Delaware Corporations

What is a Delaware corporation?

A Delaware corporation is a company legally incorporated in the state of Delaware. It may conduct business anywhere in the U.S., but its formation and corporate governance are governed by Delaware law. Over the past century Delaware developed a business-friendly legal framework that attracted many companies to incorporate there even when most of their operations are elsewhere.

Why companies choose Delaware

• Roughly half of S&P 500 companies are incorporated in Delaware, reflecting the state’s popularity with large and public firms.
• Delaware is especially attractive to financial firms (banks, credit card companies) because of its permissive treatment of interest-rate rules.
• State law provides well-established corporate rules and predictable case law, which many businesses value for governance and dispute resolution.

Usury laws and lending

Usury laws set state limits on the interest rates lenders may charge. Delaware’s usury framework is comparatively flexible, giving lenders more leeway to set higher interest rates. A key practical effect: a company incorporated in Delaware can, in many cases, rely on Delaware law (including its usury rules) even when lending to customers in other states. This nationwide application of Delaware’s lending standards has been an important incentive for financial firms to incorporate there.

Legal and tax advantages

• Privacy: Delaware does not always require disclosure of officers and directors on initial formation filings, offering a degree of anonymity.
• Taxes: Companies that are incorporated in Delaware but do not conduct business there generally avoid Delaware corporate income tax and instead pay an annual franchise tax.
• For limited partnerships and limited liability companies, the franchise tax is an annual flat fee.
• For corporations, the franchise tax is calculated based on factors such as corporate type and number of authorized shares.
• Predictability: Delaware’s Court of Chancery is a dedicated equity court with a long history of corporate rulings. Its extensive precedents provide clear guidance on many corporate-law issues, which helps businesses anticipate outcomes in governance and litigation matters.

Broader effects and context

Delaware’s corporate advantages have influenced other states to make their own laws more business-friendly. Historically, other states like New Jersey once attracted many incorporations before modern corporate law developments shifted preferences toward Delaware.

Key takeaways

• A Delaware corporation is formed under Delaware law but may operate nationwide.
• Many large U.S. companies incorporate in Delaware for legal predictability and business-friendly statutes.
• Delaware’s permissive usury laws particularly attract financial firms, since Delaware law can govern lending terms even outside the state.
• Benefits include privacy in formation filings, potential tax advantages for out-of-state operations, and access to the Court of Chancery’s well-developed corporate jurisprudence.
• Franchise taxes are charged annually; the method of calculation depends on entity type and other factors.