What are the reasons to avoid Delaware?

Delaware's large amount of court precedent is seen as an advantage because it reduces uncertainty in litigation. But lately some of that precedent seems to be pretty restrictive on companies. In particular the recent decision to overrule the clear expressed preferences of Telsa shareholders and award $345 million (over $17,000 per hour) to lawyers representing one shareholder with nine shares has people questioning whether Delaware's court precedent is really an advantage.

It sounds like you are basing this on a single decision by a single judge facing a pretty unique situation.

Delaware still has the most certainty, by far. You are much better off there the vast majority of the time. Delaware has a court (the court of Chancery) that is specifically geared for rapid and thorough resolution of corporate disputes, with some of the absolute best and judges (the chancellor and vice chancellors) in the country.

If you want to screw around, try incorporating in another state (maybe even one with elected, political judges!) and see how that goes when a real dispute arises.

That stays general until it suddenly sharpens, which obfuscates that it's just the Tesla decision driving this idea.

It was interesting to me that it was considered a bedrock of corporate jurisprudence until then.

When faced with that contradiction, I first checked my premises...

A judge might take your $50 billion options package if you incorporate there, a real risk to most of us.

It's over $100 billion now (due to Tesla stock price increase)

Well, they might take it if you don't have an independent board of directors, that you browbeat into it, and some shareholders sue, and are able to substantiate that to a judge via a long legal case. In that case, you might be upset, but your investors won't be.

EDIT: Some facts are too dangerous to share, because of how they make people feel.

It is highly unlikely anyone here will ever have to worry about this problem, the odds are worse than winning the lottery [1] [2]. ~90% of startups end up in failure [3], for example.

[1] https://medium.com/@13032765d/the-chance-of-becoming-a-billi... | https://archive.today/CwENd

[2] https://medium.com/@RisingUnicorns/reality-of-95-startup-fai... | https://archive.today/NCzaX

[3] https://www.ycombinator.com/library/D0-startups-for-students

It's Elon Musk throwing around his power, this time trying to destroy Delaware courts because they ruled against him. The message is: If you challenge me, I'll attack you, no matter who you are.

To the degree it works is because for some reason, people follow him. Is the OP worried they won't get their $40 billion payday?

Being Elon Musk, more or less.

Based on their current behavior, if you become a politically targeted person, your company will be de facto removed from your control.

If you live in the US and not in Delaware, you likely have to register in your state as a foreign entity. So you double the work and fees.

I am not a lawyer or accountant.

The irreplaceable thing DE brings is the Chancery Court. No better venue for contact cases. Chancellors are very knowledgable, and no nonsense.

The classic advice of “Don’t innovate outside your company’s area of differentiation” applies pretty firmly here.

Age old advice is that founders should put their attention on what matters for the startup to succeed. Succeeding already requires a lot of work. Avoid making things difficult where they don’t need to be.

Business Cards, Logo Design, what desk to buy, my VC buddy called this "Star-up porn" ...

We agree, but those examples while valid are also inconsequential.

More dangerous examples is things like inventing new PTO policies, trialing unproven HR policies (e.g. “we work 6 hour days instead of 8 hours”), and incorporating a c-corp in any state other than Delaware.

It’s a major red flag when I see companies doing things like this. It tells me the founder’s attention is scattered and not focused solely on ensuring the startup’s success, and not customer focused.

The state that you are based in may still be the best choice. You have to register as a foreign entity in your local state if you open a Delaware company. Delaware only makes sense if you are looking for investors.

Err on the side of keeping your options open. Heck, even dentists and doctors offices are taking on investors and getting acquired these days, probably without an original intent to do so.

You can always close and open a Delaware company later. https://www.delawareinc.com/blog/convert-foreign-llc-corpora...

For most people, incorporation in their home state is the best choice. I had a DE company once. Currently, I have an LLC in my home state. I may in the future open a DE LLC for another project. But there is not one-size-fits all solution. But if you want to open out of state, for a start-up DE might be the best option. I vaguely remember that Wyoming is good for trusts but I am not an expert in this field.