100 YEARS OF COMMITMENT TO THE DEVELOPMENT OF DELAWARE CORPORATE LAW

BY ALLISON L. LAND, ESQUIRE, ARTHUR R. BOOKOUT, ESQUIRE, AND HANNAH ROSE HINTZ, ESQUIRE

It’s no secret that the State of Delaware has long been regarded as the leading U.S. jurisdiction for corporate formation. More than half of all U.S. publicly traded companies, and 66 percent of the Fortune 500 companies, are incorporated in Delaware,1 providing ample evidence of Delaware’s preeminence. Some practitioners, however, may not be aware of the primary factors that have contributed to Delaware’s ascent to, and maintenance of, this leadership role over the last century, which are summarized below.

The coordinated efforts of Delaware’s three branches of government are primary contributors to Delaware maintaining its position at the forefront. First, the General Assembly, drawing on the contributions and corporate law expertise of its bar association and practitioners, continuously reviews and updates the Delaware General Corporation Law (the “DGCL”) annually to address developments in legal, economic and market conditions to keep the DGCL “state of the art,” but retaining its hallmark construct as a flexible statute that permits private ordering in many respects. While a significant revision to the DGCL enacted in 1967 ushered in the era of modern corporate law, as noted by former Chancellor of the Court of Chancery Andre G. Bouchard, the 1967 revision also engendered a “process of constant reexamination and self-improvement.” 2 This “rigorous process of annual review”3 of the DGCL, typically spearheaded by the Corporation Law Council of the Delaware State Bar Association (the “DSBA”), reflects Delaware’s steadfast commitment to its corporate constituents. As a result, the DGCL often serves as a benchmark for the corporation laws of other U.S. jurisdictions, as evidenced by amendments enacted in such jurisdictions to their corporate laws to reflect amendments made to the DGCL, often shortly after such DGCL amendments are adopted (and sometimes duplicating the corollary DGCL provisions verbatim).

More than half of all U.S. publicly traded companies, and 66 percent of the Fortune 500 companies, are incorporated in Delaware, providing ample evidence of Delaware’s preeminence.

Second, the Delaware Court of Chancery, frequently referred to as the country’s leading business court, with its bench of sophisticated and experienced jurists, has a well-developed body of case law addressing a wide variety of corporate issues of all shapes and sizes. Delaware’s judiciary is considered by some to be “the most knowledgeable corporate judiciary in the nation.” 4 This expertise and wealth of case law precedent provide Delaware’s corporate constituents (including their boards of directors and management) with a benchmark on which to base their actions and make their determinations, and offer a degree of predictability unavailable in many other jurisdictions as to the outcome of disputes involving corporate law issues, including governance matters, stockholder disputes and takeover defenses. Decisions of the Court of Chancery are often cited by courts in other jurisdictions (including when there is no case law precedent in such other jurisdictions on the matter in dispute), and claims raised before the Court of Chancery may be decided on an expedited basis when circumstances warrant, reflecting another significant advantage over the business courts of many other jurisdictions.

Decisions of the Court of Chancery may be appealed directly to the Delaware Supreme Court, resulting in a significantly shorter appeals period. Justices of the Delaware Supreme Court are also very so- phisticated and knowledgeable of matters of corporate law, and often include highly skilled former practitioners with corporate law expertise (including members of the Court of Chancery), thus providing a unique blend of expertise and speed.

Finally, the Division of Corporations of the Delaware Secretary of State’s office, housed within the executive branch of Delaware’s state government, is another significant contributor to Delaware’s preeminence. The Division of Corporations and its customer-friendly staff are responsible for maintaining the official records of a Delaware corporation, including its incorporation documents, and working with representatives of corporate constitu- ents on a range of other matters, including recording and certifying any filings, such as merger certificates, by Delaware corporations and Uniform Commercial Code filings, and addressing matters relating to the payment of franchise taxes and annual reports. The Division of Corporations is itself a leader among its peers, best known for its customer service; the speed in which it can process, record and certify expedited filings to facilitate the consummation of a transaction; and its creativity in developing solutions to address timing and other issues that often arise in complex transactions. This stands in contrast to the processing time for corporate filings in certain other states, which can sometimes take weeks (or even longer) to become effective.

The continuous efforts of Delaware’s three branches of government, as described above, in conjunction with the input and support of the DSBA and its members, have enabled Delaware to develop and maintain its long-standing position and unique status over the last 100 years as the preeminent U.S. jurisdiction for incorporating business entities.5

Notes:

1. About the Division of Corporations, DEL. DIV. CORPS., https://corp.delaware.gov/aboutagency.

2. Andre G. Bouchard, Letter from Chancellor Andre G. Bouchard, in COURT OF CHANCERY OF THE STATE OF DELAWARE, 1792-2017 11, 12 (Delaware Court of Chancery, 2017).

3. Id

4. John L. Reed & Frank E. Noyes, Incorporate in Delaware? Yes, DIRS. & BDS., Winter 2001, at 33–36.

5. P.M. Vasudev, Corporate Law and Its Efficiency: A Review of History, 50 AM. J. LEGAL HIST. 237, 275–276 (2008).

Allison Land is a partner at head of Skadden’s Wilmington M&A/Corporate Group, and is a recognized leader in the area of Delaware corporate and alternative entity law. Allison regularly counsels clients and colleagues in all areas of Delaware corporate and alternative entity law and is the present Chair of the Corporation Law Council of the Delaware State Bar Association’s Corporation Law Section. She can be reached at Allison.Land@ skadden.com.

Art Bookout is a Counsel in Skadden’s Litigation Group, and his practice focuses on complex corporate disputes in Delaware and across the country. He can be reached at Art.Bookout@skadden.com.

Hannah Rose Hintz joined Skadden’s M&A Group in 2022 after graduating from the University of Pennsylvania Carey Law School. She can be reached at hannahrose.hintz@skadden.com.