Why the Fortune 500 Loves Delaware

Corporate Governance

When you think of the business epicenter of America, what place springs to mind? New York City, San Francisco, or maybe Los Angeles?

Those would be good suggestions but oddly enough, a potentially bigger case could be made for the state of Delaware. As Alana Semuels writes for The Atlantic, “Two-thirds of Fortune 500 companies—including Coca-Cola, Apple, and American Airlines—are incorporated there…Their workforces, headquarters, and operations—truly the corporations themselves in anything but a legal sense—are elsewhere.”

So why are big business leaders rushing to file their paperwork in one of the nation’s tiniest states? The short answer is Delaware’s Court of Chancery. This style of court system, which developed in colonial times, is now largely non-existent in the rest of the United States. However, Delaware’s Court of Chancery has been continuously functioning since 1792. One of five judges presides over all cases that make it to the court, and verdicts are reached without the use of a jury.

Because so many cases involving corporate America have been tried in Delaware’s Court of Chancery, it has gained a great deal of respect for having judges with a lot of expertise in complicated corporate law. Additionally, Delaware laws tend to favor corporations: “Delaware law requires, and the Court of Chancery enforces, that a company’s directors must always be trying to maximize profits for shareholders…Many other states, by contrast, have statutes that allow a company to take into account employees or other stakeholders, in the event of a hostile takeover, for instance.”

Delaware has also developed a state economic system that receives 40% of its revenue from business-related expenses tied to incorporating within the state, so the state isn’t eager to change its system any time soon.

In addition to having a court system that is highly respected among business leaders, Delaware offers several other benefits for incorporating within their state. Entrepreneur writer Nellie Akalp shares some of those, which include that Delaware offers “a lot of flexibility for structuring your corporation,” stronger privacy regarding founding documents, and some tax advantages.

Furthermore, venture capitalists tend to prefer to invest in companies incorporated in Delaware—an element that continues to solidify Delaware as the go-to state for big business.

Like Delaware, Directorpoint is aimed at having a massive impact on the corporate governance landscape. By giving companies the tools they need to make the best decisions possible, Directorpoint’s board of directors software is altering the course of the future for nonprofits and Fortune 500 companies alike. To learn how Directorpoint can transform your board, schedule a free demo today!

Posted in General Board Topics.