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Delaware General Corporation Law

April 29, 2023

The Delaware General Corporation Law (Title 8, Chapter 1 of the Delaware Code) is the statute of the Delaware Code that governs corporate law in the U.S. state of Delaware.[1] Adopted in 1899, the statute has since seen Delaware become the most important jurisdiction in United States corporate law. Delaware is considered a corporate haven because of its business-friendly corporate laws compared to most other U.S. states.[2] Over half of publicly traded corporations listed in the New York Stock Exchange (including its owner, Intercontinental Exchange) and 66% of the Fortune 500, including Walmart, the world's largest company by revenue, are incorporated (and therefore have its domicile for service of process purposes) in the state.[3]

History

See also: Regulatory competition and Race to the bottom

Delaware acquired its status as a corporate haven in the early 20th century. Following the example of New Jersey, which enacted corporate-friendly laws at the end of the 19th century to attract businesses[4] from New York, Delaware adopted on March 10, 1899, a general incorporation act aimed at attracting more businesses. The group that pushed for this legislation intended to establish a corporation that would sell services to other businesses incorporating in Delaware.[5] Before the rise of general incorporation acts, forming a corporation required a special act of the state legislature. General incorporation allowed anyone to form a corporation by simply raising money and filing articles of incorporation with the state's Secretary of State.

Other legal aspects

Because of the extensive experience of the Delaware courts, Delaware has a more well-developed body of case law than other states,[6] which serves to give corporations and their counsel greater guidance on matters of corporate governance and transaction liability issues. Disputes over the internal affairs of Delaware corporations are usually filed in the Delaware Court of Chancery, which is a separate court of equity, as opposed to a court of law.[7] Because it is a court of equity, there are no juries; its cases are heard by judges, called chancellors. Since 2018, the court has consisted of one chancellor and six vice-chancellors. The court is a trial court, with one chancellor hearing each case. Litigants may appeal final decisions of the Court of Chancery to the Delaware Supreme Court.

Delaware has also attracted major credit card banks because of its relaxed rules regarding interest. Many U.S. states have usury laws limiting the amount of interest a lender can charge. Federal law allows a national bank to "import" these laws from the state in which its principal office is located.[8] Delaware (among others) has relatively relaxed interest laws,[9] so several national banks have decided to locate their principal office in Delaware. National banks are, however, corporations formed under federal law, not Delaware law. A corporation formed under Delaware state law benefits from the relaxed interest rules to the extent it conducts business in Delaware,[10] but is subject to restrictions of other states' laws if it conducts business in other states.[9]

Pursuant to the "internal affairs doctrine", corporations which act in more than one state are subject only to the laws of their state of incorporation with regard to the regulation of the internal affairs of the corporation.[11] As a result, Delaware corporations are subject almost exclusively to Delaware law, even when they do business in other states.

While most states require a for-profit corporation to have at least one director and two officers, Delaware laws do not have this restriction.[12] All offices may be held by a single person who also can be the sole shareholder. The person, who does not need to be a U.S. citizen or resident, may also operate anonymously with only the listing agent through whom the company is registered named.[13]

Tax benefits and burdens

Delaware charges no income tax on corporations not operating within the state, so taking advantage of Delaware's other benefits does not result in taxation.[14] At the same time, Delaware has a particularly aggressive tax on banks that locate in the state. However, in general, the state is viewed as a positive location for corporate tax purposes because favorable laws of incorporation allow companies to minimize corporate expenditures (achieved through legal standardization of corporate legal processes), creating a nucleus in Delaware with operating companies often in other states.[15]

In addition, Delaware has used its position as the state of incorporation to generate revenue from its abandoned and unclaimed property laws. Under U.S. Supreme Court precedent, the state of incorporation gets to keep any abandoned and unclaimed property, such as uncashed checks and unredeemed gift certificates, if the corporation does not have information about the location of the owner of the property.[16]

Delaware charges a franchise tax on the corporations incorporated in it. Franchise taxes in Delaware are higher than in most other states which typically get revenue from corporate income taxes on the portion of the corporation's business done in that state. Delaware's franchise taxes supply about one-fifth of its state revenue.[16]

In February 2013, The Economist published an article on tax-friendly jurisdictions, commenting that Delaware stood for "Dollars and Euros Laundered And Washed At Reasonable Expense". Jeffrey W. Bullock, Delaware's Secretary of State, insists that the state has struck the right balance between curbing criminality and "paying deference to the millions of legitimate businesspeople who benefit" from hassle-free incorporation.[17]

2013 amendments

On June 30, 2013, Delaware Governor Jack Markell signed into law amendments to the Delaware General Corporation Law that affect several provisions in the current law and could substantially affect the process through which public companies are merged. The new legislation took effect August 1, 2013, except for ratification of defective corporate acts amendment which took effect in 2014.[18]

Securities law

In 2020, the Delaware Supreme Court upheld a provision allowing companies to require in their certificates of incorporation all Securities Act of 1933 claims to be filed in federal court.[19]

DGCL 203[20] is particularly known as an antitakeover law.

See also

Notes

  1. ^ "Delaware General Corporation Law". Delaware Code Online. Retrieved 21 December 2018.
  2. ^ "How Delaware Thrives as a Corporate Tax Haven". The New York Times. 30 June 2012.
  3. ^ "About the Division of Corporations". Delaware Division of Corporations. Retrieved 1 January 2020.
  4. ^ Cary, William L. (1969). Cases and Materials on Corporations. Mineola: The Foundation Press, Inc. p. 9.
  5. ^ A History of Delaware Corporation Law, S. Samuel Arsht, Delaware Journal of Corporate Law, 1976, pg. 6.
  6. ^ "A new judicial boss". The Economist. 23 November 2013.
  7. ^ "Overview of the Delaware Court System". Delaware State Courts.
  8. ^ "Interpretive Letter #822" (PDF). Interpretations and Actions. Office of the Comptroller of the Currency. 11 (3). March 1998.
  9. ^ a b Usa Ibp Usa (2009). Us Company Laws and Regulations Handbook Volume 2 Delaware. Int'l Business Publications. ISBN 978-1433070822.
  10. ^ Webber, Annie (21 Jul 2015). . Legal Hero. Archived from the original on 26 October 2014. Retrieved 13 April 2016.
  11. ^ Edgar v. MITE Corp, 457 U.S. 624 (1982).
  12. ^ "DEL CODE § 141 : Delaware Code - Section 141: BOARD OF DIRECTORS". Findlaw.com. Thompson Reuters.
  13. ^ Watson, Libby (6 Apr 2016). "Why are there so many anonymous corporations in Delaware?". Sunlight Foundation.
  14. ^ . Archived from the original on 2013-12-13.
  15. ^ Ryan, Patrick S. (Winter 2004–2005). "Will There Ever Be a Delaware of Europe?". Columbia Journal of European Law. 11: 187. SSRN 763164.
  16. ^ a b (PDF). Delaware 2005 Fiscal Notebook. Delaware Department of Finance. Archived from the original (PDF) on 2011-08-16.
  17. ^ "Onshore financial centres: Not a palm tree in sight". The Economist (2013-02-16). Retrieved on 2013-09-05.
  18. ^ "Significant Amendments to Delaware General Corporation Law Enacted". Holland & Knight Securities Bulletin. August 5, 2013. Archived from the original on August 6, 2013.
  19. ^ "Delaware Supreme Court Validates Federal Forum Provisions - Richards, Layton & Finger - Delaware Law Firm". rlf.com. Retrieved 2020-06-18.
  20. ^ Nugent, Eileen T. (2010). "A Timely Look at DGCL Section 203". The Business Lawyer. 65 (3): 753–759. ISSN 0007-6899. JSTOR 40688595.

External links

  • Delaware Department of State, Division of Corporations Official website, corporation name search.
  • Delaware's General Corporation Law
  • Delaware Division of Corporations
  • The Delaware Journal of Corporate Law

April 29, 2023
delaware, general, corporation, title, chapter, delaware, code, statute, delaware, code, that, governs, corporate, state, delaware, adopted, 1899, statute, since, seen, delaware, become, most, important, jurisdiction, united, states, corporate, delaware, consi. The Delaware General Corporation Law Title 8 Chapter 1 of the Delaware Code is the statute of the Delaware Code that governs corporate law in the U S state of Delaware 1 Adopted in 1899 the statute has since seen Delaware become the most important jurisdiction in United States corporate law Delaware is considered a corporate haven because of its business friendly corporate laws compared to most other U S states 2 Over half of publicly traded corporations listed in the New York Stock Exchange including its owner Intercontinental Exchange and 66 of the Fortune 500 including Walmart the world s largest company by revenue are incorporated and therefore have its domicile for service of process purposes in the state 3 Contents 1 History 2 Other legal aspects 3 Tax benefits and burdens 4 2013 amendments 5 Securities law 6 See also 7 Notes 8 External linksHistory EditSee also Regulatory competition and Race to the bottom Delaware acquired its status as a corporate haven in the early 20th century Following the example of New Jersey which enacted corporate friendly laws at the end of the 19th century to attract businesses 4 from New York Delaware adopted on March 10 1899 a general incorporation act aimed at attracting more businesses The group that pushed for this legislation intended to establish a corporation that would sell services to other businesses incorporating in Delaware 5 Before the rise of general incorporation acts forming a corporation required a special act of the state legislature General incorporation allowed anyone to form a corporation by simply raising money and filing articles of incorporation with the state s Secretary of State Other legal aspects EditBecause of the extensive experience of the Delaware courts Delaware has a more well developed body of case law than other states 6 which serves to give corporations and their counsel greater guidance on matters of corporate governance and transaction liability issues Disputes over the internal affairs of Delaware corporations are usually filed in the Delaware Court of Chancery which is a separate court of equity as opposed to a court of law 7 Because it is a court of equity there are no juries its cases are heard by judges called chancellors Since 2018 the court has consisted of one chancellor and six vice chancellors The court is a trial court with one chancellor hearing each case Litigants may appeal final decisions of the Court of Chancery to the Delaware Supreme Court Delaware has also attracted major credit card banks because of its relaxed rules regarding interest Many U S states have usury laws limiting the amount of interest a lender can charge Federal law allows a national bank to import these laws from the state in which its principal office is located 8 Delaware among others has relatively relaxed interest laws 9 so several national banks have decided to locate their principal office in Delaware National banks are however corporations formed under federal law not Delaware law A corporation formed under Delaware state law benefits from the relaxed interest rules to the extent it conducts business in Delaware 10 but is subject to restrictions of other states laws if it conducts business in other states 9 Pursuant to the internal affairs doctrine corporations which act in more than one state are subject only to the laws of their state of incorporation with regard to the regulation of the internal affairs of the corporation 11 As a result Delaware corporations are subject almost exclusively to Delaware law even when they do business in other states While most states require a for profit corporation to have at least one director and two officers Delaware laws do not have this restriction 12 All offices may be held by a single person who also can be the sole shareholder The person who does not need to be a U S citizen or resident may also operate anonymously with only the listing agent through whom the company is registered named 13 Tax benefits and burdens EditDelaware charges no income tax on corporations not operating within the state so taking advantage of Delaware s other benefits does not result in taxation 14 At the same time Delaware has a particularly aggressive tax on banks that locate in the state However in general the state is viewed as a positive location for corporate tax purposes because favorable laws of incorporation allow companies to minimize corporate expenditures achieved through legal standardization of corporate legal processes creating a nucleus in Delaware with operating companies often in other states 15 In addition Delaware has used its position as the state of incorporation to generate revenue from its abandoned and unclaimed property laws Under U S Supreme Court precedent the state of incorporation gets to keep any abandoned and unclaimed property such as uncashed checks and unredeemed gift certificates if the corporation does not have information about the location of the owner of the property 16 Delaware charges a franchise tax on the corporations incorporated in it Franchise taxes in Delaware are higher than in most other states which typically get revenue from corporate income taxes on the portion of the corporation s business done in that state Delaware s franchise taxes supply about one fifth of its state revenue 16 In February 2013 The Economist published an article on tax friendly jurisdictions commenting that Delaware stood for Dollars and Euros Laundered And Washed At Reasonable Expense Jeffrey W Bullock Delaware s Secretary of State insists that the state has struck the right balance between curbing criminality and paying deference to the millions of legitimate businesspeople who benefit from hassle free incorporation 17 2013 amendments EditOn June 30 2013 Delaware Governor Jack Markell signed into law amendments to the Delaware General Corporation Law that affect several provisions in the current law and could substantially affect the process through which public companies are merged The new legislation took effect August 1 2013 except for ratification of defective corporate acts amendment which took effect in 2014 18 Securities law EditIn 2020 the Delaware Supreme Court upheld a provision allowing companies to require in their certificates of incorporation all Securities Act of 1933 claims to be filed in federal court 19 DGCL 203 20 is particularly known as an antitakeover law See also Edit Companies portal Delaware portalCombined reporting Corporation Service Company Corporation Trust Center CT Corporation Wilmington Delaware home to over 6 500 Delaware corporations Corporation Corporate haven Delaware Journal of Corporate Law Say on pay Flag of convenience business United Kingdom company lawNotes Edit Delaware General Corporation Law Delaware Code Online Retrieved 21 December 2018 How Delaware Thrives as a Corporate Tax Haven The New York Times 30 June 2012 About the Division of Corporations Delaware Division of Corporations Retrieved 1 January 2020 Cary William L 1969 Cases and Materials on Corporations Mineola The Foundation Press Inc p 9 A History of Delaware Corporation Law S Samuel Arsht Delaware Journal of Corporate Law 1976 pg 6 A new judicial boss The Economist 23 November 2013 Overview of the Delaware Court System Delaware State Courts Interpretive Letter 822 PDF Interpretations and Actions Office of the Comptroller of the Currency 11 3 March 1998 a b Usa Ibp Usa 2009 Us Company Laws and Regulations Handbook Volume 2 Delaware Int l Business Publications ISBN 978 1433070822 Webber Annie 21 Jul 2015 Delaware the Tiny Capital of Big Business Legal Hero Archived from the original on 26 October 2014 Retrieved 13 April 2016 Edgar v MITE Corp 457 U S 624 1982 DEL CODE 141 Delaware Code Section 141 BOARD OF DIRECTORS Findlaw com Thompson Reuters Watson Libby 6 Apr 2016 Why are there so many anonymous corporations in Delaware Sunlight Foundation State of Delaware Delaware Corporate Law Delaware Corporation And Entity Laws Archived from the original on 2013 12 13 Ryan Patrick S Winter 2004 2005 Will There Ever Be a Delaware of Europe Columbia Journal of European Law 11 187 SSRN 763164 a b State General Fund Revenues by Category F Y 2002 F Y 2005 PDF Delaware 2005 Fiscal Notebook Delaware Department of Finance Archived from the original PDF on 2011 08 16 Onshore financial centres Not a palm tree in sight The Economist 2013 02 16 Retrieved on 2013 09 05 Significant Amendments to Delaware General Corporation Law Enacted Holland amp Knight Securities Bulletin August 5 2013 Archived from the original on August 6 2013 Delaware Supreme Court Validates Federal Forum Provisions Richards Layton amp Finger Delaware Law Firm rlf com Retrieved 2020 06 18 Nugent Eileen T 2010 A Timely Look at DGCL Section 203 The Business Lawyer 65 3 753 759 ISSN 0007 6899 JSTOR 40688595 External links EditDelaware Department of State Division of Corporations Official website corporation name search Delaware s General Corporation Law Delaware Division of Corporations The Delaware Journal of Corporate Law Retrieved from https en wikipedia org w index php title Delaware General Corporation Law amp oldid 1131534374, wikipedia, wiki, book, books, library,

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