One of our founders asked, “Why do venture capitalists prefer Delaware corporations? Can’t I simply register my company in California or Nevada? Why is Delaware so important?
I found a great article which addresses this exact question. It says, “Delaware has a well-developed and reasonably consistent body of corporate law with which most business lawyers are familiar. It offers various advantages that help shield an entrenched management – such as the ability to dispense with cumulative voting for directors and the ability to stagger the election of directors.”
It goes on to say, “Delaware law gives preferred stock investors with voting control of a corporation the unilateral power to merge that entity into another, or otherwise have it get acquired, without need for approval of the founders or other early-stage participants who typically own most of the common stock. This type of transaction can “wipe out” the value of the common stock because it can be structured so that only those who hold a liquidation preference (i.e., the preferred stockholders) get any economic value out of it while the remaining shareholders may get little or nothing.”
You can read the full article at http://www.grellas.com/faq_business_startup_002.html
Keep in mind that this is only one opinion, and many lawyers and VC may not agree with this. We welcome other opinions on the subject. It’s worth discussing since it’s something almost every founder wants to know more about.