Delaware’s Dominance, Wyoming’s Dare—Blockchain Companies and the Market for Corporate Charters.
By Pierluigi Matera, Professor of comparative law at the Link Campus University and a Visiting Fellow at Wolfson College, Cambridge.
As of today, 67.8% of Fortune 500 companies are incorporated in Delaware. This means that Delaware, despite having less than one-third of one percent of the US population, is by far the primary place of incorporation for the most important businesses in the world. The numerical dominance would not matter if it were not for the well-known internal affairs doctrine, according to which the law of the state of incorporation determines issues relating to the internal affairs of the corporation. Thus, all disputes over corporate governance involving companies incorporated in Delaware are adjudicated using Delaware law. As a consequence, Delaware courts adjudicate so many cases on corporations that they have developed a body of legal precedents outstripping by far that of any other jurisdiction. Even in cases where Delaware corporate law does not apply, other courts are influenced by Delaware courts’ precedents.
This hegemony and the resulting pre-eminence in corporate law are a peculiar by-product of American federalism and constitute Delaware’s dominance—a dominance that has been persisting for over a century. Scholars suggest several explanations for both the rise and the staying power of Delaware. These explanations are essentially subsumed under the credible commitment theory and the network theory. According to the former, investors rely upon Delaware commitment towards the business community; the network theory emphasises how Delaware is profiting from the network externalities of the position achieved. The credible commitment theory and the network theory sometimes overlap and combine. Both predict that Delaware is hard to dethrone.