Why a Million Companies Call Delaware Home

Delaware has fewer than a million residents, yet it is the legal home of more than two million business entities, including a commanding majority of the companies on the Fortune 500. For a state smaller than most metropolitan counties, that is a remarkable concentration of corporate America, and it did not happen by accident.

The usual shorthand — that companies incorporate here to dodge taxes — misses the point. A business that operates in California still pays California taxes; incorporation in Delaware does not change that. What Delaware sells is something less tangible and far more valuable: predictability. A century of corporate case law means that when a dispute arises, lawyers can tell their clients with unusual confidence how a Delaware court is likely to rule.

At the center of it all sits the Court of Chancery, a business court without juries, staffed by judges who do nothing but corporate and equity law. Its opinions are studied in law schools nationwide and effectively set the rules for how boards, shareholders, and executives treat one another across the country.

For the state, the arrangement is lucrative. Franchise taxes and filing fees on all those entities fund a substantial share of Delaware's budget without touching residents' wallets. For companies, the annual fee buys access to the most sophisticated corporate legal system in the United States. It is a bargain both sides have kept for more than a hundred years.