Why does Delaware have such business-friendly corporation laws?
“Why does Delaware have such business-friendly corporation laws?”
Delaware has the most pro-business laws of any US state and has a “goldilocks” balance of being stable and slowly evolving. When teaching corporate law, professors across the country teach Delaware corporate law. The United States Chamber of Commerce has recognized Delaware’s business dispute and incorporation climate by ranking Delaware’s litigation system #1 over the past 10 years. See this infographic on why Delaware is considered the “gold standard”.
The main reason to incorporate is to protect personal assets from your business’s liability. This protection is referred to as the “corporate veil” or “shield.” Because of its laws, Delaware’s corporate veil is the thickest corporate veil of the 50 states, which give owners comfort while the corporation or LLC assumes business risks.
Delaware has a separate court for the resolution of business disputes, the Court of Chancery, and appoints judges who are selected for qualifications. Even when judges change upon resignation or expiration of their 12 year term, it is not based on favoritism or a history of their decisions. Judges in Delaware make reasoned, non-political decisions. This provides predictability in knowing if a dispute arises involving the internal affairs of a company, it will be handled competently. There are no jury trials in the Court of Chancery, so the Court’s expertise is brought to bear in the decision of every case before the Court. Even if a case is not well-lawyered, the judges are known to conduct their own analysis and rationale outside the parties’ own briefing to get the right outcome.
Delaware’s Court of Chancery has more quality decisions than other states. The advantage of having so many business disputes resolved in Delaware is that previous conflicts have established an extensive body of case law. This means that if there have been several similar cases, there is less uncertainty about the judicial outcome, which can be key in deciding whether to settle a dispute or invest the time and capital to litigate.
The Delaware court system can act very quickly. Sometimes, the whole process, from start to finish (discovery and motions to trial decisions), can be over in two months. Written decisions from the Court of Chancery are the standard, and are often 100 pages long. This well-reasoned process avoids arbitrary outcomes. Even appeals to the Delaware Supreme Court can be expedited. The Delaware judges do their homework and read all the pleadings carefully before hearings and trials.
Here is a video series that Delaware attorney John Williams put together on how to incorporate in Delaware.