Why do so many companies incorporate in Delaware?
The tax part is pretty inaccurate. If you use business IP and transfer it to Delaware you will not avoid California tax on income from that IP. The unitary business and formulary apportionment approach of California income tax (also the dominant approach of multistate income tax in other states) easily beats that strategy, by treating formally separate entities as one for taxation. The sort of income shifting described in the article works better in international taxation since there the dominant approach is a “separate accounting” aka separate entity approach.Indeed, even the Geoffrey case the article notes is famous for Geoffrey losing in South Carolina, and having its income taxed in that state.Nonbusiness income is taxed to commercial domicile, which does promote moving headquarters to a tax haven. But much less income is considered nonbusiness income than you’d expect, and further commercial domicile is a separate concept from place of incorporation.By far the dominant reason for Delaware as a corporate place of incorporation is its well developed corporate law and courts. It is more favorable to corporations in part, but not excessively so—VCs would not be pressuring corporations to incorporate in Delaware if it purely screwed shareholders at the corporation’s benefit.There are also estate planning and asset protection benefits of using Delaware (and certain other states) LLCs.