Nevada vs Delaware – The Great Debate
It’s a question almost every startup client asks – should we incorporate in Nevada or Delaware? This is becoming a hotly contested debate among lawyers, investors, and startups. As was drilled into your head in business school, Delaware is a very business-friendly state. It’s known for its business-friendly laws, a solid history of business-friendly legal precedent (court decisions), and a chancery court that handles only business matters in a more skilled, expeditious manner than the general court.
Nevada, being pretty quick on the uptake, has basically copied and pasted Delaware statues into the Nevada Revised Statutes to provide the foundation for a business-friendly environment to be built out further with case law. We also have a business court which, similar to the Delaware chancery court, handles cases more quickly and with more business acumen than the general docket. The one thing Nevada lacks, which is of utmost importance to investors, is the legal precedence – court decisions concerning the business statutes. Why don’t we have the same case law? Basically because Nevada is a much younger state than Delaware and hasn’t had nearly as much time to develop its case law. This means that many sophisticated investors aren’t convinced by the “Go Nevada” sales pitch and prefer Delaware because of the known legal precedent.
So what side do I take in this debate? As a native Nevadan, I’m certainly a big cheerleader for businesses incorporating here. However, I do recognize that no one wants to be a test case that helps build our case law. Also, investor preference is often the rudder that guides a startup’s ship. So, if the client has a principal investor but hasn’t yet incorporated, I’ll advise the client to ask the investor’s preference.
Keep in mind, though, that if a company doing business in Nevada incorporates in Delaware, that company will still have to register as a foreign entity doing business in Nevada and pay all the same filing fees as if it incorporated here.