Why Is the Delaware C-Corp so Popular?

Corporate Law Tradition

Delaware is to corporations as Japan is to sushi.

Delaware has an extremely entrenched corporate legal ecosystem with the most advanced corporate statutes and court system in the US. For over a century, Delaware’s legislature has actively refined the state’s corporate law, making it celebrated for its fairness and predictability to form a sturdy foundation for corporate governance, while also staying up to date for the dynamic business world.

Delaware’s corporate law provides unique benefits to corporations. Delaware corporate law affords substantial protection to directors and officers, shielding them from personal liability associated with business decisions. And Delaware’s famous (or infamous depending on your perspective) “business judgment rule” presumes that directors and officers act in the best interests of the corporation, protecting them from stockholders pursuing legal action against them.

The Delaware Court of Chancery

Delaware is also one of a few states with a Court of Chancery, specializing in efficiently resolving corporate disputes. Its judges have extensive experience in corporate law. The Court’s long history of establishing favorable case law related to mergers, rights, and fiduciary duties cementing its reputation as a preferred venue for persons seeking fair and consistent rulings. This specialization not only means less hassle in litigation, but further enhances Delaware reputation for a predictable corporate environment.

Prestige

With its reputation, a Delaware corporation also lends a startup a sense of credibility and prestige in the eyes of its investors.

Seamless Capital Raising

Investors also gravitate toward the Delaware C-corp structure because it facilitates simplicity in raising capital and a well-defined framework for investor participation and equity allocation. For example, Delaware C-corp enables the flexibility of having an unlimited number of stockholders, so that companies can secure substantial capital through multiple funding rounds. The law also allows the company to issue different classes of stock with varying rights and preferences, which empowers companies to customize the structure of equity offerings that appeal to investors while retaining control over critical parts of their business.

This predictability and popularity has led to the standardization of many investment documents over the years, further streamlining the fundraising process.