Miter is headquartered in California with only California-based employees (as of this writing) and no plans to establish an office outside of the Bay Area in the immediate future. Why did Dave and I choose to incorporate in Delaware instead of California?
In one sense, it’s a slam dunk - corporations are the state crop of Delaware.
Like corn is to Iowa, sheep are to New Zealand, and dogs are to San Francisco, businesses are what Delaware has devoted itself to raising and nurturing. There are over a million registered corporations in a state that has 980,000 residents, including over 50% of publicly traded companies and over 60% of the Fortune 500.
This maniacal focus on business registration as an industry comes with a number of benefits. There are specific courts dedicated to resolving business disputes and outcomes are considered to be highly predictable. Every corporate attorney in the US is well-steeped in Delaware law and every investor knows what to expect. There’s a very real sense in the marketplace that to be a grownup startup founder (if there is such a thing), you should be smart enough to incorporate in Delaware and at this stage of a business, every little bit of cred helps.
We should also be clear-eyed about the social costs of Delaware’s pro-business laws. One is that while the Cayman Islands gets all the good press, Delaware is arguably the world’s largest tax haven. Its laws also take a decidedly pro-management stance as opposed to a pro-owner stance (since the company management mostly chooses where to maintain corporate registration), allowing for a number of anti-shareholder and anti-takeover provisions that many economists argue lead to pernicious market distortions.
Incorporating in California certainly has its benefits. From a purely practical perspective, if you are incorporated in Delaware but headquartered in California, you will have to file with (and pay taxes to) California anyway. Also, the state is generally friendlier to shareholders and employees and is much more open to pushing companies on topics such as diversity.
That said, California law changes a lot. There are ballot propositions, state laws, ballot propositions to overturn state laws… it’s a lot to keep track of while you’re trying to get your business off the ground. Also, there are a number of provisions that add unnecessary complexity - I challenge you to read through and understand this description of cumulative voting for board seats as required for all companies incorporated in California. Bonus points if you can come up with a situation in which it will yield a more positive outcome for your business.
Ultimately, when it came down to choosing a jurisdiction, it was pretty straightforward. Most of the Miter’s potential near-term owners (Venture Capital Funds or Angel investors) prefer the predictability of Delaware law. Incorporating in Delaware is not inherently anti-employee, since the laws of the state of employment still apply. As an internet-based business, Delaware law positions Miter well to handle the complexities of doing business not only across the US but also in highly regulated jurisdictions such as the EU. Finally, it is a super-simple process.
Delaware Corporations aren’t for everyone. If you’re only going to do business in one state, you should probably stick with that state. If you’re doing a cryptocurrency startup, Wyoming seems to be the thing to do. But in general, there are a lot of difficult decisions to make when starting up a business - in this instance the “no one ever got fired for choosing IBM” approach has a lot going for it.