Question

In Chapter 21 we read about the nuances of establishing a corporation in Delaware and why this state is important to the creation of businesses, including Facebook.

Review the wonderful things about registering a corporation's beginnings in Delaware, and write about only two of them, each with its own paragraph. Use a third paragraph to summarize your thoughts as to why this state's laws are important to business.

Answer 1

Delaware is one of the 50 states in US bordering Atlantic ocean, Delaware river and Delaware bay. Delaware is the first state in the nation to ratify constitution in 1787. It is seen that majority of the Fortune 500 companies including Facebook have been incorporated in the state of Delaware. Having a population of less than 1.5 million, it is seen that 75% of the new initial public offerings in US have been done by companies incorporated in Delaware. There are many reasons why companies choose to get incorporated in Delaware, out of which two reasons are very prominent.

1. Tax benefits- Delaware is known as the "Tax Haven" and the system prevailing allow and the give the corporations many ways of minimizing their tax. The companies incorporated in Delaware do not have to pay state corporate income tax, even if they do business in other states too. The system also allows businesses, irrespective of their place of business, to declare certain types of revenues in the state. The state also don't collect personal/business property tax which is absolutely beneficial if the company holds tangible properties like land and building. There is no need to pay sales tax(normally collected from the customers), which makes it easier to get into E-commerce market. Other than these, other relaxations are, there is no VAT, use tax, inheritance tax, stock transfer tax etc and also no tax to be paid on intangible assets like trademarks, patents, copyrights etc. Other than these, the taxes like franchisee tax and gross receipt tax which a levied are very low too
2. Business supporting laws- They follow a very relaxed law system for the smooth conduct of business. The state has constituted a highly respected Court of Chancery which is a non-trial court solely focusing on businesses. These courts have only judges and no juries who focuses on resolving corporate disputes, if any. This helps in quick resolution of disputes since the judges being specialized in corporate laws. Moreover they always try to keep their corporate law modern and up to date which clearly mentions the do's and don'ts. They also have a Delaware Asset Protection Trust which offers protection to the personal assets in a situation of litigation, so that the creditors cannot put a claim on it. The law also provides privacy protection to owners since they are not required to list all the members names and addresses while filing. While incorporating they only have to provide the details of one agent or officer who will be the signatory authority in all kinds of matters relating to the business.

The state of Delaware is still holding on to their relaxed corporate and tax laws and are very hesitant to change it since they worry that closing such loopholes in law might compel the businesses to move out of Delaware. Many other states have tried to adopt a law system very similar to Delaware to attract businesses. But no one has succeeded to a qualifying level so far because Delaware has evolved this successful system over many years through their experience and is very hard to be replicated.