Hacker News Reader

Comment by motives | Hacker News Reader

Its so investors can leverage the massive tax breaks available when investing in US based startups. Hence why YC also lets you found in tax havens like the Cayman Islands. Note this is probably not the official reason, as it's generally frowned upon internationally to encourage tax avoidance.

View on HN

The simpler, less cynical answer is that it's not just a US-based company, it has to be a Delaware-based company.

This is because all of the laws around founding, investing, selling, etc. a company are extremely well-trodden in Delaware, and there are very few question marks as to how some strange eventuality or disagreement might be handled.

Since startups are already incredibly difficult, this is a way of normalizing away some of the weird situations that could cause a startup to fail (and likely would never cause them to succeed), so that everyone is putting energy into the real unknown unknowns around the startup.

My take is indeed probably more cynical and you're very correct about Delaware being well-trodden, but it does raise the question why the FAQs mention a bunch of well known corporate tax havens [0](Cayman Islands and Singapore) and not other well-trodden territories such as the UK, which has a really straightforward and efficient ecosystem surrounding startup law and incorporation (SeedLegals etc.) and plenty of history to extrapolate from. Also the FAQs mention nothing about having to be in Delaware, perhaps they should be updated?

[0] - https://www.ycombinator.com/faq#q25

It's an interesting question, but I suspect that there are other, easier ways of normalizing companies from those regions to be Delaware-based (or something that prevents it, perhaps in Singapore's case, not sure), whereas outside of those there's really only this nuclear "company flip" option.

YC hates anything specialized about a company re: this sort of thing - hence no special deals, etc., so I'd bet more on other normalization factors rather than no normalization.

This is the correct answer. Delaware corporation law is extremely well tested in courts and understood, which is what makes it attractive.

Reply on news.ycombinator.com