Why over 60% of Fortune 500 companies are founded in Delaware

Delaware is the second-smallest state in the US, but it’s home to more than 60% of Fortune 500 companies, the state says, including the parent company of Google Alphabet, Amazon, CVS Health and CNBC’s parent Comcast.

“[Delaware] It has a lot of appeal for three key underlying reasons: convenience, flexibility, and predictability,” Roy Gilberg, corporate advisor at LegalZoom, told CNBC.

One of Delaware’s major advantages is the Chancery Court, which is a separate court system dedicated to handling corporate cases.

Gillberg said the court is “widely respected as an authority on commercial matters that is trusted by both business and legal communities, frankly, around the world, as a place where rules are well developed.”

Predictable case law also gives investors peace of mind. Over 90% are US based Companies that went public in 2021 are registered in Delaware, according to the state.

Delaware law is also attractive to many small businesses.

Cleanster.com, a platform for finding cleaning services for homes and short-term rentals, was founded in Delaware although both founders are based in Montreal, Canada.

“When you want to go global and blend into Canada, no one will ever look at you,” said Cleanster.com co-founder and CEO Gloria Oppong. “Delaware is protecting ourselves, the entrepreneurs, as well as the investors who will eventually join.”

In addition to an attractive court system, Delaware provides some tax incentives for businesses, but saving in taxes may not be an incentive for small businesses to incorporate in Delaware.

“It’s a misnomer that Delaware is a corporate tax haven,” said Gigi Tiwari, associate professor at the University of Delaware School of Law at Widener University. “A lot of people think I should incorporate my business in Delaware because I’ll save a lot on corporate taxes. In fact, Delaware is on the higher end for corporate taxes.”

Watch the video Above to learn more about why so many companies are flocking to Delaware.