Ask HN: Next best to incorporate other than Delaware? | Hacker News Reader

Ask HN: Next best to incorporate other than Delaware?

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I wish this was more of Ask YC / VC. I have been told it is either Nevada, Wyoming and Texas. Considering Stripe Atlas dont support anything other than Delaware. Does anyone have any Pros and Cons or recommendation.

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I can understand the reasons for wanting to incorporate in a state other than Delaware, but I think it's one of those things where if you have to ask on HN, the right answer is still Delaware (assuming you want to raise funds with equity).

It's not just Stripe Atlas, the rest of the American venture economy (service providers, accountants, etc.) is well-lubricated around Delaware C Corps.

What are the reasons to avoid Delaware?

Being Elon Musk, more or less.

Delaware's large amount of court precedent is seen as an advantage because it reduces uncertainty in litigation. But lately some of that precedent seems to be pretty restrictive on companies. In particular the recent decision to overrule the clear expressed preferences of Telsa shareholders and award $345 million (over $17,000 per hour) to lawyers representing one shareholder with nine shares has people questioning whether Delaware's court precedent is really an advantage.

That stays general until it suddenly sharpens, which obfuscates that it's just the Tesla decision driving this idea.

It was interesting to me that it was considered a bedrock of corporate jurisprudence until then.

When faced with that contradiction, I first checked my premises...

It sounds like you are basing this on a single decision by a single judge facing a pretty unique situation.

Delaware still has the most certainty, by far. You are much better off there the vast majority of the time. Delaware has a court (the court of Chancery) that is specifically geared for rapid and thorough resolution of corporate disputes, with some of the absolute best and judges (the chancellor and vice chancellors) in the country.

If you want to screw around, try incorporating in another state (maybe even one with elected, political judges!) and see how that goes when a real dispute arises.

Based on their current behavior, if you become a politically targeted person, your company will be de facto removed from your control.

A judge might take your $50 billion options package if you incorporate there, a real risk to most of us.

Well, they might take it if you don't have an independent board of directors, that you browbeat into it, and some shareholders sue, and are able to substantiate that to a judge via a long legal case. In that case, you might be upset, but your investors won't be.

EDIT: Some facts are too dangerous to share, because of how they make people feel.

It's over $100 billion now (due to Tesla stock price increase)

It is highly unlikely anyone here will ever have to worry about this problem, the odds are worse than winning the lottery [1] [2]. ~90% of startups end up in failure [3], for example.

[1] https://medium.com/@13032765d/the-chance-of-becoming-a-billi... | https://archive.today/CwENd

[2] https://medium.com/@RisingUnicorns/reality-of-95-startup-fai... | https://archive.today/NCzaX

[3] https://www.ycombinator.com/library/D0-startups-for-students

It's Elon Musk throwing around his power, this time trying to destroy Delaware courts because they ruled against him. The message is: If you challenge me, I'll attack you, no matter who you are.

To the degree it works is because for some reason, people follow him. Is the OP worried they won't get their $40 billion payday?

If you live in the US and not in Delaware, you likely have to register in your state as a foreign entity. So you double the work and fees.

I am not a lawyer or accountant.

The classic advice of “Don’t innovate outside your company’s area of differentiation” applies pretty firmly here.

Age old advice is that founders should put their attention on what matters for the startup to succeed. Succeeding already requires a lot of work. Avoid making things difficult where they don’t need to be.

Business Cards, Logo Design, what desk to buy, my VC buddy called this "Star-up porn" ...

We agree, but those examples while valid are also inconsequential.

More dangerous examples is things like inventing new PTO policies, trialing unproven HR policies (e.g. “we work 6 hour days instead of 8 hours”), and incorporating a c-corp in any state other than Delaware.

It’s a major red flag when I see companies doing things like this. It tells me the founder’s attention is scattered and not focused solely on ensuring the startup’s success, and not customer focused.

The state that you are based in may still be the best choice. You have to register as a foreign entity in your local state if you open a Delaware company. Delaware only makes sense if you are looking for investors.

Err on the side of keeping your options open. Heck, even dentists and doctors offices are taking on investors and getting acquired these days, probably without an original intent to do so.

You can always close and open a Delaware company later. https://www.delawareinc.com/blog/convert-foreign-llc-corpora...

For most people, incorporation in their home state is the best choice. I had a DE company once. Currently, I have an LLC in my home state. I may in the future open a DE LLC for another project. But there is not one-size-fits all solution. But if you want to open out of state, for a start-up DE might be the best option. I vaguely remember that Wyoming is good for trusts but I am not an expert in this field.

The irreplaceable thing DE brings is the Chancery Court. No better venue for contact cases. Chancellors are very knowledgable, and no nonsense.

Having involuntarily engaged in some litigation in Nevada, I can tell you it can be literally and metaphorically the Wild West. To paraphrase the local attorney: "Nevada has one small shelf of case law precedents -- so the judge can do pretty much whatever they want. And judges are elected, so they'll probably do what gets them re-elected."

Nevada has one of the worst school systems in the nation. This became apparent in just about every interaction I had with state workers when I lived there.

Nevada can be the "wild west" because of the reasons you've stated, and because there are a lot of bad lawyers and activist judges here. There is no substitute for a good lawyer, and there are at least a few of them here.

I've used this law firm for representation in the past, and they are excellent:

https://randazza.com/marc-j-randazza/

What my corporations professor said in law school was that if you were going to be a large public company incorporate in Delaware. For nearly anyone else incorporate in the state where your business is located.

That was before the development of the current VC funded tech startup culture, so that probably needs to be modified to say something about incorporating where the people who are giving you the money tell you to.

If VCs are giving you money they want you to try to become a large public company, so maybe no amendment is needed?

They still tell you Delaware; people are upset about the Elon decision.

They still tell you Delaware because Delaware has a long tradition of protecting shareholders from corporate malfeasance.

They also still tell you Delaware also (and why they tell you this particularly in law school) Delaware has the most well-developed body of corporate law, meaning (policy preferences aside) how to achieve particular goals with formal structure and outcomes of particular decisions are most predictable when Delaware corporate law is being applied, which mitigates risk for all parties.

Start Your Own Corporation (Garrett Sutton, 2012) https://www.amazon.com/gp/product/1937832007/ . Big focus on "charging order protection" - if you are sued and lose, states like Wyoming with charging order protection mean that you have to give up future profits of your company, but you are not forced to do anything to actually generate future profits. This also means that lawyers won't get paid as easily for lawsuits, since they aren't sure if/when they can actually get money from the proceeds, which may make lawsuits less likely.

Many good points here in the thread. If you need to raise equity, DE might be okay. I believe Ycombinator insists on Delaware. If you live outside of the US, DE may also be a good option. Otherwise, just incorporate where you live if you don't have reasons not to do it. They are pretty solid for incorporation: https://www.northwestregisteredagent.com/

Why Stripe? This payment solution only accepts DE companies? Why?

Stripe’s paid incorporation service only works for Delaware incorporation. Stripe will do payment processing for businesses from any state.

It’s a hassle for most businesses to incorporate in a state where they don’t have any officers. Typically you have to at least hire an in-state agent, which is both additional expense and an additional failure point for particular kinds of notices that don’t always get delivered via email.

I had a Nevada LLC when I lived in Las Vegas, which was great up until around 2020, when the state seemed to just stop processing paperwork and the Secretary of State website started going down for ~6 hours/day. They then introduced an CAPTCHA that was impossible to solve any time I tried.

To re-domesticate the LLC in South Dakota (where I live now), I had to manually mail in the paperwork, which then took them several months to process.

It's possible this was pandemic-related stupidness and they've since gotten their act together, but based on my experience I can't recommend incorporating there.

I am not a lawyer, and you should consult one if you're not sure. My personal rule of thumb, which you shouldn't take as legal advice:

Basically anyone who I would want to give me money or to buy the company will require that the company be registered in Delaware.

If it's just a legal entity for personal protection, and I don't expect anyone else to be involved, it's cheaper for me to just use my home state.

Why don’t you want to incorporate in Delaware?

An activist judge in Delaware overrode a vote of shareholders. Now, the vote was to give Elon Musk a big payday, but the more general problem is a judge intervened in corporate activity. It's widely assumed this will cause a lot of business to leave Delaware. There is now a new, legal risk in Delaware.

That is very much an edge case and won't have any bearing on the countless small LLCs that incorporate in Delaware.

If you have the problem you mentioned, you're on a whole different level than the OP.

pg tweeted [1] that companies may consider incorporating elsewhere. I'd say this is on everybody's [2] radar now.

[1] https://x.com/paulg/status/1863737832818479385

[2] in the startup sphere

This is a hugely contingent decision. I would advise working with professionals for your specific needs, or at least specifying your needs as much as possible.

SpaceX moved from Delaware to Texas earlier this year

That was only because Elon wanted to get his billion dollar payday.

That was Tesla.

Musk also moved Tesla from Delaware to Texas, citing his $57B pay deal

https://www.bbc.com/news/business-68163184

https://www.texasstandard.org/stories/tesla-reincorporation-...

It was significantly larger than a mere $billion. That's pocket change for Elon.

That was another one of his companies.

Most likely, SpaceX benefits the most in TX from avoiding California’s EQA.

Those are the choices I’d make. I live in Texas and my friends are incorporated in Wyoming.

Thank You for all the answers. Dont know why this falls off the front page so quickly.

Nevada is fairly business-friendly. (I have a business in NV.)

You are right to avoid Delaware, after the judicial activism with Elon Musk. Elon moved to Texas, which may have been because he has a launch base there.

Wyoming does not have a lot of infrastructure, but if your business doesn't need that, it may be your best choice.

Wyoming & Nevada

Wyoming is an outlier. There are no truly big cities in Wyoming. Wilmington, Delaware is part of the Philly metro area and has commuter rail access to it, along with also being very close to Washington DC and part of the eastern seaboard megalopolis! Nevada on the other hand, doesn't have mere proximity, it has Las Vegas, which was different from other big cities for a while but has grown a lot recently in terms of population and powerful institutions.

Not that have a good idea what this says about incorporating there. It isn't one of my core areas of expertise. This has Wyoming ranked 23, and it could be accurate, for all I know: https://wallethub.com/edu/best-states-to-start-a-business/36...

That has nothing to do with incorporating there. We're talking about paperwork, not actually spending time in the location.

Yes, and people who live there are involved in making decisions about the paperwork. It's no coincidence that California and New York aren't there.

It’s not about moving your HQ to Delaware or Wyoming. It’s about adopting the corporate law of the state of incorporation. When a company incorporates in a state like Delaware, they usually have minimal physical presence (eg. a PO Box / mail forwarding service, a firm that supplies a minimal skeleton board and does minimal corporate rituals).

I think the reason Delaware has been offering its way of doing things for so long may be the exact same reason it's being called into question now. People who had small-town ideals but called the eastern seaboard home might have moved to or stayed in Delaware because they saw it as a place where they could embrace its small-town ideals, but now it's increasingly connected to nearby places like Philly, Washington, DC, and NYC.

The Delaware Chancery Court has about as much to do with “small-town ideals” as the Cayman Islands Monetary Authority.

Nice try Elon!

The answer, of course, is Delaware.

It literally doesn't matter as long as it's in the US.

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