The Case Against Delaware (2002)
newrepublic.com
newrepublic.com
And from a development perspective, Delaware made their own Division of Corporations almost like a lean startup with the goal of making it the EASIEST and FASTEST way to incorporate your business, with their business hours being 24/7 with international support. You can literally incorporate your business in 15 minutes or less. Try doing that in your home state. Look into the history of the Division of Corporations and the Court of Chancery if you're interested, it's a fascinating story.
So at the end of the day, when you're incorporating a company and inspecting your fiduciary responsibilities to your future employees, shareholders, investors and customers... you want to make sure you incorporate wherever the Business laws are most up to date, with a fast process, a quick judicial system that plays the game by the books and will be swift and fair with a proven track record of extensive experience. Delaware has made itself the no-brainer solution to all of those problems.
And for that, we should thank them (regardless of how shitty their tolls are, ha).
The book The Other Path has a fantastic account of how improving business law was a key ingredient in stabilising Peru and defeating Shining Path. (Should be taken with a grain of salt, but it's a fantastic idea)
Note that this does not require it to be made anti-employee or anti-consumer! It just has to be clear, simple, effectively and fairly enforced.
Everywhere else in the world everything must be in triplicate at the very least.
According to https://corp.delaware.gov/faqs/, their expedited service offers 1 hour, 2 hour, same day, and next day service. I didn't see anything there about how long regular service takes, but according to lawyers who answered a question about this [1] on Quora, it is about a week. Is there some faster way to get service (I saw something about some third party incorporation services have direct update access to the database, so maybe they can do it faster than going through the government directly?)
My state, Washington, offers expedited service, which is two business days. You can get same day (usually less than an hour) if you file in person before 3:30 PM.
That said, I'm having a hard time thinking of a scenario where I'd be trying to form a corporation and want expedited service, let alone be willing to actually pay more for it [2]. What's the use case for this?
As far as where to incorporate goes, there are some good points for Delaware if you are going to do a large public company that operates in multiple state. If your company is going to a small private company doing business only in your home state, on the other hand, incorporating in your home state is often going to make more sense, at least if your state has reasonable corporate law, such as in states that use the Model Business Corporation Act.
Even big public companies sometimes find incorporating in their home state fine. Apple, for example, is a California corporation. Microsoft is a Washington corporation. Microsoft did change to Delaware in 1986, five years after initially incorporation in Washington, because Delaware was more liberal about allowing the company to indemnify officers, but Washington changed its laws on that point and Microsoft re-re-incorporated back to Washington in 1993. Overall, about 35% of the Fortune 500 are not incorporated in Delaware.
[1] https://www.quora.com/How-long-does-it-take-to-incorporate-a...
[2] OK...I can think of one situation. I used to work at a small Unix workstation maker called Callan Data Systems. Callan was founded and owned by three founders, who were all equal. I asked one of the others once how Callan's name ended up on the company if they all were equal.
The answer was that they had everything done to start the company except actually filing the papers, which they could not do because they could not agree on a name. This impasse went on for quite a while. During that time, the two other founders went away for a few days on a hunting trip. When they got back Dave told them he had incorporated using a temporary name so that actually get things going, and they could change the name later once they thought of a name. That temporary name was "Callan Data Systems".
They were never able to agree on a new name, and so it stayed Callan Data Systems until the end.
Perhaps expedited filing would be useful in that situation, so Dave could make sure they were incorporated before the others got back because if the filing has not yet been processed they may have been able to withdraw it, and they'd be right back where they were.
That's certainly nice for corporations.
However, I would argue that situation runs directly against the broad tenants of American Democracy. Specifically, that states should regulate their internal commerce to some extent and the Federal government should regulate the rest. Here, you have one state that allows an end-run around both institutions (except for the minute number of people actually living in Delaware).
Tenets.
> states should regulate their internal commerce
That idea was invented at a time when the fastest way to travel or communicate was by horse. In the age of the automobile, the airplane, and the internet, there is barely any such thing as "internal commerce" any more.
Balancing these two values is not trivial. Article 4 takes a shot, it's how we got here.
Odd to claim it's antithetical to American democracy. These sorts of compromises between union and independence, with all their odd imperfect results, are pretty thoroughly baked in.
In that case, the government elected by the population of all fifty states seems a more appropriate regulatory body than that elected by just one of the smallest state populations in the union.
I'd also note they seem to have given in to some federal demands to make the incorporation rules stricter: https://www.marketwatch.com/story/delaware-backs-overhaul-of...
This is inaccurate. Being familiar with both, I wouldn’t say Delaware is more pro management than New York. Which makes me wonder what else in the article is outright fabrication.
(The idea of “pro-management” corporate law is itself a bit misleading. Delaware law governs the internal operations of the corporation and the relationship to shareholders. Shareholders are the ones who decide what rules will apply because they choose where to incorporate.)
How so? I'm curious, as I don't know much about corporate law.
An old thread, but the discussion covers a bit on how Delaware actually has extremely pro-shareholder laws relative to other states, including requiring disclosure of the cap table.
If we want to also talk about misleading, I think choosing a subset of the reasons that businesses choose to incorporate in Delaware and selling them as the sole or even primary reasons is pretty misleading. If you even do a short Google search on why companies incorporate in Delaware, you'll find that one of the top cited reasons boils down to predictability. Because Delaware has been the place companies incorporated for so long, it has a long and established set of case law and precedent, which brings of stability that states with fewer corporations will need to build over time. Add in feedback loop contributions, such as the amount of lawyers who have studied and are experienced in the state's corporate law, and the choice continues to make more sense even without the factors the author listed.
> Of course plenty of states have some commercial cash cow to power their economies—Wall Street in New York or the entertainment industry in California. But those enterprises enrich their home states by creating products and services of value to consumers. Delaware, on the other hand, has come to its lucre at the direct expense of other states. It is simply a game of beggar-thy-neighbor.
A different angle on this could argue that Delaware saw the striking inefficiencies in having every state incorporate their companies separately, splitting case law, precedent, and laws on the books into fifty distinct and slightly different views on corporate law. They realized that if they could attract corporations to the state early, they could create a system by which they were the de-facto state for incorporation and thus for corporate law, creating long-term value for its constituents by bringing revenue and jobs to the state, all while bringing efficiency to the overall economy by defining the standards under which companies are run and lawsuits are settled. You might even call this not-unlike Wall Street as a centralization and standardization of how a certain type of business is constructed that brought value to the nation as a whole.
For example, why should a company who exclusively does business within 200 miles of their headquarters be able to file bankruptcy thousands of miles away? Is that the justice intended by our court system? Any parties involved (suppliers, employees who are still owed money, and customers) must hire an attorney to represent their interests, and furthermore must hire local council in Delaware to be able to submit documents to the court.
How is it going to work with companies that operate across several states, and gradually focus on more on other states than the place of the original incorporation? Can they even close a branch in the state of the incorporation?
How important the convenience of the bankruptcy process is compared to other processes related to a company?
This came to mind while I was reading your comment and this is not a position I am actually advocating, but the law is malleable and reflects human will, it doesn't confine it. If you wanted to make such a scheme work, you could require a corporation incorporate in each and every State/Nation that they conduct their business in. You could slice this down to what it means exactly to do business in a State so every charge on a corporate credit card across State lines doesn't have to mean you suddenly do business in that State.
If you wanted to close all the branches in the state of incorporation, you (as in the many legislatures, not you specifically) could setup a process of disincorporation and transfer of control to one of the subsidiaries.
The law is not a stone tablet handed down from on high, it is, in a literal sense, whatever humans wish to make of it, and there are always processes for changing the laws to fit whatever position you're advocating.
Now effective enforcement is another matter entirely, and without care and consideration, there will always be knock on effects. In this case, requiring incorporation in multiple jurisdictions would make the cost of doing business more expensive, and liable to expose corporations to increased liability.
https://www.bloomberg.com/news/articles/2018-08-20/after-60-...
DE and NJ aren't really suitable states, they bring zero benefit as a separate entity from their neighbors.
Disclaimer: I live in Philadelphia. Also, fuck Dallas.
The "old" map shows I-95 just ending, and doesn't show where it resumes. The most obvious thing the map should do given the story is show what the old path was and what the new one is, and it doesn't do that! The second most obvious would be showing Mercer County, which is blamed in the article for blocking the highway, but guess what, it doesn't show that either.
It sounds like there is an interesting story here, but that article utterly fails at telling it.
http://www.raymondcmartinjr.com/njfreeways/Interstate_95_Gap...
https://en.wikipedia.org/wiki/Interstate_95_in_New_Jersey#Hi...
> Near the Pennsylvania border, drivers have long been forced off the interstate and onto other roadways, only to join back 8 miles away.
"Forced off the interstate..." onto other interstates, lol. Driving north from Philly if you wished to carry on to 95N you could either take the PATP connector 276E over the river, or continue north to 295S and then 195E. Both of these routes are high speed limited access highways, and join with the NJTP. So its not like getting forced off onto secondaries which is kind of how the author wanted it to sound. I've made that drive a hundred times over the last 25 years and I never felt the lack of a "95" on the signs I passed.
As for NJ not being a suitable state, I've lived here 25 years and it seems suitable to me most of the time. You probably swim off our beaches, and eat the seafood we catch and the veggies we grow. We are a "barrel tapped at both ends" as Franklin put it, with Philly and NY both benefiting. You should be more grateful :).
I'd argue that competition is a very good thing in this case.
Especially in a large popular state that is difficult to get away from in more ways than one.
I agree, and states in the US being too big is the root cause of the headache.
Um...I-95 and the Delaware turnpike are not the same roadway. Somehow while applying the brakes on I-95 the driver and truck magically transported from I-95 to a 2hour traffic jam for a toll on the Turnpike?
It was before Delaware added fast through lanes for EZPass, so that only people paying cash for the toll have to go through the booths.
Yes, they are:
https://en.wikipedia.org/wiki/Interstate_95_in_Delaware#Dela...
I personally have traveled the stretch of I-95 the article mentions hundreds of times, traveling between the DC area and relatives in Philadelphia, going back to the 1970s. It has always been the Delaware Turnpike.
> The State of Delaware had turned the East Coast’s main traffic artery into a sweltering parking lot merely so it could exact a tribute from each driver crossing its miserable little stretch of concrete.
Wow, the author has a lot of emotion for a supposedly one-time problem. Delaware pays for a little over 69% of its state and local road maintenance; the tolls help pay for it.
> The practice of charging road tolls is an archaic holdover blighting much of the Northeast.
Roads cost money to maintain, and eventually, replace. Tolls are supposed to help pay for this stuff.
> The whole paragraph on Gunning Bedford Jr.
Pointing fingers at anyone in the colonial era is objectively dumb. For example, Roger Sherman, a representative for Connecticut, helped write the 3/5 compromise, where slaves were counted as 3/5 of a human for voting purposes. Quick, Connecticut is evil incarnate, you should hate it.
> When the nation mobilized for the War of 1812, Delaware manufacturers, led by the du Ponts, demanded that their laborers be exempt from military service.
If the author did any research into the Du Pont company, they would know that the mills were gunpowder mills. Now, why would everyone want gunpowder mills to be run by their skilled employees in a war?
> Delaware voted against the Thirteenth, Fourteenth, and Fifteenth Amendments to the Constitution, which freed the slaves and gave them the vote and equal protection.
Yes, Delaware was racist, and some parts still are. However, as the author makes clear, this is not specific problem for Delaware, but a systemic problem throughout the US.
> Delaware also set itself apart through its fondness for medieval forms of punishment.
Okay, I honestly didn't know this stuff, and I did double check that it is generally accurate. It is shitty, but still it was 60 years ago.
>If a state wants to charge drivers for the cost of maintaining roads, tolls are a dubious way to do it—the traffic congestion they produce can be more costly than the toll itself.
Outdated; easy-pass barely has any effect on traffic.
> The rant about tolls
Blah, blah, Delaware is malevolent; Delaware is an abstract entity that doesn't have intent. It is a collection of any number of individuals who may fit or not fit with the author's view of Delaware.
> To nonresidents, of course, it makes not a whit of difference that our tolls finance Delaware’s airports rather than its schools.
Ironic, Delaware has no commercial airports; as I have already said, Delaware pays for a majority of its local and state road maintenance, which otherwise would come from the federal government. Guess, where that federal tax money comes from?
> Seizing the opportunity to exploit unwary consumers across the country, eight of the ten largest credit-card firms in the country now operate within Delaware. In the meantime, personal bankruptcy nationwide has risen sevenfold over the last two decades, and tens of millions of Americans send checks to Delaware every month.
There is no direct line of causation that the author even pretends to offer. This is textbook misdirection. Of course, people send checks to Delaware because that is where their banks are.
> But just after the Pennsylvania bank ceased its payday lending, a bank based out of Delaware opened up shop in its place.
I mean that could be related, but the author does not give enough evidence.
> The revenue stream is so large (relative to Delaware’s budget) that the state needs no sales tax.
Delaware also has quite high property tax; taxes are distributed differently in every state. Some states have high income tax, some have high sales tax; it doesn't matter which.
Okay, this is as far as a can stand to go. The author hates Delaware, I don't know why.
Also from Delaware here. I'm a big fan of this article for its prose alone. This is one of the most entertaining things I've read in quite some time.
> Indeed, Delaware’s image as small and inoffensive is not merely a misconception but a purposeful guise. It presents itself as a plucky underdog peopled by a benevolent, public spirited, entrepreneurial citizenry. In truth, it is a rapacious parasite state with a long history of disloyalty and avarice.
I wish the Delaware History Museum could sell that on a mug.
Which is relative. Most Delawareans, as you no doubt know, regard DE state property tax as low when compared to PA or NJ.