You have noticed that each large company is incorporated in Delaware, if you have noticed that you have ever wondered why? The short answer is that our federalist system creates competition between states and free trade through the states.
Federalism makes states compete
Once incorporated into a state, in general, a company can use state laws to control most of its interactions with its clients, even those customers that are out of state. Therefore, most companies choose the state with more advantages for their businesses. Delaware has become the clear winner because of a mix of business laws, extensive case histories, low taxes and the ease with which a business can get in.
A company is not required to have any real employee or company in the state in which it entered. Not only Pepsico, Inc. (Pepsi) joined Delaware, but there are also several regional bottling affiliates: Pepsi-Cola Bottling Company of Ohio, Pepsi-Cola Bottling Company of Rocky Mount, NC, as well as the company of D & # 39; Pepsi-Cola bottling of Wisconsin from Kenosha and Racine.
Advantages of Delaware
Each company must be incorporated in at least one state. Incorporation simply means that the company must present the appropriate articles of incorporation with the Secretary of State of the country, pay the taxes and taxes of franchise and have a corporate agent in the state . Compared with other states, Delaware has lower incorporation rates and annual franchise taxes and corporations that incorporated into the state but do not make any business in the state are not subject to the # 39; business income tax. In addition, shares in a Delaware corporation are not taxed if the owner lives outside the state. The rules of Delaware have translated into positive results; More than 50% of commercialized companies and 58% of Fortune 500 companies are leased to Delaware.
The incorporation of a company is important also because when it is sued, the lawsuit must normally be submitted to the company's incorporation status. Delaware is a very popular destination for businesses, partly because of its low taxes, but also partly because of its unique legal system. Most states have a general court that is in charge of all civil and criminal cases, and in most cases the parties have the right to a jury trial. Delaware has two court of judgment, the Superior Court and the Chancellery Court. The higher court is the court of general judgment for all criminal and civil matters and functions like most other trial courts in the country. The Court of the Chancellery, however, is what makes the state unique.
Court of Delaware of the Chancellery
The constitutional right to a jury trial does not extend to civil cases in equity, and most of the lawsuits that involve companies are cases of equity. The Court of the Chancellery of Delaware is a court of specialized fairness and is dedicated mainly to cases related to the company. Since you only hear debt cases, you can do so without a jury, this provokes faster evidence and more consistent verdicts.
This unique structure creates its own wave of success. The large number of corporations based in Delaware correspond to more cases involving complex operations, sales, mergers or acquisitions. The more cases a judge feels, the experience increases and the contributions of each judge to the predictability of the case law of the state. This legal consistency, in turn, is seen as a positive for companies that are seeking to get in, so that more companies decide to join Delaware, growing even bigger.
States can compete with Delaware for corporate letters making their laws easier to do business. An example is Nevada. Nevada has actively changed its corporate laws to address companies incorporated in Delaware. Nevada has acted to reduce corporate taxes and make laws more user-friendly to the manager. It is almost impossible for an officer or director of a Nevada corporation to be personally responsible for its commercial activities. Only two of the last 20 years have a Nevada "perforated corporate veil" Nevada court of limited liability.
But money can not be the fundamental reason to incorporate it. As mentioned earlier, companies like the consistent way that Delaware law applies. In order for a state to create an independent court of equality, you will have to re-write the whole legal system of the state. In this area of corporate competition, Delaware has a 200-year start with its Chancery Court.