Challenging Delaware's Desirability as a Haven for Incorporation
72 Pages Posted: 26 Jun 2011 Last revised: 9 Jul 2011
Date Written: January 1, 2005
Whether a "race to the bottom" or a "race to the top," the competition among many states to encourage businesses to incorporate in their states has wide-ranging consequences for those businesses. Those consequences include the allocation of rights, powers, duties, and liabilities among corporate directors, officers, and shareholders. Despite the tendency to analyze this competition as a multi-state contest, empirical research shows that the "race" is actually a vast number of individual races between just two states at a time: the state in which the would-be corporation's principal office will be located and Delaware.
Attorneys and their clients are regularly faced with the decision of where to incorporate a new business or whether to reincorporate in another state. If the decision involves a Minnesota-based business, one commentator has suggested that the only rational choice for a multi-shareholder corporation is to avoid incorporating in Minnesota, thereby suggesting that Delaware should be the winner by default. The authors believe that is the wrong conclusion.
The analysis in this Article focuses on comparing Delaware corporate law and jurisprudence primarily to one jurisdiction, Minnesota, where the authors reside. The bipartite nature of this comparative focus serves to crystallize significant differences. The utility of the analysis is broader, however. To the extent that the Article concludes that Minnesota provides more favorable or rational corporate treatment than Delaware, this comparison is relevant to corporations based in many other states since a substantial portion of the Minnesota statute is modeled on the Model Business Corporation Act and laws of other states. Moreover, to the extent that the analysis in this Article is critical of Delaware statutory or judicial law standing on its own, the criticism applies in favor of every other state that does not have the particular Delaware statutory provision or judicial decision or construct.
Keywords: Delaware, Corporate, Haven
Suggested Citation: Suggested Citation