Every high growth startups asks us the same question - should we incorporate in Nevada or Delaware? As was drilled into our heads in business school, Delaware is historically regarded as THE business-friendly state. Many of the largest and most successful corporations in the country are headquartered in Delaware. The state is known for its business-friendly laws, a solid history of business-friendly legal precedent (court decisions), and a chancery court that handles only business matters in a more skilled, expeditious manner than the general court. Nevada, to its credit, has adopted Delaware business statues into the Nevada Revised Statutes to provide the foundation for a business-friendly environment to be built out further with court decisions. In Nevada, we also have a business court which, similar to the Delaware chancery court, handles cases more quickly and with more business acumen than the general docket. The one thing Nevada lacks, which is typically the tipping point for investors, is the legal precedence – court decisions concerning the business statutes.
Nevada doesn't have the same body of case law simply because we're a much younger state. We haven't had the time to run these types of disputes through our courts so they result in decisions that guide future disputes.
Therefore, sophisticated investors often prefer Delaware because of the known legal precedent.
What side do I take in this debate? As a native Nevadan, I’m certainly a big proponent of developing the business community in my home state.
However, I fully recognize that no one wants to be a test case that helps build our case law. Additionally, investors are really the rudder that guides the startup ship. So, if the client has a principal investor but hasn’t yet incorporated, the client should ask the investor’s preference.
Keep in mind, though, that if a company doing business in Nevada incorporates in Delaware, that company will still have to register as a foreign entity doing business in Nevada and pay all the same filing fees as if it incorporated here.
Gina Bongiovi, JD/MBA
Attorney, Managing Partner
Bongiovi Law Firm
Consigliere to Startups and Small Businesses Visit bongiovilaw.com or call (702) 485-1200(702) 485-1200 for information.