[enduser]

In general, investors like the businesses they invest in to be incorporated in strong, stable countries with stable governments in jurisdictions with a long history of favorable corporate case decisions. Delaware is the top choice not because it is the most favorable tax-wise, but because of the history of corporate cases tried in Delaware courts. Contrast Nevada, which has somewhat more favorable tax and privacy situations for corporations but a corrupt legal system (hello, casinos). Nobody wants to invest in Nevada corporations.

If you take your startup offshore, where will the court cases happen if things go wrong?

[JimmyL]

Delaware has the Delaware Court of Chancery (http://en.wikipedia.org/wiki/Delaware_Court_of_Chancery), which is where most business-related issues are heard in the state. It's got a long and established record of well-understood precedents, professional management, and no juries. This make is much easier for corporate lawyers to figure out how a case will go, and then react accordingly.

It's slightly favorable tax-wise (it's got a relatively simple code) and had a high cap on interest (which banks can no longer export, IIRC) - but mostly it's the judicial system that makes it popular.

[grandalf]

excellent points. This is why most firms choose Delaware.