Delaware, like the state of Nevada is a well-known corporate haven.  Many major corporations are incorporated in Delaware.  If you elect to form your corporation in Delaware, you may also be required to use a Delaware registered agent to act upon your corporation's behalf.

Organizers of a business generally have a choice on where to incorporate the business.  In the United States, corporations are generally organized pursuant to state law, rather than to federal law.  Moreover, a business need not establish or maintain a physical presence in a state in order to incorporate under the state's general corporation law.  If the corporation transacts business in a state other than the state of incorporation, it is considered by the other state to be a foreign corporation.  

In the United States, states generally, but not invariably, follow the internal affairs doctrine.  "The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairs...because otherwise a corporation could be faced with conflicting demands."  Under the internal affairs doctrine, courts will generally apply the law of the state of incorporation to the internal affairs of the corporation.

States can derive revenues through the incorporation of businesses.  These revenues include direct payments to the state in the form of filing and other fees.  The state can also receive revenues indirectly through businesses (law firms, resident agents, accounts and other service providers) to corporations.  The Nevada legislature has tried to make Nevada an attractive alternative to Delaware as a state of incorporation.  In many instances, it has tried to "out Delaware" Delaware.

However, one of the reasons corporations have sought to incorporate in Nevada or Delaware is that the corporation does not have to declare its ownership.

Nevada's laws offer flexibility to a board of directors in managing the affairs of a corporation and permit management to put in place strong protection from hostile takeovers. It also provides extremely strong protection against piercing the corporate veil, where a corporation's owners can be held responsible for the actions of a corporation. As of 2007, in all of the court cases involving a corporation, in a period of twenty years, in only one case has the piercing of a corporate veil been permitted under Nevada law, and in this single case the reason was because of fraud on the part of the corporation's owners.

Because the provisions on piercing the corporate veil are corporate governance matters, if a corporation chartered in California, for example, (which has much more creditor friendly provisions permitting this) is sued anywhere, California law applies, but if a corporation chartered in Nevada, which operates only in California, is sued in a California court, the California court would use Nevada law in determining what the requirements permitting this (Note:  Foreign corporations, including those, for example, incorporated in Nevada, may be subject to California Corporation Code 2115).  On the issue of piercing the corporate veil, Nevada law applies (which is much more supportive of the corporation's interest), even if the corporation only operates in California and has never had any other contact with Nevada and is simply chartered there as a "flag of convenience."

Nevada (unlike other states) permits the corporation's articles of incorporation to vest authority to adopt, amend, or repeal bylaws exclusively in the directors, so that shareholders would not be able to change the corporation's bylaws.

Disputes over the internal affairs of Nevada corporations are usually filed in the Nevada District Courts, from which judgments can be appealed to the Supreme Court of Nevada, the state supreme court.  Because of the large number of corporations chartered in Nevada, the courts in that state are more focused on the application of corporate law than the courts of most states.  Nevada's courts are developing a strong body of case law that serves to give corporations and their counsel guidance on matters of corporate governance, although Delaware and some other states have a larger bod of such case law.

Have more questions? Submit a request


Please sign in to leave a comment.
Powered by Zendesk