Startup Series: Why Delaware?
Why should you incorporate your startup in Delaware, even if you’ve never been there?*
A whole lot of companies in the US are incorporated in Delaware, even if the company doesn’t actually exist there. One Month, for example, is incorporated in Delaware, even though we’re headquartered in New York (and we’ve never been to Delaware)!
The reason? There’s a body of law in Delaware where many court cases have already been tried, so companies and potential investors have more certainty about how different legal disputes will turn out. It’s riskier to incorporate your startup in a state where the outcomes for legal problems don’t have any legal precedent, and it’s unclear what would happen if a case were to go to court.
For investors, it’s also more attractive for them if they know you’re incorporated in Delaware, because this gives them more certainty. If your business has a legal question and it needs to be figured out in the court system, investors prefer the certainty of knowing that previous cases have established precedent (known as case law) in this state.
*Of course, for questions specific to your particular situation, it’s best to seek the advice of an attorney or accountant.
Key Takeaways:
- Ideally, you’ll be incorporated in Delaware (you don’t have to live there to incorporate there) because many of the laws and cases have already been figured out
- The steps to incorporating a business are fairly simple, hence there are people who can do it for you.
- If you try to do it the manual way, it can be more complicated, but still do-able.
More Links:
- Clerky is what almost all YC companies use for incorporation and post-incorporation setup: https://www.clerky.com/
- Why Incorporate In Delaware?
- Top 5 Reasons to Incorporate in Delaware
Startups + Fundraising Series:
- What is Equity?
- Why Should You Incorporate Your Startup In Delaware?
- LLC or C-Corporation — Which One Is Right For Startups?
- What are the Different Stages of Startup Fundraising?
- Valuation: How Do You Measure the Growth of Your Company?
- How I Learned to Stop Worrying and Love Dilution
- What Are Convertible Notes And Why Use Them?
- Exits: When to Get Out to Stay in the Game
