Delaware Law as Lingua Franca: Theory and Evidence

Abstract:     
Why does Delaware dominate the market for corporate charters? Analyzing the incorporation and reincorporation decisions of 1,850 VC-backed startups, we show that firms often choose Delaware corporate law because it is the only law “spoken” by both in-state and out-of-state investors. Indeed, this “lingua-franca” effect is just as important as other factors that have been found to influence domicile decisions, such as corporate-law flexibility and the quality of a state’s judiciary. Our study provides further evidence that Delaware’s dominance is not necessarily due to the intrinsic quality of its corporate law.

Number of Pages in PDF File: 36

Keywords: incorporation, domicile, Delaware, corporate governance, entrepreneurs, founders, startups, corporation, corporate law, charters, venture capital

JEL Classification: K22, G24, G34

working papers series