When it comes to incorporating a business, there is a mystique that may cause the business owner to want the “benefits” of a Delaware corporation. After all, most public companies are incorporated in Delaware, aren’t they? Most of the time, however, incorporation is best in the state where the principal office of the business is located.
What then, if any, are the benefits of incorporation in Delaware. The main benefit is that the Delaware corporation law is clear, well thought out, predictable and undergoes change gradually. In addition to the law, the Delaware courts are excellent and are experienced in corporate matters. This advantage is somewhat lessened by so-called business litigation courts which have developed in several states. The Business Litigation Session in Massachusetts, for example, is excellent.
Another advantage of a Delaware corporation over a Massachusetts corporation is that, in a plain vanilla corporation, Delaware does not recognize the enhanced fiduciary duty that shareholders owe one another in a close corporation. (See my earlier post of July 25, 2011 discussing fiduciary duty in a Massachusetts corporation). The duty owed fellow shareholders in a Delaware corporation is lower than the duty owed in a Massachusetts corporation.
Some have argued that the Delaware courts are “management friendly” though I have not observed any evidence of that.
Unless a complicated capital structure is planned for the business, I recommend incorporation in Massachusetts, if that is the corporation’s place of business. This is because, in addition to Massachusetts fees and taxes, a Delaware corporation will also incur Delaware taxes, will be required to appoint a representative in Delaware and will be required to qualify as a foreign corporation in Massachusetts. All of this is unnecessarily expensive for a new venture.
Down the road, when it comes to venture capital financing, most VCs will require that the corporation be incorporated in Delaware. Changing the state of incorporation of a corporation at that point, however, is relatively easy.
A business’s choice of state of incorporation as well as choice of entity (LLC or corporation) depends on many factors. One should carefully consider these decisions with the business’s lawyer and accountant.

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