Ask HN: Why Delaware and Not Dubai? | Hacker News Reader

Ask HN: Why Delaware and Not Dubai?

24 pointsVishal1911199931 comments

Why don't startups "especially Indian startups" prefer Dubai or even Singapore instead of Delaware?

Is it all about investments? What should be a better choice for a bootstrapped company?

I think you need to add a lot more context to your question. (IE, edit your submission.)

As an American, who's been involved with both Silicon Valley and Boston startups, I find it rather absurd that anyone here would ever incorporate outside of the US. Likewise, I find it absurd that anyone running a startup outside of the US would ever incorporate in Delaware.

> "especially Indian startups"

Do you mean startups in India, or do you mean startups run by Indian immigrants inside of the US?

Maybe there's something that I don't know?

Either way, you're asking a specific question to a very wide audience. You need a lot more context if you want helpful answers and a coherent discussion.

So, if you're reading this, scroll up and push the "edit" button. Spend a minute or two adding some good context; don't assume that the wide Hacker News audience has any clue what you're talking about.

Putting "especially Indian startups" makes it confusing but OP means startups in India. Indian startups are typically incorporated in Delaware (or Singapore) instead of India.

There are a variety of reasons:

* Ease of incorporation, getting bank accounts, predictable business laws, etc.

* The majority of the capital going into these startups is coming from outside India (a lot from the US). These investors want a more predictable and well trodden path for their investment and so they too encourage company formation in Delaware.

* After a while things become the norm in startup-land and most companies follow the playbook they've seen being done before.

> Likewise, I find it absurd that anyone running a startup outside of the US would ever incorporate in Delaware.

What if I told you it's sometimes easier for a foreinger to setup a corporation and sell in the US than it is to do so from their home country? A frenchman told me once that the US immigration system was easier to navigate than the regulations around a new business in his home country...

As for why Delaware instead of Dubai, I'm confident Delaware will still be a functioning democracy inside a strong economic union in a hundred year, with a stable, global currency and predictable laws and regulations. I'm not confident the UAE will qualify as "stable" in as little as 10 years. Other than oil, there's nothing of value there.

It's because of VCs and investors.

The Indian VC industry has seen massive growth, but is still dependent on American and Israeli FDI. Compared to the UAE or Singapore, Delaware is easier to manage from the risk perspective and a regulatory perspective as an American investor.

Also, Dubai is a new entry in the Indian tech business incorporation segment. Traditionally, Tech Founders used the Singapore backdoor and Tech Investors the Mauritius backdoor.

India and the UAE only signed a FTA 3-4 years ago, and Dubai's business law is still being honed compared to SG.

IANAL but If I were an Indian founder today, I'd incorporate and build an Indian subsidiary under CECA in Singapore, live and operate it from Dubai, and have operations run from within India.

Edit: thinking further, if I was starting a Tech B2B or B2C, I wouldn't even consider UAE to live in. If I created a Singaporean corporation, I'd have the ability to live in Singapore itself, and I would be able to expand my business into ASEAN where Indian startups and VCs have found similar operating conditions to India, while the UAE doesn't really open myself up to any markets outside of Africa, MENA, Central Asia, and South Asia. Great if I was a trader or import-export (ever ate rice in Gujarat? A portion of it came from Sindh via UAE. Pakistani Hindus run the rice import-export business in Sindh), but not if I was a tech startup.

Could you explain what these backdoors are?

They're free trade and tax agreements.

India–Singapore Comprehensive Economic Cooperation Agreement - https://en.m.wikipedia.org/wiki/India%E2%80%93Singapore_Comp...

AGREEMENT FOR AVOIDABLE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION WITH MAURITIUS - https://incometaxindia.gov.in/dtaa/108690000000000054.htm

Also, the Marutius backdoor was apparently closed in 2017 [0], which explains why I've seen the growth in Singapore incorporation.

[0] - https://www.squirepattonboggs.com/~/media/files/insights/pub...

Finally a question about my area of expertise!!

I’m the CTO of commenda.io. We help Indian startups get set up with RBI-compliant, venture-ready Delaware c-corps.

There are 2 reasons why Indian corporations like to incorporate in the US:

1: VC. American VCs love investing in Indian startups, but they hate investing in Indian corporations. YC invests only in corporations set up in the US, Canada, Singapore, or Cayman Islands. Other VCs have different requirements, but they all accept US.

2: Sales. If you’re selling to US customers (which most Indian SAAS startups want to do), a US entity will help you build trust and a US bank account will make it easier for your customers to pay you.

If you have any questions, please reach out to yaacov[at]commenda[dot]io

Cayman Islands, really? I thought it's a huge read flag for banks, IRS and other agencies, so VCs, including YC, would avoid it. Maybe I'm wrong as I'm not an expert, so can you please tell more?

Also, you didn't mention EU and UK. Does it mean that YC would prefer Singapore to a EU/UK startup?

Cayman Islands to Marutius to India was a common route [0].

Also there is a lot of FDI that is brought via the Caymans into India.

Btw, YC lists Caymans as one of the handful of jurisdictions it will support investing in [1]. I dealt with it some time back when I was helping companies choose between YC and Sequoia Surge.

[0] - https://medium.com/paper-blog/who-owns-sequoia-capital-in-in...

[1] - https://www.ycombinator.com/faq

Oh, I see. Thank you for the links. So, UK/EU are not accepted by YC, that's really surprising considering that Caymans are perfectly fine.

Cayman Islands is a member of the UK.

But it's not the UK, right? I mean I cannot incorporate in UK and then say it's a Cayman Islands company for YC purposes (i.e., without incorporating another entity to own the first)

When you incorporate in the "UK" you incorporate in England, Scotland, Wales, Northern Ireland, Jersey, Isle of Mann, etc.

> Have you ever wondered why so many companies incorporate Delaware?

> [...] decreased liability and litigation.

> [...] incomparable tax savings. There is no state income tax for Delaware corporations that conduct business out of state; no inheritance tax on stock held by non-Delaware residents; no state sales tax on intangible personal property (such as royalty payments); and shares of stock owned by non-resident aliens are not subject to Delaware taxes.

> In addition, Delaware corporations not operating in the state of Delaware do not need to acquire a business license in Delaware.

> [...] The State of Delaware allows you to file your company without listing the names of the owners

And other reasons detailed at the same link: https://www.delawareinc.com/before-forming-your-company/bene...

Seems like the closest US onshore location to actual offshore.

Recently, Clerky did a nice Handbook on incorporation. It goes very wide but is a good read for any Startup founder. Go start with your pick from the topics and keep it bookmarked for reference.

Clerky's Incorporation Handbook https://handbooks.clerky.com/startup-incorporation

Chapter on Where to Incorporate (Delaware) is at https://handbooks.clerky.com/startup-incorporation/where

Nice resource

Delaware is relatively business friendly and has a huge amount of established historical precedent in its case law.

It’s important for companies, lawyers, investors, and executives to minimize unknowns in outcomes. They generally know how any normal—and many many atypical—legal disputes will end up.

This extends to tax and reporting requirements involved. There’s a well worn path from founding through IPO as a Delaware C Corp.

If you’re going to change from that, you certainly can, but the question is: why?

I would say almost more than relatively business friendly :)

The above commenter's link mentions the Chancery Court: "The Delaware Court of Chancery is the oldest business court in America, uses judges instead of juries (which speeds up legal proceedings considerably) and maintains the most advanced and up-to-date case law, which corporate lawyers in Delaware rely on and refer to. This means that Delaware LLCs and corporations owners/shareholders will have decreased liability and litigation."

Also, https://en.wikipedia.org/wiki/Delaware_Court_of_Chancery

"Since 2018, the court consists of seven judges. The court is known being a hub for corporate governance litigation in the United States, as two-thirds of Fortune 500 companies are incorporated in Delaware."

"The history of the Court of Chancery stems back to the English common law system, in which separate courts were established to hear law and equity matters. English law courts included the Court of King's Bench (or Queen's Bench when the monarch was female), the Court of Common Pleas, and the Court of the Exchequer. The sole English court of equity was the Court of Chancery."

Well, we incorporated in India and continue here. Our seed fund was led by an American entity, with Indian funds participating. So, I think investments is a red herring. There's enough capital here irrespective of where you go.

Considering that all three destinations are similar in their tax structure, I think the most useful explanation is what lots of others are saying - a stable environment. Indian laws can be quite fickle as you probably know, and I mean, Dubai _is_ a monarchy at the end of the day, so it depends on one man / one family. Singapore seems like it should work, so I don't know why more startups aren't incorporated there.

The second reason of having mostly US clientele is also reasonable. Definitely tax implications that way too.

But another, possible THE biggest one, is just that the perception of the US and especially Delaware as THE startup destination. Incorporating in the US might be a subtle status symbol for many...

For one, Singapore requires a resident director. AFAIK, Delaware has no such requirements. The cost difference might actually be meaningful for a bootstrapped Indian startup. Larger operations, especially ones with foreign investors use Singapore and Mauritius based holding companies all the time.

For Indians in India it is also about visa, then taxes, regulations etc. If an Indian startup registers in Dubai, it is relatively easier with the paperwork. Plus visa, office space etc. is much easier. I would imagine that doing the same in USA would be much harder comparatively.

https://www.visitdubai.com/en/invest-in-dubai/live-and-work/... (the rules are simple and clearly laid out).

Human rights?

That seems like an obvious answer (good luck attracting queer employees - and a lot of tech workers are queer - to work in Dubai, despite whatever exemptions they may offer for tech workers) but it seems to be about where the company is incorporated while still being based in India.

So I guess the answer is, as others have pointed out, investors. It's likely easier to expand into Dubai if necessary rather than to reach US investors while incorporated elsewhere. I've certainly seen German startups incorporate in the US (often retroactively) for this reason.

It’s as simple as: The people you are asking for money from prefer Delaware C Corps

Why? Case law and legal infrastructure that reliably protects investors more than anywhere else for the best price.

> "especially Indian startups"

What do you mean by "Indian startups"? I.e. why would an Indian startup want to incorporate in Delaware?

Or is this about Indian startups that want to enter the US market / are looking for US investors? If that's the case, I guess this also partly answers the question.

Only Delaware has the Delaware Chancery Court, the best legal venue in the world for business disputes.

Its really just familiarity of US investors and access to US banking system

Everyone is giving you information about Delaware that is almost irrelevant to why those companies chose it and what they get out of it

umm.... there may be some cultural and social differences?

The Center?

Cargo cult?

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