Why Delaware

Delaware’s business laws attract corporations

By selecting Delaware as their legal domicile, business entities chose to have their internal workings governed by the state’s business laws. Because of its extended corporate dominance and body of business law cases dating to the early 20th century, Delaware’s state law is considered, in practice, to be the corporate law of the country.

When disputes arise, many companies choose to litigate in the state’s famed Court of Chancery, a specialized business court. Some of the most high-profile cases in business history have been litigated in the state. Over the decades, captains of industry have traveled to the state to attend hearings or testify in trials.

This didn’t happen by accident. Since 1899, when Delaware passed its General Corporation Law, the state has assiduously nurtured, guarded and protected its corporation business. The corporate legal community is vigilant about monitoring any developments that could necessitate amendments to the state’s corporation law to keep it cutting edge.

For example, in 1967 the state’s general corporation law, which is an enabling statute, went under a major revision. And almost every year, amendments to the law are introduced in the state’s legislative body, which is called the General Assembly.

“Delaware’s corporate and legal services community has unparalleled expertise in the application of Delaware Corporate Law and receives strong, bipartisan support from the Delaware General Assembly and our Governor for its efforts to continuously improve the State’s laws,” writes former Delaware Secretary of State Jeffrey W. Bullock in the corporations’ division 2023 annual report.”

In addition, the state corporations’ division strives for efficient and professional service.

The stakes are not small for the state.

Delaware’s courts are a real business asset

As an economic engine, the corporate law sector brings in significant revenues to the state’s general fund in the form of taxes and fees. It also supports a legal community of well-paid lawyers, registered agents and other services catering to American business.

Perhaps at the top of Delaware’s attractive features is the Delaware Court of Chancery. Thanks to an historical stroke of good fortune, the 233-year-old court has become, arguably, the most specialized business court in the nation. Most of the modern corporation case law in the United States was written by the court, according to Bullock in his annual report. What’s more, the Delaware Supreme Court is also respected for its long history of business law decisions.

In 1792, the Second Delaware Constitution created a Court of Chancery or a separate court of equity whose roots date to 13th-century England. In the Middle Ages, litigants who felt they failed to get relief in the common law courts could petition the king for remedy. The monarch would turn to his chancellor to handle the matter. In the name of the king, the chancellor, who was often in the clergy and schooled in ecclesiastical or canon law, could grant remedies of any sort based on moral considerations or conscience.

From this foundation evolved the Delaware Court of Chancery, a court of equity or conscience. With the American Revolution, other states eliminated their courts of chancery, perhaps because of their association with the English monarch, Delaware went in the opposite direction.

Delaware’s innovative Court of Chancery

“When Delaware created its Court of Chancery in 1792, it contradicted a historical trend in eighteenth century America away from chancery court,” reads A Short History of the Court of Chancery, by William T. Quillen and Michael Hanrahan. “The absence of philosophical and political bias against chancery made Delaware’s political climate more agreeable to a court of chancery.”

Today, the Delaware Court of Chancery may hear all matters of equity or issues of fairness. It does not handle criminal or family law cases. It can issue temporary restraining orders or injunctions.

“The equity powers that it possesses are quite significant and that includes its injunctive powers,” says Charles Elson, former director of the Weinberg Center for Corporate Governance at the University of Delaware.

The court, with its limited jurisdiction, is concentrated on hearing highly complex business matters. The state’s legislature “may confer upon the Court of Chancery additional statutory jurisdiction,” according to the court’s website.

“In today’s practice, the litigation in the Court of Chancery consists largely of corporate matters, trusts, estates, and other fiduciary matters, disputes involving the purchase and sale of land, questions of title to real estate, and commercial and contractual matters in general,” says the court’s website.

The connection between courts and corporations

As a non-jury trial court, cases are heard by seven judges, with the chief judge the chancellor and the other judges called vice chancellors

The court’s first big corporate cases were heard starting about 1911, according to the court history. At least eight major corporate cases were litigated in the first two decades of the 20th century.

“The crafting of modern corporate law by tailored judicial decree had begun in earnest,” the history says.

The Delaware courts, including the Delaware Supreme Court, are also noted for shaping the business judgment rule. Under that rule, directors and officers are protected from liability if they maintain their duties of care and loyalty, acting independently in the best interest of the company.

While certain rulings have been criticized over the years Delaware’s courts have generally been considered neutral and balanced in deciding corporate disputes. Litigants have felt they got a fair hearing, Elson says.

Add to this a large body of lawyers specializing in business law. More than 500 lawyers, judges and academics belong to the section of corporation law of the Delaware State Bar Association, according to the bar association’s website. The section’s council and committees formulate and recommend “after approval by the DSBA, amendments to the Delaware General Corporation Law, the Delaware Limited Liability Company Act, the Delaware Revised Uniform Limited Partnership Act and the Delaware Revised Uniform Partnership Act,” the DSBA website says.

Can a state be too pro-business?

Yet, from the beginning the state has come under attack as being for sale and a maidservant to big business. Even as early as 1899, the state was criticized as a greedy little baby competing for corporate charters. An American Law Review article characterized Delaware as a “little community of truck-farmers and clam-diggers” pursuing corporate charters to fill its state coffers.

“…Little Delaware, gangrened with envy…is determined to get her little, tiny, sweet, round, baby hand into the grab-bag of sweet things before it is too late,” the article says.

After Delaware amended its corporation law in 1967, an article in the University of Pennsylvania Law Review depicted Delaware as in the business of selling its corporation law.

Litigants unhappy with the outcome of court cases have also attacked Delaware over the years. In the 1980s, Texas oilman T. Boone Pickens caused a stir over state legislation involving an anti-takeover measure.

“I hope Congress is aware of what’s going on in Delaware,” Pickens said in 1987, according to a UPI article.

Elon Musk, of course

More recently, billionaire businessman Elon Musk urged companies to abandon Delaware after the Court of Chancery rejected his $55 billion executive compensation plan, reportedly the largest pay package in corporate history.

“Never incorporate your company in the state of Delaware” Musk posted on X.

Still, Delaware, as it has since 1899, keeps its eyes on the golden goose.

A group of people in Delaware’s legal community have been concerned about a Delaware Supreme Court decision in April 2024 involving the fairness of a deal involving a reverse spinoff of IAC/InterActiveCorp from its controlled subsidiary Match Group Inc.

Criticism of the decision sparked concern about an exodus of companies. 

The state’s responded as it has historically to certain controversial court decisions. Legislation was introduced that provides safe harbor procedures for transactions or acts in which directors, officers or controlling stockholders and members of control groups “have interests or relationships that might render them interested or not independent with respect to the act or transaction,” the bill says.

“The recent legislation demonstrates Delaware flexibility in addressing new developments in the market,” said Lawrence Hamermesh, emeritus professor of corporate and business law at Widener University’s Delaware Law School.