Delaware Über Alles

 As an international locus of financial activity, the downtown and central business district of Wilmington, Delaware consists of little more than a few quiet streets lined with trees and generic office buildings. Not towers so much, just buildings, lacking anything significant enough to create a memory. On one of said blocks, just north of the Delaware State Chamber of Commerce, sits a nondescript, two-story beige brick building. The only mark of distinction on its façade is a dark red awning with “1209” printed in white Helvetica.¹ On the glass door (locked, guarded with video surveillance) is the geometric logo for CT (the Corporation Trust Company), the spiritual center of corporate America, one of Delaware’s most prominent registered agent companies, wholly owned by the Dutch business administration corporation Wolters Kluwer.

The main entrance to 1209 Orange Street, Wilmington, Delaware. Image courtesy of the author.

Due to the sheer number of businesses claiming 1209 Orange as their incorporation address, critics have deemed it “the biggest building in the world.” Image courtesy of the author.

The most striking feature of the interior is its lack of access. For the lay visitor, there is little more than a waiting room enclosed in glass storefront to welcome you into the heart of corporate America. The waiting room consists of one black leather chair, a plant (perhaps fake, maybe real, definitely waxy and oddly colored), and a small table on which sits nothing. Aluminum mini-blinds are drawn over the waiting room interior although a drop ceiling, defining the office as a no-nonsense domain of secretarial work, can easily be spotted through them. There is a receptionist, also sitting behind a half-drawn window. Ostensibly, the receptionist directs phone calls and controls access to the tightly guarded offices, and when asked if it’s possible to take a look at the offices, noting that I am interested in some of their services, she politely, even if annoyed, offers to take my name and get back to me. She never does.

The rather unassuming office belies its function as the home address for more than 285,000 U.S. corporations.² Many of these businesses are nameless and rather inconsequential—much like the venture I am embarking on—others, such as Google, Apple, General Electric, and Ford, define the very image of American culture. Delaware itself is home to more than half of the publicly held companies in the United States and is one of the primary reasons the country is currently listed as the world’s most secretive financial jurisdiction, beating Switzerland and Luxembourg—among others—in the Tax Justice Network’s Financial Secrecy Index.³ Delaware’s great strength is that its secrecy is no secret at allsecrecy is no secret at all

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The netherworld of the Phantom Tollbooth Plaza., juridically formed for more than a century to submissively serve the needs of American Business (and now, of course, Global Business). To claim Delaware’s role in contemporary business as anything other than standard would belie an ignorance and naïveté about the basic functions of American business.

According to Delaware’s Division of Corporations, the reason more then half of the Fortune 500 corporations choose to headquarter in the state is due to its “advanced and flexible statues…the Delaware courts…and the state legislature.” In addition, “The people of Delaware are aware that the income received from corporation franchise taxes is an important part of the state budget and that Delaware law firms that specialize in business and law matters employ significant numbers of people.”⁴ To put it another way, the laws and statutes of Delaware have been specifically designed, and are rigorously defended, to lighten the tax burden on registered companies while levying a very minor yearly incorporation fee that, when aggregated, largely funds the state’s budget.

The specific mechanism that creates such a desired business environment is the Delaware General Corporations Law. Again, the Division of Corporations puts it most succinctly:

The statute itself is an enabling statute intended to permit corporations and their shareholders the maximum flexibility in ordering their affairs. As such, it does not purport to be a code of conduct. Indeed, it is written with a bias against regulation. When compared to some corporation laws where the drafters have attempted to regulate every nuance of corporate behavior or deal with every conceivable eventuality, the Delaware statute has a spare, almost open quality. Every effort is made to simplify drafting and to avoid complexity.⁵

Terms like “enabling”—as in: enabling companies to act with minimal regulation—and phrases like “not…a code of conduct”—as in: anything goes, as long as it’s technically legaltechnically legal

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The balance whereby corporate governance is traded for state income is not merely a well-known benefit but was instituted into law in the 1960s. “[T]he favorable climate which the state of Delaware had traditionally provided for corporations has been a leading source of revenue for the state…. The General Assembly…declares [this] to be the public policy of the State….”⁶

It’s fifty years later and the equation still provides a net positive for the state. As businesses flock to this small mid-Atlantic location to avoid corporate income tax, the modest fees allow Delaware to avoid sales tax and have the sixth-lowest property tax in the country.⁷ Behind personal income tax, incorporation fees and franchise taxes are Delaware’s largest source of state revenue.⁸

Delaware has managed to create the perfect business ecology, in which businesses, registered as some type of “entity” can flourish, avoiding more substantial home-state taxation, minimizing their paper trail, and leaving them free to establish brick-and-mortar operations in locales more desirable. Delaware’s very identity has been fully realized, through specific laws and regulations, as a place perfectly designed for the healthy cultivation of year-end reports and portfolio management.⁹

Delaware’s status as the most friendly environment for business begins at the end of the nineteenth century, when states were beginning to see the benefits of liberalizing their corporation statutes in order to attract business. In 1896 New Jersey became the first state to change its corporation laws with the explicit goal of attracting business. Delaware followed suit and in 1899 passed its own set of liberal corporation statutes directly modeled off of New Jersey’s. But in 1913, then governor Woodrow Wilson tightened the corporation laws with a series of reforms, allowing Delaware to consolidate its status as the most business-friendly state, an honor maintained for more than 100 years and through many adjustments to the corporations laws.¹⁰

The competition between states, nations, and other geopolitical designations to attract business is often called the “race to the bottom,” wherein states, cities, “special economic zones,” and entire nations deregulate their economies and lower taxes—in some cases removing them altogether—in an effort to attract international finance, global trade, and the local jobs they require. The classic example is offshore manufacturing, in which global companies move production from state to state following the path of least regulation and lowest labor costs. The race to the bottom is simply another name for globalization, which is another name for Business As Usual. The race to the bottom is little more than The Way Things Are Done, and should a corporation choose not to participate, CEOs would certainly be ousted by shareholders irate that every exploitable (and legal) means to financial profit hadn’t been exercised.

The race, as it were, operates by a first-come logic, wooing corporations to a given jurisdiction with friendly laws and promises of secrecy, beckoning them to establish ties, thereby further confirming a given location’s status as business-friendly. The feedback thus begins. Since Delaware’s ascendance as the prime locale for business a century ago, it has been finely tuning its laws and court structure to consolidate its status at the top (or, bottom, if you will). The feedback loop has thus solidified into a stand-alone industry, creating a micro-economy of its own. In Delaware’s case, the micro-economy created by registration fees and minimal taxes has subsumed the state’s other industries and tax structures, creating a state economy wholly dedicated to servicing corporations.

The policies directed specifically at luring out-of-state businesses to register in Delaware include no corporate income tax on companies doing business outside the state and no personal income tax on nonresidents. In addition, shareholders and directors are allowed to reside outside the state, and those shares owned by said shareholders are not subject to state taxes.¹¹ In short, registering a business first in Delaware allows you to avoid all corporate income taxes and all personal income taxes associated with that business, either through straight profits or shares, without the inconvenience of having to actually live there. In an odd inverse, incorporating in Delaware does not allow a company to park assets—much as other infamous tax havens do—it allows the entire business to exist in a shadow location, thus freeing up assets to move to other destinations, often known for their financial secrecy and pristine beaches.

The Supreme Court and Mitt Romney have been diligent in reminding us that corporations are people, and Delaware has been strategic in setting up an environment that allows the corporation to decouple itself from the (real) people who actually run it. In doing so, offices such as 1209 Orange Street function as little more than corporate dormitories, with hundreds of thousands of businesses residing in row after row of neatly organized filing cabinets.

For someone looking to start a business, it would seem obvious to register it in Delaware, and it is no surprise that almost a million corporations have done so.¹² As someone who has spent the last couple years researching the architecture of tax havenry, my logical next step was to go ahead and see just how easy it is to start a business and establish a presence in various secrecy jurisdictions. So it was only natural to begin this process in the First State. The current corporate tax rate in New York is 7.1 percent and the top individual income tax rate is 8.882 percent. It would be good business to drop that level to 0 percent on both accounts. ^{13 14}

It turns out, it is shockingly easy to start a company in Delaware. The stack of papers with all the nefarious details in four-point type simply doesn’t exist. Same for the dense web of complicated documents and forms-to-be-signed written in dense legalese. The whole thing can be done with a couple of emails and one afternoon.

The State of Delaware Division of Corporations lists six simple steps in establishing your entity of choice: choose a business type, obtain a registered agent, decide on a name, download the forms, submit them, obtain certified copies of the forms (if needed), and pay the fees and yearly tax. ^{15 16}

Incorporation flowchart summarizing the process of registering a business in the State of Delaware. Image from the Delaware State Division of Corporations website.

By far the easiest way to start your Delaware-based company is to skip the (admittedly short) list of steps provided by the state and go right to the registered agent, which is exactly what I did. The registered agent is the function that allows Delaware to host so many national corporations. It is the industry and the financial engine that keeps the whole machine well-oiled. The agent is, in effect, your proxy presence within the state. They handle all paperwork transactions, receive legal documents, communicate on your behalf, notify you of all annual filings and tax responsibilities, and most importantly, provide an address for your entity to call home. They are your Guy in Delaware; the sad souls suffering in Wilmington so the rest of us can luxuriate in Manhattan and Mountain View.

The Corporation Trust Company operates several different websites, ostensibly targeted to different audiences, but funneling you toward the same essential incorporation services. One phone call got me connected directly to Mary Bastian. Mary was interested in very little aside from getting me signed up and off the phone. She was patient, but like the nameless receptionist from my in-person visit, had little time for inquisitive questions on the nature of incorporating and what Delaware means in a more global, metaphysical sense. It was clear I was not a major corporation or large business entity; I wasn’t going call upon them to deploy their vast knowledge of tax and business experience. I was just another schmuck looking to avoid a couple of dollars of tax liability.

Mary immediately sent me a preformatted email informing me CT they will be pleased to act as my agent. It also mentioned that CT serviced more than 2.1 million documents last year (8,077 per day!), and by that statistic alone, it is very clear why she had little interest in entertaining my questions.^[1] To finalize the transaction all I need to do is fill out a Certificate of Formation from the state and a Representation Questionnaire from CT noting that the only really important information was my company’s name and my credit card info so CT can administer a yearly fee of $362 and my filing charges ($90 for articles of incorporation, $50 to receive certified copies of all paperwork, a one-time $197 filing fee, and a $15 computer access fee).

On the Division of Corporations website the State of Delaware provides a simple chart, neatly comparing various business structures and noting their tax and legal liabilities. As a single-employee business (at least at this point), and wanting to separate the company from my personal finance (thus limiting my personal liability), Mary and I decided the Limited Liability Company was the best option. From here on out, as an LLC, my only obligation toward the state of Delaware is a $250 yearly tax, to be paid by March 1 of every year—and, of course, my yearly $362 obligation to CT, which you will note is exactly $112 more than the fee to the state.

The only official document required by the state is a text file with three questions: What is the name of my business; the address—filled out by Mary with the notorious 1209 Orange Street address; and whether or not there is a specific date to dissolve the entity. In this case, I chose December 31, 2014, as my dissolution date after being told that sometimes businesses dissolve after only a few days, which of course brought Mary a bunch of irritating questions, none of which she answered. I submitted my paperwork, complete with typed signature, on the afternoon of March 27, 2014.

This simple form is the only official document required by the State of Delaware to register a business. It can be downloaded from the State website, although this one was filled out by CT on my behalf. Image courtesy of the author.

Aside from the name and address I sent to CT, there was no actual identification required of me by the state, a fact many critics have noted. There is no way for the state to know who or what is being incorporated, no due diligence on assets, and indeed no knowledge of what type of business my business is in. For all the State of Delaware knows, I am simply a business of some sort and an electronic signature.

By the following Monday, Mary sent me one final email, which contained my official papers from Jeffrey Bullock, secretary of state of the State of Delaware, certifying the formation of my newly minted business.[2] And with that, my relationship with Mary had come to a close, neatly tucked away within a filing cabinet, basking under the harsh fluorescent lighting of any office, USA.

According to an investigative report by the New York Times, my new entity is essentially a shell company—one “with no employees, no assets and, in fact, no real business to speak of.” And along with dilettantes and hucksters like Jack Abramoff, the disgraced Washington lobbyist, and Russian arms dealer Viktor “the Merchant of Death” Bout, I can now proudly claim Delaware as the home of my corporate heart. And with that, I have become one small part of the delicately formed and infinitely complex American financial structure, foundational to the global economy, and thoroughly lubricated with corporate dreams and firm handshakes.

This document from the State of Delaware notes that as of 12:21 p.m. on March 28, 2014, Experiments in Architecture and Research is a legitimate Delaware-based Limited Liability Company. Image courtesy of the author.

1. 1. For more on 1209 North Orange Street, see: Jordan Carver and Andy Vann. “Hi, I’m in Delaware,” Pidgin, no. 15 (2013): 6–11. ^
2. 2. Wayne, Leslie. “How Delaware Thrives as a Corporate Tax Haven.” New York Times, June 30, 2012. Accessed May 14, 2014, http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html?_r=0. ^
3. 3. Mathiason, Nick. “Delaware—a black hole in the heart of America.” The Guardian, November 1, 2009. Accessed May 14, 2014, http://www.theguardian.com/business/2009/nov/01/delaware-leading-tax-haven. ^
4. 4. Black, Lewis S. Why Corporations Choose Delaware. Wilmington: Delaware Department of State, 2007. ^
5. 5. Black, 2. ^
6. 6. Law of December 31, 1965, ch. 218, [1963] 54 Del. Laws 724, authorizing the financing of the Delaware Corporation Law Revision Commission of 1967. Quoted in Cary, William L. “Federalism and Corporate Law: Reflections Upon Delaware.” The Yale Law Journal. vol. 83, no. 4 (1974). ^
7. 7. Tax Foundation. “The Facts on Delaware’s Tax Climate.” Accessed May 14, 2014. http://taxfoundation.org/state-tax-climate/delaware. ^
8. 8. Lindholm, Douglas. “Once a Friendly Locale to Business, the Modern State of Delaware Is a Bully.” Forbes, May 16, 2013. Accessed, May 14, 2014, http://www.forbes.com/sites/realspin/2013/05/16/once-a-friendly-locale-to-business-the-modern-state-of-delaware-is-a-bully/. ^
9. 9. A more nuanced writer like Keller Easterling would call this a spatial product, or a software. ^
10. 10. This is a very short history as described by William L. Cary from a still-much-quoted article on Delaware corporations law from 1974. Cary, William L. “Federalism and Corporate Law: Reflections Upon Delaware.” The Yale Law Journal. vol. 83, no. 4 (1974). ^
11. 11. BizFilings by CT. “Why Incorporate in Delaware or Nevada.” Accessed, May 14, 2014. http://www.bizfilings.com/learn/incorporate-delaware-nevada.aspx. ^
12. 12. Black, 1. ^
13. 13. According to USPIRG, New York loses more than $4.2 billion in taxes to offshore tax havens. “The Hidden Cost of Offshore Tax Havens: State Budgets Under Pressure From Tax Loophole Abuse.” Washington, D.C.: U.S. PIRG Education Fund, 2013. ^
14. 14. Technically, in order to do business in New York, entities are required to “foreign qualify,” which has its own set of fees and requirements, including the well-known requirement to run public advertisements in local newspapers. But if a company is headquartered in Delaware, the taxes can be avoided. ^
15. 15. State of Delaware. “How to Form a New Business Entity.” Accessed, May 14, 2014. http://corp.delaware.gov/howtoform.shtml ^
16. 16. It’s unclear if this number represents businesses incorporating only in Delaware or companies using CT’s services nationwide. ^

Jordan Carver is a writer, researcher, and educator in New York City where he is an Adjunct Assistant Professor of Architecture at Columbia GSAPP and the Managing Editor at GSAPP Books. His research practice is concerned with the spaces created where law, economics, and political rhetoric intersect.