Originally created 01/18/98

Delaware attractive on paper

WILMINGTON, Del. -- With its business-friendly laws and court, Delaware continues to draw corporations -- on paper at least, if not in person.

Applied Digital Access Inc. of San Diego last month became one of the latest to announce its shareholders had approved moving the legal domicile of the telecommunications software company to Delaware.

Also last month, computer giant Hewlett-Packard Co. said it was considering incorporating in Delaware, too.

While the companies won't be moving their facilities or workers, reincorporating in Delaware is seen as a way to reduce legal risks by relying on the extensive case law built up in Chancery Court, one of the only state courts in the nation solely dedicated to hearing business cases.

Courts in other states are not considered nearly as predictable. Delaware also has industry laws considered more permissive than most.

"There is much, much better predictability," said University of Delaware law professor Donald J. Puglisi. "You know the rules of the game set out in the Delaware code whether they are favorable to management or not."

Even though the state's reputation as a good place to incorporate hasn't necessarily brought many new jobs with it, there has been a significant contribution to Delaware.

Fees and taxes paid to the state top $300 million a year -- about 20 percent of the revenues collected by Delaware government. That revenue is a key reason Delaware can survive without a sales tax on its residents -- it's one of only five states without one.

Since 1992, the number of incorporations in Delaware has jumped from 206,113 to 291,187 as of Dec. 13 last year.

Applied Digital Access said it was reincorporating in Delaware because of the state's body of corporate law. Hewlett-Packard, however, has a more detailed reason behind its proposal.

A recent proposition in California to expose company officials to liability in fraud cases won 30 percent voter approval. The company says that kind of uncertainty can make it difficult to attract the best executives.

Delaware has also been helped by a change in federal law. Two years ago, the Private Securities Litigation Reform Act was intended to reduce the number of actions filed against business. Instead, it merely shifted many of the suits from federal court into state courts.

That being the case, Delaware seems like a better place to many business leaders to have those lawsuits heard.

"There is a tendency for quick, cheap settlements in Delaware," said Columbia Law School professor John Coffee. "It's more protective to the company."


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