Should I incorporate my tech startup in Delaware or CA - what are the benefits

Asked about 5 years ago - San Jose, CA

This is a tech startup looking to which I am planning to expand to get VC funding in the future.

Attorney answers (4)

  1. Pamela Koslyn

    Contributor Level 20

    Answered . If you plan to seek VC and investors, then a "C" corporation is probably the right vehicle, rather than an LLC or other type of cprporation. DE is generally very business friendly, probably less so than CA, but if you plan to actually do business here, you'll have to qualify your corporation to do business here, whether as a foreign corporation organized in DE, or as a CA corporation.

    My Avvo colleague Dana H. Shultz in N. CA is very highly rranked and specializes in high tech startups, so I recommend him to you.

    Dana Howard Shultz
    Piedmont, CA 94611
    Office: 510-547-0545

    Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

  2. Steven Alan Fink

    Contributor Level 20

    Answered . My colleague is correct. However, you may be better off just forming the corporation in California and only paying one set of filing fees and taxes.

    As California is an at-will employment state you can terminate employees for any reason or no reason, just not an improper reason such as age, race, sex, pregnancy, etc. Employees compensated at a higher rate tend to be older, leaving you potentially exposed to an age discrimination claim if employee is over 40. If this is a true financial hardship you will win the claim. You can also speak to the highly compensated employee and see if they will voluntarily reduce their pay in order to keep their hours.

    Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

  3. John M. Kaman

    Pro

    Contributor Level 20

    Answered . The issue you should think about is not which state is more business friendly or will allow you to screw your employees. The issue is corporate governance and what each state prescribes as a minimum to have and operate a valid corporate. DE is by far more lax than CA but as Mr. Fink notes having to pay fees only in one state, CA, may give a small edge to CA.

    Ms. Koslyn is of course correct that if you want to grow and may seek venture capital a C corp is the only way to go.

  4. Dana Howard Shultz

    Contributor Level 20

    Answered . The link below is to a blog post on precisely the issue that you have raised.

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