Forming a Corporation

Creating a corporation is called incorporating and the process of incorporating is called incorporation. Incorporation requires the government to issue a charter, which is almost always done at the state level, making corporations a creature of state law. Incorporation can be done in any state, even in a state where the corporation doesn't intend to operate. Corporations incorporated in a distant state typically hire a service agency to maintain a mailbox address in the state of incorporation, which accepts service of process. 

The state where a corporation incorporates is critical because a corporation's internal affairs are governed by the state of incorporation. This is called the internal affairs doctrine. This makes sense; if a shareholder's voting rights changed depending on where the shareholder lived, it would lead to chaos. But the internal affairs doctrine is limited to—wait for it—internal affairs. So while it will set shareholder voting rights or the duties owed by directors, it doesn't affect torts or contracts with third parties. The internal affairs doctrine is frequently under attack, and states (most often California) have attempted to govern the internal affairs of corporations headquartered in their state, regardless of where the corporation is incorporated. So keep an eye out for local state rules in practice.

This book covers two sets of incorporation rules: (1) the Delaware General Corporation Law (abbreviated DGCL); and (2) the Model Business Corporation Act (abbreviated MBCA). We cover Delaware law for corporations because a majority of public corporations are incorporated in Delaware. There are two major reasons for this. First, most public corporations are incorporated in Delaware, so Delaware law is more developed than the law in other states. Delaware just sees more cases and attracts the deepest corporate law nerds to the state's judiciary. Second, because most public corporations are incorporated in Delaware, books like this teach Delaware law, so there's a broader knowledge among lawyers who are often the ones advising on where to incorporate. Delaware law is a shared language among corporate lawyers around the world. It's like esperanto but useful.