I am republishing this article from The Review, because it is a partial answer to a question we receive every day.... Why Delaware? As a Delaware Lawyer I try to answer in a few sentences what has taken generations to develop, a system of efficient and predictable business laws and the Chancery Court to apply them in a uniform and predictable way. While the quotes of me from this reporter aren't perfect, they are close.
As reported in The Review, by Stephen Mangat, on March 19, 2004 at page A2:
For the third year in a row, corporate attorneys rated Delaware as the most fair and reasonable state in which to do business litigation, but the recent wave of corporate scandals are having their impact on the business-friendly court system.
A survey released last week by the U.S. Chamber of Commerce polled more than 1,400 corporate attorneys on issues regarding class actions, punitive damages, timeliness of decisions on judgment and motions to dismiss, competence and impartiality of judges and jury fairness.
Delaware ranked first in all categories other than jury predictability and jury fairness, in which the state ranked third.
Larry Sullivan, a Newark corporate attorney, said there are several factors as to why Delaware has the best business courts.
"Because Delaware is a small state, the courts are not overburdened," he said. "Second, Delaware's Chancery Court is specialized in business and corporate law, and most of the Delaware Supreme Court justices come from the Chancery Court, so the judges know business law very well."
"Finally, Delaware’s law itself is fairly streamlined, which makes the courts more predictable; and predictability is a huge factor in litigation because litigation, by nature, is a big risk."
Sean McBride, vice president of communications for the U.S. Institute for Legal Reform, said Delaware’s high ranking gives the state an advantage over the lower-ranked states in attracting investments.
"Businesses tend to be interested in building and expanding in states whose courts have a fair and just environment," he said. "They then to factor in the ability to expand and grow when they choose where to incorporate."
Sam Glasscock, Master in Chancery for the Delaware Chancery Court, said companies incorporate in Delaware because of the business-friendly atmosphere of the court system.
The judges have unparalleled expertise and a cast amount of legal precedent, he said, which accounts for the predictability.
The state used to take a laissez-faire approach to businesses, placing faith in the hands of directors to act reasonably and in good faith.
However, recent scandals have caused the courts to look more closely at the way business is done.
Sullivan said there is a heightened sense of awareness and sensitivity in the court system.
"For company executives and directors, there is definitely a higher level of scrutiny, not a huge difference, but a measurable one," he said.
The new approach taken by the courts could affect the numbers of companies that base themselves in Delaware, but skeptics believe Delaware’s reliance on taxes and fees generated by companies incorporated in the state will make the change in behavior only temporary.
Sullivan said that although all branches of government operate on a budget, the judicial branch is not affected by the concerns of the legislative and executive branches.
"The judicial branch is fiercely independent. Delaware courts in particular are very independent," he said. "I don’t anticipate any consideration by chancellors and judges for any budgetary concerns."
