Do More Faster India, 2nd Edition

Chapter 71Default to Delaware

Jon Taylor

Jon is a partner at KO, where he specializes in corporate and securities law with extensive experience in emerging company issues, venture capital, M&A, and private equity. He has been a Techstars mentor since 2008.

Corporate law is generally a matter of state law. Each state is free to develop its own rules and regulations regarding how a company is formed and operated. And each state develops the fiduciary duties of the board of directors, management, and majority stockholders, providing guidelines on the governance of your company. Because each state thinks about corporate matters differently, there is great uncertainty for investors who need to have clear guidelines regarding the legal structure of their investments. If they have many investments in many different states, as is typical, their fiduciary duties as board members are incredibly complex. Most investors will encourage or require any new startup companies they want to invest in to incorporate in Delaware.

Why Delaware? Delaware corporate law is generally considered pro-company. Delaware provides shareholders flexibility in creating specific terms for corporate governance and has systems in place for quick and painless corporate filings. Additionally, Delaware provides management and directors guidelines based on a well-developed body of corporate law as to how to comply with their fiduciary duties in a number of different situations. In short, Delaware law provides founders, ...