Private Equity Experience

Is Incorporating In Delaware Still A Good Idea?

• Emily Sander • Season 1 • Episode 7

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Description: Delaware has been the go-to state for incorporating businesses due to its business-friendly environment, strong case law, and lack of business taxes.

The recent court case involving Elon Musk's compensation package has raised questions about Delaware's predictability and has prompted some companies to consider alternative states like Texas, Wyoming, and Nevada.

While Delaware will likely remain a popular choice for incorporation, especially for larger companies, the changing landscape prompts companies to consider their options and consult with legal and financial advisors.

Businesses must focus on their core operations while being aware of the legal and financial implications of their structure and location choices.


00:00 Introduction and New Year Greetings
00:50 Reflecting on 2024 Achievements
01:06 Trending Topic: Delaware's Business Appeal
01:25 Elon Musk's Compensation Controversy
02:43 Why Delaware? Historical Context
05:49 Recent Legal Shifts in Delaware
07:02 Emerging Alternatives: Texas, Wyoming, Nevada
12:59 Legal Nuances and Case Law
19:51 Practical Implications for Businesses
27:07 Future Outlook and Strategic Considerations
28:58 Advice for Founders and Business Owners
33:19 Conclusion and Final Thoughts

Who We Are

If we haven’t met before—Hi! We’re a team of professionals who’ve worked together at multiple companies, seen private equity from all sides, and are here to share what we’ve learned to help you succeed. Ed Barton brings decades of tax and financial strategy experience; Rory Liebhart is a finance and M&A pro with a track record of high-growth exits; and Emily Sander is a former Chief of Staff, multi-time author, podcast host, and founder of Next Level Coaching, helping leaders and organizations accelerate their growth.


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Connect with Rory

emily-sander_1_01-14-2025_160340:

All right. We are back with the private equity experience podcast in this, in this new, new year, 2025 ed, Rory, how's it going?

squadcaster-a3hb_1_01-14-2025_160339:

Busy, busy, busy.

squadcaster-9281_1_01-14-2025_160340:

Feels just like 2024 so far, but, but I guess

emily-sander_1_01-14-2025_160340:

We're with

squadcaster-9281_1_01-14-2025_160340:

You know, 2024 was a good year. I'd say overall. So

emily-sander_1_01-14-2025_160340:

a good year. We wrote a book and we started this podcast. So it was a great

squadcaster-9281_1_01-14-2025_160340:

I mean, that blows my mind. It all came together very nicely. Yeah. Proud of that, actually.

emily-sander_1_01-14-2025_160340:

for sure. All right. So we're going to break down one of our trending topics today. There was a story that hit the news wires. I'm going to try to like, Tee this thing up as, as best I can. So context, Delaware has long been the go to state for incorporating businesses for a variety of reasons, which we'll outline. There was a recent court case with Elon Musk. And, uh, I think it was like a massive compensation package that was denied in some ways. And this is now putting into question, um, Is Delaware the go to state in particular, like the VC and PE firms and lawyers who would recommend, uh, kind of where we'd have a tax footprint. So that's kind of my like rough, rough grab at like what this article was outlining, but maybe we can just start with like, why, why is slash was Delaware the go to

squadcaster-9281_1_01-14-2025_160340:

well, first, let's just like note the old life adage that the squeaky wheel gets the grease and you know, that the article you talked about was all about Elon billion comp package that got denied. And I think that was the saber rattling that, sent

emily-sander_1_01-14-2025_160340:

Did you say billion or million?

squadcaster-9281_1_01-14-2025_160340:

a B.

squadcaster-a3hb_1_01-14-2025_160339:

B.

squadcaster-9281_1_01-14-2025_160340:

Yeah.

emily-sander_1_01-14-2025_160340:

Holy cow. Okay.

squadcaster-a3hb_1_01-14-2025_160339:

stock, it was stock compensation.

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

So again, the

emily-sander_1_01-14-2025_160340:

Oh,

squadcaster-a3hb_1_01-14-2025_160339:

for it to actually be worth what it was worth.

squadcaster-9281_1_01-14-2025_160340:

Right. But

emily-sander_1_01-14-2025_160340:

So even for Elon Musk, that's okay. So Elon

squadcaster-9281_1_01-14-2025_160340:

gets all the media outlets and that becomes the source of all this, you know, call it intellectual discourse on the matter. That's really been, you know, it's, it's been a discussion point for many, many years. You know, why Delaware? What is it about Delaware that makes it, uh, You know, so business friendly,

emily-sander_1_01-14-2025_160340:

Musk has brought us to this place. Thank you, Elon. Um,

squadcaster-9281_1_01-14-2025_160340:

know,

emily-sander_1_01-14-2025_160340:

even for Elon Musk, 55 billion is like real money. So, okay, I get it. Um, so why, so why,

squadcaster-a3hb_1_01-14-2025_160339:

Go

emily-sander_1_01-14-2025_160340:

Is Delaware. Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

me, let me preface this by saying that Elon Musk brings us here, not necessarily because of, his compensation

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

and, and But really, Delaware has been really attractive for companies to incorporate in or form their LLCs in for a couple of different reasons. The biggest one, and this is really where the Elon Musk thing kind of threw a spanner in the works, is the Delaware, uh, Chancery Court is, um, Been handling business basically back about 150

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

Delaware made the determination, Hey, look, we're going to be spot for business. They were the headquarters of DuPont. They had, they had a really strong kind of, kind of business culture. And they said, we're going to make a. Make our state the most friendly business business friendly state in the country used to be a lot of companies were incorporated in New York Delaware became preferable and a lot of that preference is due to the court of Chancery, which is they had such strong case law

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

was Both business friendly and was setting a really strong precedent that the cork chancery tended not to overturn that when you incorporate it in Delaware, you've got not only some tax benefits because they don't have business, uh, Business income taxes. They don't have business sales taxes. They don't have, um, you know, they don't, they don't, they're really relatively cost effective. Um, especially if you don't do business in Delaware. If you do business in Delaware, you have business, uh, Delaware

squadcaster-9281_1_01-14-2025_160340:

Yeah. Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

don't, you don't pay Delaware income tax. There's, um, a lot of privacy. issues in Delaware where they basically go, look, we, we don't, you don't have to disclose on all your filings and it's not public publicly available who the owners are, who the officers are. It's, it's kind of opaque. And so as a result, the, and a chancery court has built this Big block of case law that was considered to be kind of circus sancte. And

squadcaster-9281_1_01-14-2025_160340:

Yep.

squadcaster-a3hb_1_01-14-2025_160339:

could predict what was going to happen if you did something in Delaware. It's likely been done before that case law holds and for the bulk of. Business transactions state law governs, not federal law. So a lot of times you might find yourself in federal court

squadcaster-9281_1_01-14-2025_160340:

not, but yeah,

squadcaster-a3hb_1_01-14-2025_160339:

got kind of what they what they called diversity of citizenship where you've got citizens of different different states and you've got a, uh, a large enough amount at dispute where it goes into federal court. But a lot of contracts are written to kind of force you into, into Delaware state court. Um, because the court of chancery is, is so reliable. The outcomes are so reliable. And where the Elon Musk thing really kind of threw Spanner in the works. And there's been a couple other cases as well. And I'll talk about one that I was, I was part of, um, in my prior life, um, is Dave. Change some of the, they're overruling some of their old cases or they're giving some kind of curve ball case law. Um, recently in the last four or five years, that is making Delaware less predictable as far as what the courts are going to do. And the privacy, um, privacy laws in, you know, both federally with the, with the, uh, The Corporate Transparency Act, as well as, you know, at the state level, are making it more, you know, less attractive from a privacy perspective. So while Delaware still has a lot of advantages, um, some of these recent court cases have called to question whether that circus sanct set of case law that everybody relies on for incorporation, for business, for bankruptcy, for all those things, whether that's actually going to continue to hold or whether, you know, there's going to be some, some new, uh, precedent set and, and makes Delaware a lot less predictable and therefore a lot less attractive for, uh, investors and, and incorporators. Yeah.

squadcaster-9281_1_01-14-2025_160340:

exactly. And now when there's an opening on something like that, for the reasons I just mentioned about transparency, then, you know, you have other States that want to have that kind of status to where very business friendly, you got Texas, Wyoming, or. Three that, you know, there's been a lot discussed, but I'd say that case precedent is so important here. Um, and, that, that may be, you know, a barrier, but I'd, I'd say, you know, certainly you're hearing less and less, or at least, you know, I, you know. Even in recent years, I've been advised less and less. I automatically defaulted to any entity on formula. We're just going to form in Delaware. It's like, well, well, why, you know, like there's other states that are just as friendly and doesn't necessarily need to be Delaware. It's just become so ubiquitous that, you know, folks always default to that.

emily-sander_1_01-14-2025_160340:

Okay. So Delaware was the like default go to place, and they intentionally tried to make themselves attractive to business. And there is this like case law which I'm taking as like just like precedent for like, this is this is how we do things in Delaware, it sounded like like other states might be, you know, Didn't strict and stingy on these things, but come to Delaware and we'll take care of you. We'll predictably, uh, uh, go in your favor. And then recently there's been ones where it's like, Whoa, okay. That usually doesn't come out of Delaware. And then can someone just briefly break down? Like, what was this Elon Musk? Uh, 55. 8 billion thing. Was it like, normally he would have gotten paid out on that under state law in Delaware. And then he didn't, or what, what happened in that case?

squadcaster-a3hb_1_01-14-2025_160339:

I'll give a general overview. Um, so on the, on the Delaware, on the Delaware case, essentially what Elon Musk did was he took a, when he took over Tesla, Tesla was a struggling, struggling company. They weren't doing all that well. Um, and he took as compensation equity. So again, typical of a founder, typical of a early stage investor, he took equity as the next video. As his compensation, um, in lieu of a bunch of cash comp, well, what ended up happening was he drove the value of that business up so high that that equity turned into billion of compensation and he was sued, not by the shareholders who approved it. Not by the board of directors who approved it, but actually by kind of independent folks who said, you know, this is an, this is a ridiculous amount of compensation for what you've done and therefore it's illegal under Delaware law.

emily-sander_1_01-14-2025_160340:

But he made the company from scratch. It's more like what?

squadcaster-a3hb_1_01-14-2025_160339:

the company from scratch. He came in, the company was founded by others, but he came in early stage when they were really struggling and put them on the path that they're on today.

emily-sander_1_01-14-2025_160340:

And some independent something entity party in Delaware said, no, you don't, you don't get that.

squadcaster-a3hb_1_01-14-2025_160339:

Yeah, essentially, essentially

emily-sander_1_01-14-2025_160340:

man.

squadcaster-a3hb_1_01-14-2025_160339:

what happened, um, was there was a. Compensation package that he agreed to in 2018. So pre COVID, um, that was equity based and it essentially was driven by his ability to be able to add value into, into Tesla. And as a result of that. you know, as a result of the performance of Tesla since 2018, the value of that turned into over 56 billion, the equity, the equity value. And what, um, what ended up happening was the court said that was an egregious amount of compensation for you to receive. Based upon the structure of the, the deal. And therefore you were overcompensated. It was unfair and, and we should get that back.

emily-sander_1_01-14-2025_160340:

Okay. I have lots of questions about how they came to that, but for, for this, okay. That decision was made.

squadcaster-9281_1_01-14-2025_160340:

to see,

squadcaster-a3hb_1_01-14-2025_160339:

people,

emily-sander_1_01-14-2025_160340:

Yeah. Um, okay. So, and then Rory, you mentioned, like, since this has happened, some other states are popping up on the radar being like, Hey, like, what about Texas or Nevada or Wyoming? I think it was, um, these are now coming on people's radar are like, why are those in the running? And like, are those viable places for people to look at?

squadcaster-9281_1_01-14-2025_160340:

reasons that are, you know, generally kind of the, the, the reasons cited by business friendly environments for many reasons, you know, a low regulatory environment. You know, no corporate income tax. That's probably the biggest one. You know, when you, when you see about where corporations domicile, that's the big one. Um, another one that's not talked about too much, but probably talked about more in the last. To say, since 2008 and before that is, you know, director and board member liability protections against those things. those are, those are some of the key reasons. And those 3 states that mentioned Texas, Wyoming, Nevada are all friendly in that regard, as opposed to like saying. You know, planning your flag in California or things like that, you know, other that are on the other side of the equation. So, um, those are, those are the main reasons, um, that get cited for, for wanting, for being business friendly, generally speaking.

emily-sander_1_01-14-2025_160340:

And when you mentioned like domicile, and then, and I think you referred to like, if, Okay. If you are located, like physically located in Delaware, different things, um, occur, but we're talking about, like, let's say you're headquartered in, I don't know, like, Florida or like Washington State, because we're in Washington State, but then your business is incorporated in Delaware. That's kind of the setup we're talking about.

squadcaster-9281_1_01-14-2025_160340:

refers back to, like Ed said, to where, where, you know, where domicile is, where that, where it's going to be litigated or whether, where, what case law is, or what, uh, what law is going to be applied, state law. Yeah. In that regard.

squadcaster-a3hb_1_01-14-2025_160339:

So the, so in general, like for instance, if I was a, if I was a company operating in Washington, I could be incorporated in Delaware. And so Delaware is my state of citizenship. Cause again, for

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

of the law. Companies are considered to be separate.

squadcaster-9281_1_01-14-2025_160340:

hmm.

squadcaster-a3hb_1_01-14-2025_160339:

I don't want to say individuals, but they're separate legal entities. Um, so they have their own citizenship. They have their own, you know, it's, it's kind of an interesting, interesting legal fiction. Um, but they then have to register as a foreign corporation in the state of Washington. So they essentially go, I'm incorporated in Delaware, but in order to do business in the state of Washington, they register as a foreign corporation in the state of Washington. They pay Washington. you know, percentage of

squadcaster-9281_1_01-14-2025_160340:

Mm hmm.

squadcaster-a3hb_1_01-14-2025_160339:

pay

squadcaster-9281_1_01-14-2025_160340:

You know.

squadcaster-a3hb_1_01-14-2025_160339:

fee. But to Rory's point, the, at the end of the day, they are considered a citizen of the state of Delaware for the purpose of, for legal purposes. And so while they may be drawn in the court in the state of Washington, because of a tort, for instance, they, they, there was a, an issue and they got sued by a Washington state resident and they get drawn into Washington state courts. If most of their contracts are going to be. the state of Delaware and they're going to use Delaware law and potentially, potentially Delaware venue, which is kind of where

squadcaster-9281_1_01-14-2025_160340:

Right.

squadcaster-a3hb_1_01-14-2025_160339:

to be, going to be, or where the law, the case is going to be heard. so it really brings that big pile of Delaware, um, history and precedent into, into play when I, when the cases are settled. Now I'm going to, I'm going to roll a lawyer kind of kind of thing in here where you can be a Washington state company. and be a Washington state resident, then agree to Delaware law and a Washington venue. So I've, I've been part of a litigation that was in Oregon. venue was in Oregon, the law that was being applied was Delaware law

squadcaster-9281_1_01-14-2025_160340:

Hmm.

emily-sander_1_01-14-2025_160340:

Oh.

squadcaster-a3hb_1_01-14-2025_160339:

of Oregon between two Washington residents.

emily-sander_1_01-14-2025_160340:

Do the lawyers in Oregon know that law?

squadcaster-a3hb_1_01-14-2025_160339:

Um, so interestingly, you've got the law, the lawyers, generally on the, on the commercial side. So if you're doing commercial litigation, a lot of them are going to be familiar enough with Delaware law to be

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

And can always bring in Delaware counsel. The, the issue is going to be the judge may not be familiar with

emily-sander_1_01-14-2025_160340:

Oh. I don't know.

squadcaster-a3hb_1_01-14-2025_160339:

And if it's a federal case, the federal courts, you know, aren't going to, aren't going to say it's Delaware law. You're going to have federal law is going to be, is going to govern. However, the, uh, You know, one of the disadvantages of Delaware is the Delaware lawyers know that Delaware is, so I had a, I had a case, I mentioned this earlier. I had a case where we had a contract with an employee that was under Delaware law, so we sued that employee in Delaware, and that, that employee was a resident of the state of Michigan, the company was a resident of the, was a, was a Delaware company, The company was headquartered in Florida. And so we had to hire Delaware council and the Delaware council cost twice as much as New

emily-sander_1_01-14-2025_160340:

Oh, I see.

squadcaster-a3hb_1_01-14-2025_160339:

they've

emily-sander_1_01-14-2025_160340:

they know people need them.

squadcaster-a3hb_1_01-14-2025_160339:

a, a, a corner

squadcaster-9281_1_01-14-2025_160340:

Well, yeah. Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

admitted to the bar in Delaware. So they they've, you know, it cost us a small fortune. And that was another one, um, where from a Delaware, from a Delaware perspective, had new case law pop up, um, on non competes. And that was,

squadcaster-9281_1_01-14-2025_160340:

remember that. I remember that popping up. Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

a Delaware non compete and there was a recent, there was a couple of recent rulings. The one that we got hit with was, uh, Intertech versus Eastman, where they basically said, you know, you, you, we're not going to enforce. Um, and then there's another one, century and service group where they, the, the court said, we're not going to enforce the non compete now, non competes have been enforceable in Delaware for a hundred years. And so this, this kind of threw a spanner in the works for us. And in addition, the. Delaware court was extremely deferential to what was a pro se So essentially our employee represented himself, even though he really didn't represent himself, but he didn't, he had, he had a Michigan attorney helping him on the side and then he walked in without the Michigan attorney into Delaware court.

emily-sander_1_01-14-2025_160340:

That doesn't sound like a smart thing to do.

squadcaster-a3hb_1_01-14-2025_160339:

And judges and

squadcaster-9281_1_01-14-2025_160340:

That's amazing. Pro se with an asterisk. Yeah. Yeah. Yeah. Oh, I was

squadcaster-a3hb_1_01-14-2025_160339:

yeah, very sympathetic to pro se folks who have their crap together. Um, and so we ended up basically having to settle for a fraction of what we should have, uh, settled for because the, the Delaware courts had essentially changed the From the time we entered into that agreement, know, four years prior to the time we litigated it, couple of cases, these couple of cases had come through and basically thrown out non compete law in the state of Delaware, except in very narrow circumstances. And it's, you know, that's, that's an issue.

emily-sander_1_01-14-2025_160340:

So with these sweep like changes, do they have just a flood of new cases being brought to them? Because they'll be like, Oh, actually, if you're not going to do that, then I have a case. If you're not going to enforce that.

squadcaster-a3hb_1_01-14-2025_160339:

Delaware always has a lot of cases and what's, what's

squadcaster-9281_1_01-14-2025_160340:

going to think it was maybe a little bit different in so far as You know, because of all the case precedent, you know, outcomes would be more predictable. So people would be less, uh, inclined to, you know, burn money on litigation. Whereas now I'm thinking Texas, Nevada, Wyoming, open their doors, more business corporate. They're the only people licking their chops are the lawyers because they don't have the case precedent. You're relitigating basically that comes up in material ways. Is that, I mean, how, how does that thought process, is that logical?

squadcaster-a3hb_1_01-14-2025_160339:

in. No, and in Delaware, what folks have tended to identify, they've identified that there's been a subtle and some now not so subtle shift in the courts. And so you're seeing more litigation to try and get various business friendly positions overturned. Additionally,

squadcaster-9281_1_01-14-2025_160340:

interesting.

squadcaster-a3hb_1_01-14-2025_160339:

You, you've got attorneys now on the business side who are, and again, we kind of went through this in our, in ours as well,

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

you know, we're not going to litigate it, not because we don't know what the outcome is, but because we don't know what the outcome is. And we don't necessarily like our attorneys were like, look, we don't want to put bad precedent on the books.

emily-sander_1_01-14-2025_160340:

Oh.

squadcaster-a3hb_1_01-14-2025_160339:

know, it's better for us to settle this because they could continue to continue to move the goalposts on us and move it to where it's worse for everybody else. Um, and so, You know, there's right now, there's a little bit of a, the, the one side is going, okay, how far is this going to move? How far can the goalposts move? And the other side is going, can we settle some of this stuff so that we don't get additional precedence on the books that are moving the goalposts further toward, um, non business friendly positions.

emily-sander_1_01-14-2025_160340:

So

squadcaster-9281_1_01-14-2025_160340:

Yeah. Hmm.

emily-sander_1_01-14-2025_160340:

does this all mean for VC and PE firms and portfolio companies?

squadcaster-a3hb_1_01-14-2025_160339:

As a, as a practical matter, I think they're going to continue in the short run. I think they're going to continue to use Delaware as a, as a, Incorporation location of choice, um, because for all the reasons we identified, um, I do think what I, what I'm seeing, um, in dealing with some of the folks is Nevada has become kind of a, uh, a number 2 choice, particularly here on the West Coast as a, as a incorporation location. Um, I. have had a couple of my clients where I've recommended that they actually built make their LLCs in Wyoming. Um, Wyoming's my favorite by, by a long shot. Um, but the, but you know, Nevada, I think has become far more, far more, uh, for a number of reasons, including their, including not only their corporations, but their trust law is, um, is very favorable as well. So for folks who are founders or where they're intending to hold for estate planning purposes, intending to hold some of the stock or interest in their business and a trust, um, Delaware or Nevada allows for. Even on an irrevocable trust, changes to be made by the grantor, um, which, which is a whole different set of case law that we could talk about with, with like the Fox News, Rupert Murdoch and trying to restructure his trust and allowing, and whether, you know, Nevada allowed him to restructure his trust or not. But that's, that's Nevada's kind of a, an up and

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

Um, the issue is none of these states, Wyoming, Nevada, um, uh, to a lesser extent, Texas have the body of case law that makes it as predictable. So when you're going in the state, you're going in a state court in Sheridan, Wyoming, you're probably getting a little bit different level of, of engagement than you would when you're going into a chancery court in Wilmington.

emily-sander_1_01-14-2025_160340:

Why is Wyoming your favorite?

squadcaster-a3hb_1_01-14-2025_160339:

Um, from, from my seat, it's the, you've got, uh, stronger privacy laws in Wyoming. Their trust laws are solid. Um, you've got, um, no state income tax, federal or no state income tax for individuals, no state income tax for business. It's a low cost of, of, uh, LLC formation or corporation. They've got a, and, and. You know, for those of us here on the west coast, it's relatively

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

Um, so it's not, if you do have to show up in court, you're not flying cross country. Um, the downside to Wyoming is you don't have a very strong, I shouldn't say that. You don't have a large bar. So, you know, from an attorney perspective or a CPA perspective, there's not a ton of Wyoming attorneys and CPAs, um, just'cause the state's so small from a population perspective. So you don't have the

squadcaster-9281_1_01-14-2025_160340:

Yeah. Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

level of support yet that you would get out of a, you know, out of a Delaware, which draws on Pennsylvania and, and Maryland and DC as well.

emily-sander_1_01-14-2025_160340:

So it sounds like. If you become knowledgeable about just like the general landscape. Of the tax implications for this state versus this state, depending on what you're trying to do. If like you want to emphasis and like, Hey, I do want to set up trusts and I know that I'm going to have generational wealth and I want to make sure that's set up well for my family. You might go to Nevada if you're like, Hey, privacy law is important or all these other things that are happening in Wyoming, you might make a strategic decision to like, look into those types of states. Is that, uh,

squadcaster-a3hb_1_01-14-2025_160339:

and you might have a choose your own adventure piece where you've got, where you've got the companies incorporated in, in. but the stock is owned by a Nevada trust or a Wyoming LLC and because there's no prohibition for that. So you can take the best of everything on your ownership structure for state planning purposes or asset protection purposes. You know, but again, Nevada, Nevada for trusts is probably the most advantageous trust law in the country. Um, I think Wyoming on the LLC side is becoming kind of the go to place for LLCs. And, but I still think if you're going to end up going public, if you're going to end up, expecting litigation. If you're going to be a larger organization, if you've got institutional investors, you're probably still looking at Delaware, you know, as difficult as the last couple of years have been with some of the chancery court decisions. Um, it's still got a huge amount of case law. It's still far more predictable and it's got the infrastructure, the legal, the accounting, the, the, The business infrastructure to be able to support institutional investors where you know, Nevada, Wyoming, or, or, and even Texas are still well behind in that

squadcaster-9281_1_01-14-2025_160340:

Yeah.

emily-sander_1_01-14-2025_160340:

are there certain states that are not favorable to Business like you mentioned California, but is there something where it's like, hey, you have the

squadcaster-9281_1_01-14-2025_160340:

I think it would rival

emily-sander_1_01-14-2025_160340:

like a

squadcaster-9281_1_01-14-2025_160340:

them.

emily-sander_1_01-14-2025_160340:

like a Like a P. E. backed, kind of like, you don't, like, you want to stay away from this one just for certain types of tax law.

squadcaster-a3hb_1_01-14-2025_160339:

I mean, I would, I would generally, I would generally say, um, if you are a local company doing local business and are located and doing business and predominantly in that state, you're probably, probably a little disadvantage to in that state because you have, you have to file as a foreign corporation anyway, if you're incorporated in Delaware, you're still going to be

emily-sander_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

there, et cetera. If you're a multi, if you're a multinational or multi multi state, then yes, there are ones where I would be like, you know, I, as an, as an accountant or an attorney, I would advise you might not be a good choice. California kind of being at the

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

list, Illinois, New York, Massachusetts, um, those are going to be kind of at the top of the list of, you know, think, think again, whether that's actually your best choice. Um, and then, know, there's, there's on the flip side, um, you know, if you're predominantly doing business in those states and you're subjected to those laws and those taxes anyway, to be incorporated in that state actually will Potentially reduce your costs because you won't have additional filing fees for being incorporated there. And if you're hauled into court,

squadcaster-9281_1_01-14-2025_160340:

Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

going to have to hire Delaware council to go represent you and fly down to Wilmington to go into chancery court where you could go down the street and, you know, be, and be in court in, you know, in the state, in the, in your own local backseat or backdoor venue.

squadcaster-9281_1_01-14-2025_160340:

Probably depends a lot on the type of business too. You know, certain, I mean, now we're going beyond just, uh, You talk about, you know, um, ways in which states lure businesses with, uh, credits and, you know, other incentives and things like that, you know, depending on the type of business that you have, whether it's, you know, energy or, uh, you know, technology or, uh, or manufacturing that could, that could be different by state too, depending on what the offering to businesses like that to, You know, be set up there and so forth.

emily-sander_1_01-14-2025_160340:

So what does this mean for future outlook? For, like, what should people be paying attention to? We're kind of at this, like, well, this seems to be changing. Delaware had a strong precedent for a hundred years in these areas, and now it might be changing. What should people be looking out for? And what, what do you think the future outlook is? Is this like a watershed moment where like now these other states are going to build themselves up to be the next Delaware or, or whatever?

squadcaster-9281_1_01-14-2025_160340:

Yeah, I don't know that I'd call this watershed per se. I think, you know, I think this is something that's been discussed more, but I think, um, you know, there have been certain headlines that have brought this to the floor a little bit more. But I think as far as what to watch out for is, I think it's, it's as much about. Minimizing risk is maximizing opportunities is some of these states that step up to the plate to offer more incentives to, you know, make it more friendly to companies to get set up, things like that. That could be more of an opportunity. And, you know, you're talking about a business that Uh, it's growing large in scale, you know, even small margins on big numbers make a big difference for, for businesses and cost and risk management and things like that. So I think this is just one where, you know, it's interesting to kind of keep apprised, but it's also, you know, if you're, if you're running a business, Uh, if you're a founder, uh, if you're someone that's, um, looking to think about restructuring your company in certain ways, this is definitely something to be connected with your, your counsel on, you know, they're the ones that are, apprised more than anything, as you see, even on this call, Ed knows what's up. I'm learning a lot from Ed here, right on this call, you know, so attorneys, attorneys stay on top of this stuff necessarily for sure.

squadcaster-a3hb_1_01-14-2025_160339:

Yeah, I would, I would say, um, I would agree with Rory, not watershed, but, um, the landscape is, is changing a little bit and for larger organizations and institutional investors, it's, I don't think you're going to see a dramatic shift. I think there's still a comfort level with, with Delaware, um, that unless the, the court of chancery gets kind of out of control, I think it's going to be, I think it's going to be fine. Um, for individual founders, um, thought process, a lot of them incorporate or build their LLC in Delaware because they're looking for, well, someday I'm going to get institutional money and what have you. As we've talked about in a couple other, uh, pods, the, you know, they're likely to put a blocker C and they're likely to put some other structuring in place when they buy. So. look at how do I optimize for today? How do I optimize for my business? Um, get local council involved. So your normal, your normal business council in your state and go, you know, what's the, what's the advantages and disadvantages? I'll give an example. An LLC, single member LLC in Florida has no asset protection value. Single member LLC in Washington does. So if you're a Florida person and you're the only owner of an LLC, you've You've got a problem. So you're, you know, you need to know things like that. And your local attorney is going to know those things and help you structure. Um, but on balance, it's more important to have a good, strong business. And these are the elements around the edges that will, you know, kind of make it, make it better or worse. But your local, your local attorney, you don't need to go to, you know, uh, uh, and Ellis for this, your local attorney, your local business attorney is going to be able to navigate these waters for you, um, until you move to the point where you're going to be going through a transaction and then you're likely to get some restructuring anyway.

squadcaster-9281_1_01-14-2025_160340:

Yeah. One bellwether you might look for is if you start seeing the likes of Chase Bank or others, other, other of our largest, conservative institutions start pulling tent stakes and going somewhere else, it might be time to really look into whether Delaware remains a place, uh, at least to be incorporated. So

emily-sander_1_01-14-2025_160340:

That's a good call. Yeah. So it sounds like at the end of the day, the takeaways here are, this is nice to know about, it's good to know about, but focus on the core of your business and making your business strong. And then there's these kind of supplemental things that as you get towards certain phases of your company or certain, transaction events you want to pay more focused attention to. Um, and then Ed, you mentioned local attorney a couple of times. If someone's like, I'm like, I don't know what that is or where to find one. Is there like a certain place you go by state? Is there a certain name you call these types of lawyers? Just

squadcaster-a3hb_1_01-14-2025_160339:

Um,

emily-sander_1_01-14-2025_160340:

to help people out.

squadcaster-a3hb_1_01-14-2025_160339:

it's, it is one of those, it is one of those things where if you, if you don't know a local attorney, talk to your accountant. If you don't have a local accountant, talk to your attorney. If you don't have either one of them, then you should

emily-sander_1_01-14-2025_160340:

Call Ed.

squadcaster-a3hb_1_01-14-2025_160339:

Well, yeah, you can call me, but you You should be looking for, um, folks who are similarly situated, who, you know, you would, who you would trust that can make recommendations. And then you interview them just like you'd interview an employee, get somebody who you're comfortable with, but you need,

emily-sander_1_01-14-2025_160340:

this like

squadcaster-a3hb_1_01-14-2025_160339:

you need

emily-sander_1_01-14-2025_160340:

friends, Rotary Club, like kind of your local chamber of commerce type of thing? Or where do you go to?

squadcaster-a3hb_1_01-14-2025_160339:

you're at in your, in your growth

emily-sander_1_01-14-2025_160340:

Okay.

squadcaster-a3hb_1_01-14-2025_160339:

Um, but my, my normal approach is, is business folks will tend to know the names

squadcaster-9281_1_01-14-2025_160340:

Oh yeah.

squadcaster-a3hb_1_01-14-2025_160339:

the big law firms in town. And it doesn't matter what town it is, or what state it is. You'll tend to know the names of the big law firms in

squadcaster-9281_1_01-14-2025_160340:

And the good lawyers within those law firms. Yeah.

squadcaster-a3hb_1_01-14-2025_160339:

so that, that information tends to be out there and, and attorneys and accountants, know, they're, they're ones where you can, you can definitely overspend on attorneys and accountants. And, and we love to, to take your money and help you. Um, but what I would, what I would say is you're generally going to be well served by somebody who you've interviewed. So I would interview some, I'd look, you know, kind of look around, um, you're going to be looking for business attorneys and. You're going to be looking for attorneys, ideally with some transactions experience. So a firm that's not just a, you know, kind of, Joe on the corner with a shingle and he does parking tickets and he does, you know, this, that, and the other thing you, you want someone who's, who's focused on business transactions and business litigation. And then on the accounting side, you want someone who's dealing with more than just, you know, again, you don't want Chuck in a truck, you know, kind of shows up, drives up to your place, gets out with his laptop, does it, does the work and, and leaves without having the depth of experience. Um, you know, who's been through some of these transactions, either. either in house or as a, as a, uh, advisor and you know, you're going to, it's going to take some interviewing to find the right, the right professional.

squadcaster-9281_1_01-14-2025_160340:

Yeah.

emily-sander_1_01-14-2025_160340:

All right. Well, we can wrap it here. And I guess it's just like, Oh, Delaware, what's going to happen in, in Delaware, this go to, go to state for incorporating businesses. But, uh, I too learned a lot. So thank you, Ed. And thank you, Rory, for bringing this one to, to our attention. And, uh, we'll, we'll continue to do more trending topics and keep everyone in the know about these, these types of stories, but Ed Rory, thanks as always.

squadcaster-a3hb_1_01-14-2025_160339:

Thanks, Sam.