Keeping Filings At Home: Top 10 List

This article outlines several considerations that companies and attorneys often use to determine where to incorporate a corporation or organize a limited liability company. Please note that the following considerations represent general issues and may not necessarily address the needs of a company in a particular situation. In addition, this article is not comprehensive and there may be important considerations not described below.

For purposes of drafting this article, we have limited the discussion of foreign jurisdictions to Delaware. Several jurisdictions, including Nevada, have attempted to displace Delaware as the foreign state of choice for new entity filings, but Delaware continues to be the jurisdiction of choice for entities looking for a foreign jurisdiction. 50% of the Fortune 500 companies are incorporated in Delaware.

. For a Secretary of State’s office to be competitive with Delaware, it must make the initial and ongoing filing processes easier, quicker and more cost effective. The rise of the Internet filing and search processes has helped to level the playing field and provide “home state” Secretary’s of State with opportunities to convince local companies to file locally.

Some factors to consider when comparing your home state to Deleware:

1. Ease of General Use
   • Cost and ease of access to online records database for organizational and UCC filings
   • Amount and quality of company information provided online
   • Acceptance of credit cards online
   • Existence of online proof of same day filing
2. Ease of Initial Filings
   • Ability of an entity to incorporate or organize quickly
   • Ability of the Secretary of State to accept fax signatures or online filings
   • Existence of expedited filing procedures for initial filings
3. Ease of Subsequent Filings
   • Scope of post-incorporation filings that are required
   • Ability to file annual reports and UCC Financing Statements online or via fax
   • Expedited procedures for post-incorporation filings
4. Cost of Initial Filings
   • Amount of initial filing fees
   • Additional cost of filing as foreign entity in home state if domiciled in DE
5. Ongoing Costs
   • Annual fees charged to entity
   • Annual cost of registered agent if domiciled in DE
   • Annual cost of foreign entity filing in home state if domiciled in DE
   • Existence of state corporate income taxes
6. Local State Laws
   • DE has well developed corporate case law
   • Counsel needs to be familiar with difference between DE and local state laws (substantive as well as procedural corporate laws)
7. Local Court System vs. DE Court System
   • Chancery Court in DE is business-only court
   • Some states have created state business court to replicate Chancery Court
   • Some state judiciaries are anti-business and may favor plaintiffs, employees, minority shareholders, creditors vs. DE more business friendly
   • If domiciled in DE, can be sued in DE, high cost of DE defense
8. Operations of Company
   • If operations in multiple states, foreign entity filings will already be required; may reduce importance to remaining local
9. Capital Needs
   • Institutional investors may prefer DE as familiar jurisdiction
   • If all owners from same state may be indifferent to DE filing
   • If owners from multiple states, DE often seen as neutral middle ground
10. Corporations vs. LLC
    • DE corporate law well developed
    • The difference between DE and local laws may not be as pronounced for LLC’s
    • Many state LLC laws are based on the Model LLC Act, are updated frequently by legislatures and may be more flexible than DE LLC statute

_{Thomas I. Lyon is a member of the Business Section of Manning Fulton & Skinner, P.A. in Raleigh, North Carolina. Tom has concentrated his practice in the areas of corporate law, corporate finance and securities. Mr. Lyon regularly represents buyers, sellers, and investors in domestic and international acquisitions, leveraged buyouts and other business transactions. Tom has been named as a “Legal Elite” and “Young Gun Under 40” by Business North Carolina and a “Superlawyer” by Charlotte Magazine and Law & Politics on numerous occasions. Mr. Lyon received his B.S. degree, with distinction, from the Kenan-Flagler Business School at UNC-Chapel Hill and his J.D. degree, cum laude, from the University of Kentucky, where he was Order of the Coif.}

www.manningfulton.com