Delaware corporation
A
Delaware corporation is a
corporation chartered in the
U.S. state of
Delaware.
Delaware is well known as a
corporate haven, and over 50% of US publicly-traded corporations 58% of the
Fortune 500 companies are
incorporated in Delaware.
[Delaware Division of Corporations]Critics of the predominance of Delaware
corporate law believe that Delaware's
laws and
courts are excessively friendly to corporations. Proponents point out that many states' laws, for instance
Nevada's, are more friendly to corporations than Delaware's, especially in offering protection from
hostile takeovers. They believe that Delaware's popularity has other reasons, such as the fact that, because of the large number of major corporations chartered in Delaware, the courts in that state are more experienced in the application of corporate law than the courts of other states. Because of the extensive experience of the Delaware courts, Delaware has a more well-developed body of case law than other states, which serves to give corporations and their counsel greater guidance on matters of corporate governance and transaction liablility issues.
Disputes over the internal affairs of Delaware corporations are usually filed in the
Delaware Court of Chancery, 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
chancellors. There is currently 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.
Some mistakenly believe that Delaware's preeminance is related to the fact that Delaware charges no
income tax to corporations not operating within the state. However, in this respect Delaware is no different from other states, as no state charges income tax on out-of-state income. A state does levy a
franchise tax on 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. For instance, Nevada does not have a franchise tax. Delaware's franchise taxes supply about one-fifth of its state revenue.
[Delaware 2005 Fiscal Notebook - State General Fund Revenues by Category (F.Y. 2002 - F.Y. 2005)]A similar strategy is used for financial institutions. Many U.S. states have
usury laws limiting the amount of
interest a lender can charge, but Federal law allows corporations to 'import' these laws from their home state. Delaware (amongst others) has relatively lax interest laws, in effect allowing banks to charge as much as they want, hence the preponderance of
credit card companies in the state.
*
Delaware Division of Corporations*
Delaware Court of Chancery*
Delaware Corporate Law Clearinghouse
