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Since the early 1900s, Delaware has been the acclaimed home for companies looking to incorporate. Many large and famous businesses, including over 65 percent of Fortune 500 companies, are incorporated in the state.
However, Delaware hasn't always been known as the premier location for corporations. The state's corporation history and the rise of its renowned Court of Chancery is owed in large part to actions taken by the state of New Jersey, once the leading state for incorporation, in the early 20th century.
New Jersey had been a corporate haven since the late 1800s, thanks to its 1875 Constitution, which abolished the regulation dictating special charter corporations and opened the door to general charter corporations. At the same time, businesses wishing to incorporate in Delaware had to do so via legislative mandate and were considered public corporations. These conditions were not at all business-friendly, and Delaware's own DuPont Company-as well as most major corporations in America-incorporated in New Jersey, much to the chagrin of their home states (which lost millions of dollars in taxes and fees).
As the turn of the century neared, the Delaware legislature realized it was losing out on a tremendous business opportunity, and it revised its corporate laws; in fact, legislators essentially offered corporations the identical laws they were enjoying in New Jersey, but with lower taxes and incorporation fees. By the early 1900s, Delaware had become a serious threat to New Jersey's reign as "The Mother of Corporations;" state representatives extended an invitation to the DuPont Company, via the du Pont family, to re-incorporate in their home state. The du Ponts agreed to the state's offer and soon re-incorporated in Delaware. Other significant American corporations followed.
Around the same time, the state of New Jersey passed seven anti-business and anti-trust laws, known as the "Seven Sisters." Championed by Governor Woodrow Wilson, these laws were supposed to regulate large corporations. As a result, however, it drove corporations to leave New Jersey and re-incorporate, or incorporate for the first time, in Delaware. In addition, the number of businesses incorporated in New Jersey began to decline. Soon, Delaware became known as "The Home of the Corporation."
With a newly-adopted General Corporation Law, Delaware began to serve as the new domicile for corporations. Delaware's Court of Chancery, the nation's oldest business court, rose to prominence as the nation's leading forum for settling corporate disputes.
Today, the Court of Chancery is one of the most important reasons Delaware is known as the most favorable environment for corporations and LLCs. The Court of Chancery consists of a chancellor and four vice-chancellors, all of whom oversee an average of up to 1,000 civil actions a year, the vast majority of which are business disputes.
The decisions of the court are considered to be more predictable than those of other state courts that decide business cases, for several reasons. There are no jury trials in the Court of Chancery; the decisions of the court have historically respected the good faith decisions of a Board of Directors over the desires of its stockholders; and the decisions are based on more than 200 years of consistent case law and judicial procedure.
Are you interested in forming your corporation or LLC in Delaware? Please visit our user-friendly order form. If you have questions, our staff is available to help by phone at 800-345-2677, email or live chat.Form a Delaware Corporation Now
The HBS Blog offers insight into Delaware corporations and LLCs as well as information about entrepreneurship, startups and general business topics.
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