Category: Formation

Background reading:

• Does my startup lawyer need to be local? 
• Checklist for choosing a Startup Lawyer. 

In short: no, and anyone who says otherwise is simply lying in order to cut off competition from potentially better fit lawyers with broader geographic footprints.  Virtually every serious corporate lawyer (startup lawyers are corporate lawyers who specialize in early-stage) with a well-deserved brand has clients across city and state lines.

Because the vast majority of startups are incorporated in Delaware, Delaware corporate law governs 99% of the issues they’ll deal with. The 1% will be labor/employment issues, which will typically be governed by the location of their employees (often multiple states), and local labor boutiques are easily engaged for that. 

In fact, when you’re navigating negotiations with potentially influential local investors whose ‘reach’ covers a lot of the local legal market, there can be benefits to having counsel from someone more detached from the local community. See: How to avoid “captive” company counsel. 

Go through the above-linked checklist to ensure you are engaging counsel that is the right fit for what you’re building – in terms of specialization, cost structure, culture, etc. – regardless of where they are physically located. 

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Background reading: Should I incorporate in my home state or in Delaware?

Why does so much of the international business world speak English? Because it is very efficient to have a common underlying language for people in various places to communicate with. 

Delaware is the english language of national business law in America. 

The same is true with law. Regardless of what your feelings are about federalism in the United States, expecting American companies to learn and navigate 50 different states’ laws would be a nightmare. So the business community has, over time, coalesced around Delaware as a kind of uniform standard for companies with some level of cross-state scale. 

The vast majority of angel and VC-backed emerging tech startups in the U.S. are incorporated in Delaware, regardless of where they are geographically located. And for that reason, all serious startup lawyers across the U.S. know Delaware corporate law, often better than their local state law. 

There are of course other reasons why Delaware is preferred by so many companies and investors, much of which are explained in the above-linked post. But the main point for founders to understand is that scaling Colorado startups have good reasons for starting out in Delaware.

Delaware can save you money long-term.

You will hear from some Colorado lawyers that incorporating in Colorado will save you money, and that you should strongly consider it until your investors make you convert to a Delaware corp. This advice usually comes from lawyers who work with a lot of “small businesses,” who typically operate for years without ever taking on investment. Small biz works very differently from what most entrepreneurs call “startups.”

Because so much of the startup ecosystem is built on Delaware corporations, all serious startup lawyers have large sets of form documents and processes built around Delaware law. Taking advantage of those forms and processes will save you legal fees.

So, yes, you will pay a few hundred dollars more a year to state agencies if you incorporate your Colorado startup in Delaware instead of Colorado. But you will make up for it in reduced fees charged by your lawyers, who’ll be able to lean on the well-developed Delaware-based infrastructure of documents, templates, processes, etc. 

Both in the short term and long-term, Colorado founders intending to build companies looking to scale faster than a typical small business should strongly consider Delaware. 

Sidenote: See also: Not Building a Unicorn for a discussion on how, while being a “startup” means going after some amount of scale, it doesn’t have to mean a Silicon Valley-style hyper growth trajectory. 

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