Gotham, Delaware

Some weeks back, the New York Times ran a half-hearted (half-baked) exposé of international criminals and domestic tax cheats who form business entities in the state of Delaware.

The broad implication was that Delaware makes it too easy to form a corporation. As though the Delaware Secretary of State were a DMV handing out licenses to new drivers without requiring a road test. Or an agency issuing a permit to carry a concealed weapon without doing a background check.

GothamkrakowI read the piece wide-eyed.

As a start up and emerging company lawyer, I appreciate the rare efficiency represented by how easy Delaware makes it to form a new corporation or LLC. It's fast, it's fairly priced, and it's one small but important expediter of launched ventures and consummated deals.

The reporter, Leslie Wayne, connected the wrong dots.

Broadly speaking, a corporation is a legal fiction, the essential purpose of which is to spur economic activity by shielding entrepreneurs and investors from many of the costs of the business (shift some "externalities," if I'm remembering the law-and-economics school vocabulary, to society at large). Delaware gets it right by understanding that there is no moral or ethical or criminal gatekeeper function to be performed at the time an entity is formed.

The dots to connect are the criminal actions with the criminal actors.

Photo: Maciej Zygmunt / Flickr.


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