Incorporation in New York or Delaware?

I’m often asked whether a newly formed New York-based business should incorporate (for a corporation) or organize (for an LLC) in New York or Delaware.  If the company will actually be doing business in New York, there is no advantage from the perspective of filing fees of using Delaware, because the company will then have to qualify to do business in New York and therefore pay two states’ fees.  In many cases, my advice is to simply go with New York, but there are several factors that may, depending on the situation, argue in favor of Delaware:

  • NY-signIf the company plans to seek venture capital investment in the near future, and certainly if it’s planning to go public, Delaware is the preferred jurisdiction among the investor base.  Having said that, it is relatively straightforward to migrate the business from New York to Delaware if needed.
  • Delaware’s statutory law applicable to both corporations and LLCs are more liberal and deferential to the parties’ freedom of contract than the New York counterparts.
  • If the entity ends up being involved in litigation, Delaware has a cadre of corporate law specialist judges in the Court of Chancery that is thought to be sophisticated and business savvy.  However, this relates to the law regarding business entities.  Litigation about breach of contract and similar matters is often governed by New York law, even for Delaware entities, and certainly New York courts are more than qualified to deal with this.
  • As a mechanical matter, the Delaware Secretary of State’s office is easier to deal with and more responsive than the New York Department of State when it comes to making filings quickly, seeking good standing certificates, etc.

Unless one of these factors is particularly important in your case, it’s usually best to go with the simple and lower-cost route of incorporating or organizing in New York.