Delaware: An Ideal State for Corporations to Incorporate - Essay Sample

Introduction

Corporations have existed since the medieval period. Currently, in the United States a corporation is established through meeting the set law requirements based on corporation codes of operations. Business prefers incorporating in Delaware due to the developed nature of its Delaware General Corporation Law. Not that the state is better than others, but mainly due to its better interpretation of the law that is ample and easier to understand for the corporations. The following paper will explore the Law of Corporations in Delaware and another state to determine issues that are faced by businesses before considering been incorporated in the region.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

According to (Black, 1999), most companies that are publicly traded and those from Fortune 500 are incorporated in Delaware, which is due to numerous advantages offered by the state. Also, Delaware has a highly respected corporations court in the U.S. called the Court of Chancery that is under the guideline The Delaware General Corporation Law (DGCL). In the U.S., corporations are established under prevailing laws of corporation codes that are aimed at regulating their formation, operations, and dissolution. Subsequently, the state has the mandate of the legislature to amend its corporate law and statutes at any given moment.

The other state that will be analyzed to compare and contrast the laws of a corporation in Florida. Incorporating a business in Florida means forming a corporation in the state will protect the firm from liability, providing tax deductions, and allows raising of capital through selling shares. To start a business in Florida, various issues need to be taken into consideration during the incorporation process. The first issue to be considered is the base fee, in Florida, the cost for incorporating a business is $70 that will entail filing fees and the registered agent designation (Warda, 2007). However, the entire total cost will depend on varying factors such as the type of business and its location. Therefore, it is vital to check the regulatory laws and regulations set by Florida Business Corporation Act (FBCA), which is essential during the renewal of corporation, and it will depend on the type of business.

In Delaware, DGCL permits authorization of corporations through providing the certificate of incorporation, by issuing Blank Check Preferred Stock. These guidelines have varying preferences that include relative rights and limitations that are going to be determined by the firm's board of directors that will not require stockholder approval. On the other hand, in Florida, FBCA permits authorization of corporations by issuing Blank Check Preferred Stock that has different preferences and rights that will be determined by the firm board of directors (Schmidt, 2014). In Delaware, only the company's board of directors can call a special meeting of the stockholder.

In Florida, the board of directors has the right to call for a special shareholders meeting, and the vote must exceed a 50 percent vote that is under the regulations of incorporation FBCA. Concerning tax consequences in Delaware, DGCL requires the corporation to pay an annual franchise tax. However, in Florida, FBCA does not require a corporation to be paying a yearly franchise tax (Schmidt, 2014). According to Schmidt (2014), the main benefit of incorporating a business is the absence of personal income tax. However, in other states, corporations are charged a tax percentage of 5.5 on their taxable income. Besides, Delaware has numerous tax advantages on its corporate income tax that makes a company be established in the state even if they do not conduct their operations in the region.

Corporations are considered as a separate legal entity, which makes them to be considered by the states as artificial individuals that can sue or get sued under their own entity. Corporates are considered separate legal entities, which means they are not liable to their own debts and obligations. Therefore, corporate shareholders have a limited liability, which highlights that they are not responsible to the extent of capital contributions. According to Black (1999), Delaware has a statute that protects the corporations from practical problems that could result in impairing business operations. The opinion that Delaware is the most preferred state for corporate formation is due to its Delaware General Corporation Law that permits stockholders to limit the director's liability through corporate charter. This advantage addresses the major issue faced during the formation of corporations that relates to the high cost of liability to the board of directors.

In addition, Delaware is preferred in corporate formation as its General Corporation Law is composed of provisions that are designed to allow internal operations of the company to be effective and run smoothly (Black, 1999). For instance, in the state of Delaware, the board of directors to have alternate members that will ensure the continued functioning of the corporation. Therefore, these laws enable corporations to create strategies that will offer a better assessment of issues that will result in litigation cases. Another law that makes Delaware to be preferred for the formation of corporations to be quick is that the state does not require the company to disclose the names of their board of directors.

Incorporation of a corporation can only be done in one state, despite conducting its business across the U.S. Therefore, during the establishment of the company, the board of directors is required to take into consideration state laws of forming a corporation. To ensure convenience in incorporating the business, the board of directors will select a state that has favorable laws to facilitate smooth internal operation. This makes Delaware be a preferred state for the incorporation of a business, due to its political consensus that is bipartisan, which keeps the corporation's statue to be up to date with the modern era running of huge firms (Schmidt, 2014). Hence, this makes corporations to prefer been incorporated in Delaware since other states such as Florida do not have similar laws that will ensure the smooth running of the company. Thus, such laws under Delaware corporation statute has made the state of being a success in attracting incorporation of businesses. Corporations prefer Delaware due to its quality courts and judges that are under the Court of Chancery that rules on corporate law disputes without requiring a team of juries. Hence, it makes corporations established in the state not to be stuck on court dockets due to different cases.

Conclusion

In conclusion, to file a certificate of incorporation in Delaware, companies are required to list the name of the corporation, address of the registered agent, authorized shares of stocks and the name of incorporators. Delaware is the most preferred state in the U.S. for incorporating publicly-traded company due to its favorable Delaware General Corporations Law. In comparison to other states in the U.S., Delaware offers the newly established corporate entities with favorable regulations that have a more straightforward and quick interpretation of corporate laws that are simple to understand and deliver a ruling on various cases.

References

Black, L. S. (1999). Why corporations choose Delaware. United States Corporation Company.

Schmidt, G. L. (2014). Delaware vs Florida: Where should you incorporate? Corporate Governance. Retrieved from: https://www.thesecuritiesedge.com/2014/07/delaware-vs-florida-where-should-you-incorporate/

Warda, M. (2007). The LLC and corporation start-up guide. Naperville, Ill: Sphinx Pub.