[travisp]

I'm surprised to see the recommendation to incorporate in Delaware.

Downsides to incorporating in Delaware:

1) You still pay full taxes in the state you are operating in (you don't get to avoid taxes by incorporating somewhere else).

2) If someone sues you, they can choose to sue you either in Delaware (forcing you to travel to Delaware to defend yourself), or your local jurisdiction. The Delaware courts can be friendly to business, simply because they are often not jury based, but since you're not operating there, they don't have to sue you in those courts. And, the person suing you gets to choose the place they are most likely to win in.

3) Many states will require you to register as a "foreign corporation", possibly for more money than just incorporating there.

Yes, you can structure your company more flexibly, but are you really using some complicated structure that is only allowable in Delaware?

Edit: Just in case I'm misinterpreted, I do think this is a valuable post as a whole.

[ryanroberts]

My recommendation is always home state OR Delaware--the post is what I would personally do. I'd rather deal with the administrative issues early than reincorporate later.

Also, in true hacker tradition, it's probably easier to hack the available free startup legal document sets if you are a Delaware corporation. Most if not all the docs assume the startup entity is a Delaware corporation.

[grellas]

Great post, Ryan! It is always easy to quibble with this or that aspect of how to launch a startup legally, but this is a great roadmap for founders to get them started in their thinking and to keep them focused on the right issues. It is quite consistent with the rest of your high-quality blog.

[ryanroberts]

Thanks George. We need to catch up soon!

[brezina]

awesome to have you in this community Ryan. Legal stuff is my least favorite part about operating a startup. It is great to have the perspective of someone who is passionate about it. Also, this is great away for you to get involved with great startups.

[gyardley]

He's assuming you're going to raise money.

VCs and their lawyers prefer Delaware incorporations because everything's business-friendly, there's well-established case law, and therefore things like financings are easier to do.

[travisp]

That's only part of what he says, and the rest doesn't seem really valid to me.

He said:

>1. Flexible Laws.

Yes, this is slightly more attractive for VCs. But I imagine, unless you are in an odd state, that VCs can handle corporations incorporated in, say, California.

>2. No Wildcard Juries.

If you're sued in Delaware, which you don't have to be.

>3. Precedence = Less Litigation.

Ditto.

>4. It’s Free! (Well, almost)

Foreign corporation registration may end up making it more expensive.

> A little bit cheaper than California ($100..but they nail you for $800 every year in franchise fees)

You don't get out of California franchise fees by incorporating somewhere else. See California's Franchise Tax Board document FTB 1063.

>5. Privacy

Since you may have to register as a foreign corporation, this anonymity in Delaware may be moot.

[freetard]

What if you live outside of the US?