Early History: Delaware’s Corporate Origins (1800s)
The 19th Century: Competing for Corporate Charters
- In the late 1800s, U.S. states competed to attract businesses by offering favorable incorporation laws.
- New Jersey was initially the leader. The State liberalized its corporate statutes in the 1880s to attract incorporation fees and taxes.
- However, in 1899, Delaware passed its General Corporation Law (DGCL), closely modeled on New Jersey’s statutes but even more flexible and business-friendly.
- When New Jersey later tightened its laws under Governor Woodrow Wilson (around 1913), corporations began fleeing to Delaware.
The Delaware General Corporation Law (DGCL)
- The DGCL (Delaware General Corporation Law), enacted in 1899, became a foundational framework for corporate law in the U.S.
- It provided:
- Broad powers to corporations and boards of directors
- Minimal restrictions on management structures
- Easy procedures for mergers and reorganizations
- Predictable and stable rules for investors and executives
- Delaware continuously updated the DGCL to reflect new business realities, making it both modern and stable — two rare qualities in law.
The Rise of the Delaware Court of Chancery
One of Delaware’s greatest advantages is its Court of Chancery, a specialized court that:
- Deals exclusively with corporate and business disputes.
- There are no juries. Cases are decided by expert judges called Chancellors and Vice-Chancellors.
- Produces a large, consistent body of case law that provides predictability to corporations and investors.
The Chancery Court’s expertise and efficiency have made Delaware the gold standard for corporate jurisprudence worldwide.
Tax and Administrative Advantages
Delaware offers unique tax and administrative benefits:
- No state corporate income tax on corporations that do not conduct business within Delaware.
- No tax on intangible assets, such as trademarks and patents — making it especially appealing for holding companies.
- Low franchise taxes compared to the potential liability exposure elsewhere.
- Fast and simple incorporation process. Companies can be incorporated in a single day.
These policies transformed Delaware into a corporate haven: without being a “tax haven” in the traditional offshore sense.
Delaware in the 20th Century: Corporate Capital of America
- By the mid-20th century, most Fortune 500 companies had incorporated in Delaware.
- The state’s legislature deliberately maintained a pro-business stance, updating laws to accommodate evolving practices like:
- Hostile takeovers (1980s)
- Shareholder rights and fiduciary duties
- Modern corporate governance standards
- The synergy between the legislature, legal community, and judiciary ensures that Delaware remains responsive to corporate needs.
Modern Era: The Delaware Advantage
Today, Delaware remains the incorporation capital of the United States:
- Over 2.1 million business entities are incorporated in Delaware — more than the state’s population.
- Around two-thirds of the Fortune 500 and over half of publicly traded companies are Delaware corporations.
