One of my professors in law school once made the following analogy: prostitutes are to Las Vegas as Corporations are to Delaware. In excess of 50% of publicly traded corporations are incorporated (See: Articles of Incorporation, Corporate Bylaws) in Delaware. Why is this? Simply tax reasons? Or is it the legal structure surrounding the corporate entity in the State?
One simple post isn’t enough time to stress the differences, but let’s make the following corporations between Delaware and Missouri Corporations:
- Delaware has favorable indemnification provisions for its officers/directors (e.g., indemnification payments in Delaware are only re-paid if the Corporate officer is found “liable”). Missouri statute requires the payback almost always, unless shareholders expressly authorize further indemnity.
- In Delaware, any action requiring shareholder approval may be effected by the written consent of the holders of outstanding stock having the minimum number of votes necessary to take action. In Missouri, each and every shareholder must sign the written consent.
- Delaware requires only a mere majority of shares entitled to vote in order to approve a fundamental corporate act such as a merger, consolidation, reduction of capital, etc. Missouri requires 2/3 majority.
- Perhaps most important, Delaware has an incredible affinity toward anti-takeover statutes. This is particularly important for publicly traded companies, as hostile takeovers are not uncommon. These devices — artfully termed “poison pills” — are designed to stop corporate raiders and act as barriers to investors seeking to take over a given corporation’s control center.
The above distinctions/contrasts are not comprehensive. Indeed, there are a litany of complex reasons why businesses choose to incorporate in one business versus another (e.g., Nevada is a popular spot because its corporate officers can be anonymous). It all depends on how you want your corporation to run and the particular trade it operates in. Depending on the circumstances, Missouri, Illinois, Delaware, Texas, or Nevada could be the best fit.
If you have such concerns, don’t hesitate to contact us and we can work with local counsel in any state to set up a business entity suited for your particular needs (See: Foreign Corporations).