code and business laws; there is no unified federal code. Corporate law in the U.S being primarily governed by State law generally creates confusion and uncertainty for companies operating interstate or in disputes with companies registered in another American state.
This situation is in contrast to Australia where corporate law is administered on a federal level.
As a response to the complexities associated with this system, Delaware has evolved as the premier state where US companies incorporate. With many companies in the US being registered in, and subject to, Delaware law rather than their respective state laws, it means that accountants and lawyers across the US have a single set of commercial laws they can refer to. And without confusion as to which state laws apply, it makes dispute resolution far easier.
Delaware earned this position due to its business friendly jurisdiction which offers lower corporate taxes, fewer shareholder rights against directors and a specialised court for corporate matters. In addition, registering a cooperation, business or startup in Delaware is a relatively easy process that is costly compared to other states. In short, Delaware’s corporate legal system and tax benefits strives towards maintaining a corporate legal climate conducive to the growth and profitability of the companies incorporated in their state.
Currently Delaware is the legal address of almost 1.5 million entities; it’s occupants include giants like Apple, Coca-Cola, Ford, Google, McDonald’s and JPMorgan Chase. However, none of these companies are headquartered in Delaware. Thus, Delaware General Corporation Law governs more than 50% of businesses registered in the US.
The Delaware Court
Delaware has established a Court of Chancery which is an equity court of limited jurisdiction existing solely to adjudicate corporate matters.
The court has developed very extensive case law, as it has been deciding corporate disputes for more than 200 years involving many of the largest corporations (and corporate disputes) in the world. Thus, the court and its respective judges are well-versed in commercial issues, disputes allowing for a timely resolution.
For Australian Startups
If you are looking to trade or just get funded in the US, then incorporating in Delaware makes sense. It’s easy to do online.
If you need help understanding the implications of doing trade in the US, drop us a line – we understand startups and love working with businesses that are scaling!
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
Raymond is a legal intern at OpenLegal, working with our legal content team. He is currently a penultimate student at the University of Technology Sydney, studying a Juris Doctor degree with an undergraduate Bachelor of Global Studies. He is particularly interested in Intellectual Property law and the increasing internationalisation of that area of business.
