My startup is based in California or another non-Delaware state. Why can’t I incorporate there?

In addition to losing many of the benefits that are discussed in the FAQ "Why should I incorporate as a Delaware Corporation?" there can be other drawbacks if you choose to incorporate your startup in California or another non-Delaware state.

Administrative Efficiency. California has a Secretary of State’s office which, when compared to Delaware, has slower response times, can be more onerous to deal with, has a less established body of corporate law, and generally more rigorous statutory shareholder approval requirements for amending the charter and approving sale transactions. Each state is different, but many (if not most) are similar or worse to California when it comes to filing times and lack of established corporate law.

Delaware Standard Documents. Standard venture capital investment documents (usually based on forms maintained by the National Venture Capital Association) are formulated for Delaware corporations and it can be costly and time consuming to customize these documents to comply with laws in other states.

Investor Preference. For these reasons, many Venture Capitalists only invest in Delaware corporations and will require non-Delaware entities to convert to a Delaware corporation prior to investing. Because the conversion process can be expensive and time-consuming, it is generally recommended to form your startup in Delaware if there is even a slim chance you will want to raise venture capital down the road.

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