Delaware is the second-smallest state in the U.S. But it's home to more than 60% of Fortune 500 companies, the state says, including Google parent company Alphabet, Amazon, CVS Health, and CNBC parent company Comcast.
"[Delaware] has a lot of appeal for basically three main reasons: convenience, flexibility and predictability," Roey Gilberg, corporate counsel for LegalZoom, told CNBC.
One of Delaware's major advantages is its Court of Chancery, which is a separate court system specifically for handling corporate cases.
The court is "widely respected as an authority on business matters trusted by both business and legal communities, honestly, all over the world, as a place where the rules are well developed," Gilberg said.
The predictable case law also gives investors peace of mind. More than 90% of U.S.-based companies that went public in 2021 were registered in Delaware, according to the state.
Delaware law is also attractive to many small businesses.
Cleanster.com, a platform for finding cleaning services for homes and short-term rentals, is incorporated in Delaware despite both co-founders being based in Montreal, Canada.
"When you want to go global and you've incorporated in Canada, no one is going to look at you at all," said Cleanster.com co-founder and CEO Gloria Oppong. "Delaware protects both ourselves, the entrepreneurs, and also the investors eventually that are going to be joining on."
In addition to the attractive court system, Delaware provides some tax incentives for businesses, but saving on taxes may not be enough of an incentive for small businesses to incorporate in Delaware.
"It's a misnomer that Delaware is a tax haven for corporations," said Gigi Tewari, assistant professor at Widener University Delaware Law School. "So many people believe that, I should incorporate my business in Delaware because I'm going to save so much on corporate tax. Actually, Delaware is on the higher end for corporate tax."
Watch the video above to learn more about why so many businesses are flocking to Delaware.
