Many corporations incorporate in Delaware because: O Delaware, unlike most other states, even permits the incorporation of businesses that have not yet started to operate. O Delaware laws ordinarily do not restrict the powers and actions of management. O Delaware does not allow derivative suits. O Delaware corporations need not pay state taxes. O Delaware pays promoters a finder's foo
Many corporations incorporate in Delaware because: O Delaware, unlike most other states, even permits the incorporation of businesses that have not yet started to operate. O Delaware laws ordinarily do not restrict the powers and actions of management. O Delaware does not allow derivative suits. O Delaware corporations need not pay state taxes. O Delaware pays promoters a finder's foo
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:### Why Many Corporations Incorporate in Delaware
There are several reasons why many corporations choose to incorporate in Delaware:
1. **Delaware, unlike most other states, even permits the incorporation of businesses that have not yet started to operate.**
* Delaware allows businesses to incorporate before they have begun any operations, providing flexibility for future planning and organization.
2. **Delaware laws ordinarily do not restrict the powers and actions of management.**
* The state's laws are generally more favorable and less restrictive towards the powers and actions of corporate management, giving directors and officers more freedom in running the company.
3. **Delaware does not allow derivative suits.**
* This statement is incorrect. Delaware does allow derivative suits, which are lawsuits brought by shareholders on behalf of the corporation against third parties—often the corporation's own executives or directors.
4. **Delaware corporations need not pay state taxes.**
* This statement is incorrect. Delaware corporations must pay state taxes. However, the state offers a favorable tax structure, especially for businesses that operate outside of Delaware.
5. **Delaware pays promoters a finder's fee.**
* This statement is incorrect. Delaware does not pay promoters a finder's fee for incorporating companies in the state.
Understanding these reasons provides insight into why Delaware is a preferred state for incorporation, particularly due to its flexible and favorable legal and tax environment for businesses.
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