Corporate Law

Beyond the Borders: Delaware’s Benefits for International Business

Delaware has long been the preeminent jurisdiction of organization in the United States for all types of business entities. But Delaware’s business statutes are also attractive to foreign businesses seeking a home for their U.S. business ventures. Those statutes are regularly reviewed and updated, with important input from practicing attorneys who specialize in Delaware business entities. [See Delaware’s Sound and Enabling Statute.] Delaware enables business owners to create entities through a relatively simple and efficient process. Delaware’s Secretary of State has refined its operations to meet international quality standards, The State provides expedited processing of documents and accepts filings electronically, allowing for fast formation of entities. The Secretary of State even offers a “Global Filing Service” enabling—with advance notice—formation of international entities on weekends or U.S. holidays.

Delaware’s business statutes generally provide a number of advantages to international businesses. Delaware law also permits and provides efficient procedures for business combinations and other transactions, including mergers, transfers, and conversions.

Delaware provides a number of alternative methods by which business combinations can be effected, including mergers and asset sales. Delaware also allows for business combinations with a wide variety of entities, including foreign and domestic entities. No state-level judicial or regulatory approval is needed before Delaware entities may enter into business combinations with other entities. Further, because the Delaware statute provides clarity on these transactions, international investors are usually able to obtain legal opinions regarding the post-transaction nature of the resulting entity.

By comparison to many international company laws, which may involve more regulation or require more onerous procedures, such as “schemes of arrangement,” Delaware’s statutory methods for completing mergers and acquisitions transactions are flexible and have been tested by actual, efficient and effective use over many generations. For that reason, even many American corporations domiciled in other U.S. states have reincorporated in Delaware specifically because they expect to engage in a high level of mergers and acquisitions activity and view Delaware as the state whose law most effectively facilitates such transactions.

In addition, Delaware generally eliminates personal liability on the part of investors for the debts and obligations of their business entity. Delaware law also allows for the limitation of fiduciary liability for breaches of the duty of care in certain situations, as well as broad indemnification for liability, providing more certainty and less exposure for directors and officers.

Delaware provides substantial flexibility for parties in international commerce to form business entities other than corporations, including limited liability companies and limited partnerships that may be appropriate for specialized situations. [See Delaware’s Alternatives to Corporations.] Delaware statutes for these alternative entities are based on the principle of freedom of contract. Delaware alternative entities accordingly allow their owners to determine whether (if at all) fiduciary duties apply and to establish by agreement the parties’ rights and obligations.

Owners of Delaware business entities may structure their entities to fit their unique situations because Delaware law permits multiple classes of ownership interests, which may each have different control rights or economic rights. Such structural flexibility is especially advantageous for joint venture transactions, where parties may not have equal ownership interests.

Delaware does not require any business activities or offices to be located in Delaware, other than a registered agent. Owners and managers need not be U.S. citizens. Management and investors can vote or take action by written consent from anywhere in the world, without the requirement of a formal meeting; this written consent may be made by electronic means.

If and when disputes arise, Delaware business entities enjoy efficient procedures for dispute resolution. For example, the Delaware courts can exercise jurisdiction over managers of Delaware entities, giving investors access to the nation’s premier business courts. [See Litigation in the Delaware Court of Chancery and the Delaware Supreme Court.] The Delaware courts also provide Delaware entities with a number of options for those preferring dispute resolution outside of public and expensive litigation. Within the last decade, for example, Delaware adopted a statute broadly giving parties to a joint venture involving any sort of development, sharing, or joint use of intellectual property the ability to resolve their disputes in Chancery, so long as one party is a Delaware entity, even if the dispute is only a claim for money damages that would ordinarily go to a jury. This statute, the other ADR options available, and Chancery’s traditional ability to decide cases swiftly and cost-effectively make a Delaware entity ideal as a party to an international joint venture or to major international commercial contracts generally.

If joint venture parties use Delaware subsidiaries to carry out a joint venture or other commercial contract in an emerging market with less-developed dispute resolution systems, they can choose to have their disputes decided in the Delaware Court of Chancery, with the choice of means being left up to them to decide in their joint venture contract. [See Delaware’s Options for Alternative Dispute Resolution.] Consistent with Delaware’s policy of respecting contracts, the Delaware courts will generally enforce choice of forum and choice of law agreements for other jurisdictions, including those outside the United States. If and when a judgment is entered in a foreign jurisdiction, enforcement in Delaware may be available under Delaware laws recognizing foreign judgments.

The ease of creation, flexibility in management and ownership structures, limitation of liability, and efficient and fair procedures for dispute resolution, are just a few of the benefits enjoyed by business entities organized in Delaware. These benefits make Delaware a desirable place to organize any business, including those headquartered outside of the United States.

Incorporate your U.S. office today by contacting Delaware’s Concierge Team for International Business

For information on the law firms and corporate service providers that authored these articles, please visit our acknowledgements page. The State of Delaware is grateful for their assistance.

Legal Disclaimer: The materials contained herein are intended to provide information in regard to the subject matter covered. The Delaware Department of State is not engaged in rendering legal, accounting, or other professional services. If legal advice or other professional assistance is required, the services of a qualified professional should be sought.

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