The Corporate Capital, Why Your Credit Card Is a Delaware Company

Somewhere in your wallet right now there is almost certainly a card, or a receipt, or a loan document that names a corporation incorporated in the state of Delaware. More than one million business entities are registered here, more corporations than people. Roughly two-thirds of all Fortune five hundred companies and more than half of the companies listed on the New York Stock Exchange are Delaware corporations, even if they have never conducted a day of business inside state lines.

This concentration of paper companies did not happen by accident. It began in eighteen ninety-nine, when Delaware's general assembly rewrote its corporate code to be the most permissive in the nation. New Jersey had long held that distinction, but when New Jersey tightened its laws in nineteen thirteen under pressure from Progressive Era reformers, Delaware, with its code already in place, was ready to fill the vacuum. The new code gave corporate directors extraordinary flexibility: they could issue stock in virtually any structure they chose, meet once a year wherever they liked, and rely on Delaware courts to interpret corporate disputes.

The courts are, in fact, the key. Delaware's Court of Chancery has been hearing corporate disputes without a jury since seventeen ninety-two. Its judges are specialists in corporate law rather than generalists, and its body of precedent has accumulated over more than a century into the most sophisticated and predictable corporate jurisprudence in the world. Lawyers who advise companies going public, merging, or being acquired tell their clients the same thing generation after generation: incorporate in Delaware. You will know what the rules are, and the rules will not change on you.

The revenue this generates is substantial. Franchise taxes and fees paid by incorporated entities account for roughly one-quarter of Delaware's total state revenue in a typical year. A small, flat state of about one million people runs a significant portion of its government on the filing fees of corporations that exist here only on paper.