Delaware corporation
Encyclopedia
The Delaware General Corporation Law (Title 8, Chapter 1 of the Delaware Code) is the statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...

 governing corporate law
Corporate law
Corporate law is the study of how shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community and the environment interact with one another. Corporate law is a part of a broader companies law...

 in the state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...

 of Delaware
Delaware
Delaware is a U.S. state located on the Atlantic Coast in the Mid-Atlantic region of the United States. It is bordered to the south and west by Maryland, and to the north by Pennsylvania...

. Delaware is well known as a corporate haven
Corporate haven
A corporate haven is a jurisdiction with laws friendly to corporationsthereby encouraging them to choose that jurisdiction as a legal domicile.- History :...

. Over 50% of U.S.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 publicly-traded corporations and 60% of the Fortune 500
Fortune 500
The Fortune 500 is an annual list compiled and published by Fortune magazine that ranks the top 500 U.S. closely held and public corporations as ranked by their gross revenue after adjustments made by Fortune to exclude the impact of excise taxes companies collect. The list includes publicly and...

 companies are incorporated
Incorporation (business)
Incorporation is the forming of a new corporation . The corporation may be a business, a non-profit organisation, sports club, or a government of a new city or town...

 in that state.

Legal benefits

Because of the extensive experience of the Delaware courts, Delaware has a more well-developed body of case law
Case law
In law, case law is the set of reported judicial decisions of selected appellate courts and other courts of first instance which make new interpretations of the law and, therefore, can be cited as precedents in a process known as stare decisis...

 than other states, which serves to give corporations and their counsel greater guidance on matters of corporate governance and transaction liability issues. Disputes over the internal affairs of Delaware corporations are usually filed in the Delaware Court of Chancery
Delaware Court of Chancery
The Delaware Court of Chancery is a court of equity in the American state of Delaware. It is one of Delaware's three constitutional courts, along with the Supreme Court and Superior Court.-Jurisdiction:...

, which is a separate court of equity (as opposed to a court of law). Because it is a court of equity, there are no juries, and its cases are heard by the judges, called chancellor
Chancellor
Chancellor is the title of various official positions in the governments of many nations. The original chancellors were the Cancellarii of Roman courts of justice—ushers who sat at the cancelli or lattice work screens of a basilica or law court, which separated the judge and counsel from the...

s. , there are one Chancellor and four Vice Chancellors. The court is a trial court, with one chancellor hearing each case. Litigants may appeal final decisions of the Court of Chancery to the Delaware Supreme Court
Delaware Supreme Court
The Supreme Court of Delaware is the sole appellate court in the United States' state of Delaware. Because Delaware is a popular haven for corporations, the Court has developed a worldwide reputation as a respected source of corporate law decisions, particularly in the area of mergers and...

.

The status of Delaware as a corporate haven is not recent: following the example of New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...

, which enacted corporate-friendly laws at the end of the 19th century to attract businesses from New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...

, Delaware played the game of fiscal competition by adopting in 1899 a general incorporation act aimed at attracting more businesses.

Delaware has also attracted some major credit card banks because of its relaxed rules regarding interest. Many U.S. states have usury
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...

 laws limiting the amount of interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

 a lender can charge. Federal law allows a national bank to "import" these laws from the state in which its principal office is located. Delaware (amongst others) has relatively relaxed interest laws. So several national banks have decided to locate their principal office in Delaware. National banks are, however, corporations formed under federal law, not Delaware law. A corporation formed under Delaware state law benefits from the relaxed interest rules to the extent it conducts business in Delaware, but is subject to restrictions of other states' laws if it conducts business in other states.

Pursuant to the "internal affairs doctrine" rule, corporations which act in more than one state are subject only to the laws of their state of incorporation with regard to the regulation of the internal affairs of the corporation. As a result, Delaware corporations are subject almost exclusively to Delaware law, even when they do business in other states. Among other reasons, this contributes to Delaware's attractiveness as a state of incorporation.

While most states require a for-profit corporation to have at least one director and two officers, Delaware laws do not have this restriction. All offices may be held by a single person who also can be the sole shareholder. The person, who does not need to be US citizen or resident, may also operate anonymously.

Tax benefits and burdens

Delaware charges no income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

 on corporations not operating within the state, so taking advantage of Delaware's other benefits does not result in an income tax cost. That said, Delaware has a particularly aggressive tax on banks that locate in the state. However, in general, the state is viewed as a positive location for corporate tax purposes because favorable laws of incorporation allow companies to minimize the corporate expenditures (achieved through legal standardization of corporate legal processes), creating a nucleus in Delaware with operating companies often in other states.

In addition, Delaware has used its position as the state of incorporation to generate revenue from its abandoned and unclaimed property laws. Under U.S. Supreme Court precedent, a state of incorporation gets to keep any "abandoned and unclaimed property", such as uncashed checks and unredeemed gift certificates, if the corporation does not have information about the location of the owner of the property. Delaware is becoming increasingly aggressive in auditing and assessing companies for unclaimed property. For example, it has deputized sister states to act as contingency fee auditors for unclaimed property.

A state may levy, however, a franchise tax
Franchise tax
Franchise tax is a tax charged by some US states to corporations with a nexus with those states. The common feature of a state's franchise tax is that it is not based on income...

 on the corporations incorporated in it. Franchise taxes in Delaware are actually far higher than in most other states which typically charge little or nothing beyond corporate income taxes on the portion of the corporation's business done in that state. Delaware's franchise taxes supply about one-fifth of its state revenue.

See also

  • Corporation
    Corporation
    A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

  • Corporate haven
    Corporate haven
    A corporate haven is a jurisdiction with laws friendly to corporationsthereby encouraging them to choose that jurisdiction as a legal domicile.- History :...

  • The Delaware Journal of Corporate Law
    Delaware Journal of Corporate Law
    The Delaware Journal of Corporate Law is Widener University School of Law's original law review. The journal was established in 1976 and publishes three issues per annual volume. In addition to scholarly articles, the journal publishes opinions from the Delaware Court of Chancery that are not...

  • Say on pay
    Say on pay
    Say on pay is a term used for a rule in corporate law whereby a firm's shareholders have the right to vote on the remuneration of executives.Often described in corporate governance or management theory as an agency problem, a corporation's directors are likely to overpay themselves because,...

  • Flag of convenience (business)
    Flag of convenience (business)
    In business and commerce, the term flag of convenience is the use of a place, jurisdiction, state or country as a nominal "home base" for one's operations or charter, even though either no or virtually no operations or business are conducted there. It is also used where the organization operates...

  • United Kingdom company law
    United Kingdom company law
    United Kingdom company law is the body of rules that concern corporations formed under the Companies Act 2006. Also regulated by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal vehicle to organise and run business...



External links

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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