| Have you noticed that every large company is | | | | which handles all civil and criminal cases, and in most |
| incorporated in Delaware, if you have noticed that | | | | cases the parties have a right to a jury trial. Delaware |
| have you ever wondered why? The short answer is | | | | has two trial courts, the Superior Court and the Court |
| because our federalist system creates competition | | | | of Chancery. The Superior Court is the general trial |
| among states and free flowing commerce through the | | | | court for all criminal and most civil matters and |
| states. | | | | functions like most every other trial court in the country. |
| Federalism Makes States Compete | | | | The Court of Chancery however is what makes the |
| Once incorporated in a state, a business may generally | | | | state unique. |
| use that state's laws to govern most of their | | | | Delaware Court of Chancery |
| interactions with their customers, even those | | | | The constitutional right to a jury trial does not extend to |
| customers who are out of state. Thus, most | | | | civil cases in equity, and most lawsuits involving |
| companies choose the state which has the most | | | | corporations are equity cases. The Delaware Court of |
| advantages for their business. Delaware has become | | | | Chancery is a specialized court of equity and hears |
| the clear winner because of a mixture of its business | | | | mainly business related cases. Because it only hears |
| laws, extensive case history, low taxes and the ease | | | | equity cases it may do so without a jury, this leads to |
| in which a business may incorporate. | | | | faster trials and more consistent verdicts. |
| A company is not obligated to have any actual | | | | This unique structure creates its own wave of |
| employees or business in the state in which it | | | | success. The large number of corporations based in |
| incorporates in. Not only is Pepsico, Inc. (Pepsi) | | | | Delaware corresponds to more cases being brought |
| incorporated in Delaware but several regional bottling | | | | there involving complex transactions, sales, mergers or |
| subsidiaries are incorporated there as well: Pepsi-Cola | | | | acquisitions. The more cases a judge hears increases |
| Bottling Company of Ohio, Pepsi-Cola Bottling | | | | each judge's experience and contributes to the |
| Company of Rocky Mount, NC and as well as | | | | predictability of the state's case law. This legal |
| Wisconsin's Pepsi-Cola Bottling Company of Kenosha | | | | consistency in turn is seen as a positive by companies |
| and Racine. | | | | looking to incorporate, so more companies decide to |
| Delaware's Advantages | | | | incorporate in Delaware, growing the wave even |
| Every corporation has to be incorporated in at least | | | | larger. |
| one state. Incorporation simply means the company | | | | Competition |
| must file the proper articles of incorporation with the | | | | States can compete with Delaware for corporate |
| state's Secretary of State, pay the required franchise | | | | charters by making their laws more business friendly. |
| fees and taxes, and have a listed corporate agent in | | | | One example is Nevada. Nevada has actively |
| the state. Compared to other states Delaware has | | | | changed its corporate laws to target companies |
| lower incorporation fees and annual franchise taxes, | | | | incorporated in Delaware. Nevada has acted to |
| and corporations that incorporate in the state but do | | | | reduce corporate taxes and make the laws more |
| not conduct any business in the state are not subject | | | | manager friendly. It is almost impossible for an officer |
| to corporate income tax. Also, shares of stock in a | | | | or director of a Nevada corporation to be held |
| Delaware corporation are not taxed if the owner lives | | | | personally liable for their business actions. Only twice in |
| outside of the state. Delaware's rules have translated | | | | the last 20 years has a Nevada court "pierced the |
| into positive results; over 50% of publicly traded | | | | corporate veil" of limited liability. |
| corporations and 58% of Fortune 500 companies are | | | | But money may not be the seminal reason to |
| chartered in Delaware. | | | | incorporate. As stated above, businesses like the |
| A company's state of incorporation is important also | | | | consistent manner in which Delaware law is applied. |
| because when it is sued, the lawsuit must normally be | | | | For a state to create a stand alone court of equity the |
| filed in the company's state of incorporation. Delaware | | | | state's entire judicial system would have to be |
| is a popular destination for corporations partly because | | | | rewritten. In this area of corporate competition |
| of its low taxes, but also partly because of its unique | | | | Delaware has a 200 year head start with its Court of |
| legal system. Most states have a general trial court | | | | Chancery. |