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Comment by gamblor956 | Hacker News Reader

A Delaware incorporation is almost never the correct choice for a business unless it has very specific reasons for incorporating in Delaware rather than the state in which it is actually located. The use of Delaware as the incorporation jurisdiction creates a significant amount of duplicative legal compliance costs, a substantial amount of additional tax compliance costs, and frequently makes a startup business ineligible for various startup incentives offered by the state in which it is actually located.

Incorporating in Delaware is an appropriate choice if you intend to have a lot of investors, operate nationally very early on in the life of the business, or definitely plan to IPO. Otherwise, it's simply not worth it. (And note--reincorporating in Delaware is a tax-free reorganization from a US federal tax perspective, so it's not very expensive to reincorporate later in Delaware if necessary.)

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So you're saying that incorporating in Delaware is premature generalization?

yea, go delware when it warrants it.

In your profile you claim to be a lawyer (although misspelling "your" makes me wonder), so I'll assume this is true for your typical clients, whoever they might be.

But for folks in the YC orbit, I believe a Delaware corp is almost always the right choice. Getting investment in Silicon Valley has a bunch of common defaults, and sticking with those defaults means fewer bumps and less to explain. Unless a startup has a very strong reason to do something else, or unless they are sure they don't want VC investment, it's to their advantage to just do the standard thing.

As evidence, I'll offer YC's own words: "We require companies to be Delaware corporations as a condition of funding—which any startup should be anyway." [1]

[1] http://ycombinator.com/documents/

The form of incorporation is more important than the state. Delaware is NOT necessary unless your exit is IPO, or when you have a large or diverse shareholder base. YC mostly funds and promotes "BIG" ideas which get MILLIONS of $$ and if your idea is good and will attract AirBNB type money... yes Delaware is a good choice. For average startup it's a waste of money and liability.

That's fine. What that means to me is that YC requires a potential alum to be incorporated in at least two states--Delaware plus California. Incorporating in Delaware, but not California, and then going through the YC process of living, working, and employing people for the purpose of conducting business for 3-6 months in California almost certainly (but not necessarily) is tantamount to operating the business illegally in California.

Your ignoring a hugely important detail here...

YC is giving 6 figures worth of investment and as an investor wants a Delaware corporation. So they are paying you to play by their rules, which is very reasonable since they are covering the associated costs.

Yes, if you want money from people who require you incorporate in Delaware to get it, its the right choice. Just like if you want money from people who require you to do the chicken dance while dressed up like Santa Clause.

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