Aren't several SV startups not even incorporated in California leave alone Delware ? Most of them are incorporated in some tax heaven such as Cayman Islands and such ?
Making their jurisdiction of incorporation completely irrelevant as the VCs push for settlement quickly.
Delaware's Court of Chancery isn't even a perk for 99.9% of businesses. Delaware's "body of case law" can be leaned on by courts in ANY state if there is a conflict that state has never seen before.
That's kind of how it works, but not to the effect you hope. Delaware law isn't binding outside of DE, so if another court looked at it, they would only use it as guidance. Versus if a DE court looked at it, they would use it as binding precedent.
Which is the benefit of incorporating in DE. That law is out there and binding due to the large number of incorporations there and large body of case law that has developed. So answers to random questions are really known and agreed upon. Whereas with another state's court, if you can even get them to consider DE law, you're praying that they side with DE law, which isn't always the case. There's more risk.
There is an advantage to incorporating in DE, whether you believe that or not. Even if the advantage is, like using Ruby or Node or something, that everyone knows the law and it's well settled and boilerplate. You don't have to reinvent the wheel.
Reincorporation, foreign incorporation, and continuation corporations are valid ways to switch jurisdictions when you need it.
Just reading Nolo.com and incorporating in DE for limited liability of your pet project, even your pet project that may get employees, isn't necessary.
An interesting counterpoint, for many startups in the Bitcoin / Cryptocurrency space, incorporating /in/ the US is seen as a risk (to some). E.g. ShapeShift, Blockstream.
> Then the question is: where do you form one? Theoretically you have fifty choices, but the easiest place is Delaware. I'm sure you're all familiar with that as well. Delaware is in the business of forming corporations. The law there is very clear and very settled. It's the standard. The other thing is that investors are very comfortable with Delaware. They already invest in companies that are Delaware corporations. Most of their investments are probably Delaware corporations. So if you are also a Delaware corporation then everything becomes much simpler. There's less diligence for the investor to do. You don't have to have a conversation about whether or not to reincorporate your Washington into Delaware.
> We had a company at YC about two years ago that was originally formed as an LLC in, I'll say Connecticut. The founders had lawyer friends there who said that this was right way to do it. When they came to YC we said, you need to convert to Delaware. The Lawyers in Connecticut did the conversion paperwork and unfortunately they didn't do it right. They made a very simple mistake, but it was a very crucial mistake. The company was recently raising money, a lot of money, and this mistake was uncovered. The company thought it was a Delaware corporation for a couple of years but in fact it was still a Connecticut LLC. I'll just say this: four different law firms were needed to figure that one out. Two in Delaware and one in Connecticut. One here in Silicon Valley. The bill right now is at five hundred thousand dollars for a conversion mistake.
http://startupclass.samaltman.com/courses/lec18/ (transcript from http://genius.com/Kirsty-nathoo-lecture-18-mechanics-legal-f...)
But Delaware is Corporate haven. Planet Money did an episode on this
http://www.npr.org/sections/money/2016/03/16/470722656/episo...
> Easiest place in the world to register a business anonymously is definitely the United States. The four sort of most lax states are more particularly Delaware, Nevada, Wyoming and Oregon.
...
> And again, we found that in places like the Cayman Islands and the British Virgin Islands and Jersey and then in one of the Channel Islands, we were very, very strict, and, you know, people email back and say, look, we'll sell you a company, but you must send us a scanned notarized copy of the picture page of your passport so we can keep it on file so we know who you are. But in the United States, the answer was, sure, this should take you about 10 minutes. Just fill, you know, fill in the details of the company you want on the website, transfer the money, and we'll send you the company today. I think it would be interesting if you tried to set up a company and compare how many documents they asked for compared to how many of the people in Belize are asked for.