One of the first decisions founders typically need to make is where to incorporate their new company. It is an important question. It affects investor perceptions and the ease with which you are going to be able to conduct your business.
For startups headquartered in Washington, there are really only two choices: You can incorporate in Delaware or Washington. You might wonder which is better, or which to choose. I've laid out the best reasons to incorporate in either state below.
The best reasons to choose Delaware are:
- No one will ever ask, "Why didn't you incorporate in Delaware."
- A lot of the standard form documents that are available on the web and are widely accepted in startup circles (see, e.g., the Series Seed documents), are prepared for Delaware corporations.
- If you happen upon an investor not familiar with Washington corporations, you won't be forced to reincorporate in Delaware.
- If you move your company south, to Silicon Valley, being a Delaware company will make more sense than being a Washington corporation.
- There are certain provisions of Delaware law that are more favorable to company management than Washington corporate law.
- Delaware has a separate court system dedicated to corporate disputes.
- Delaware corporate law is updated more often than Washington corporate law.
- Again, if you move your company to another state, it will probably be easier to find a Delaware corporate lawyer in that state than a Washington corporate lawyer.
The best reasons to choose Washington are:
- It is less expensive to form and maintain a Washington corporation (about $600 a year to start, and the costs of Delaware go up over time relative to the costs of being incorporated in Washington).
- Washington corporate law is substantially similar to Delaware law, and in the event of any litigation Washington courts would likely look to Delaware court opinions as persuasive authority.
- If you run into a complex question of corporate law and you are incorporated in Delaware, you may have to retain a law firm in Delaware to assist you. This will probably wind up being more expensive than continuing to work with your Washington corporate lawyer.
- Microsoft is a Washington corporation, and it never held it back.
On balance, if you don't want to have to answer the question--Why didn't you incorporate in Delaware?--and you don't mind spending a little extra money, Delaware is the way to go. If you are frugal, and you don't mind answering the question, Washington is fine.