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Where to Incorporate? Florida Bar Survey Results and a Florida vs. Delaware Comparative Analysis

Business Law
Where to Incorporate? Florida Bar Survey Results and a Florida vs. Delaware Comparative Analysis

As of December 31, 2021, there were 811,396 active for-profit corporations incorporated under Florida law, including 104,625 incorporated in 2021.[1] Results of a survey conducted in March 2021 by The Florida Bar’s Business Law Section (BLS) indicated that approximately 70% of corporations organized by respondents (Florida-based practitioners) are incorporated in Florida.[2] Why are 30% of Florida-based businesses organized as corporations incorporated in other states? Counsel, their business-founding clients and outside investors often instinctively choose or gravitate to Delaware as the state of incorporation, which accounts for most out-of-state incorporations. However, for Florida-based start-ups as well as early stage, emerging, family-owned and closely held companies (referred to in this article as “homegrown” companies or businesses), out-of-state incorporation may not be the best or even most appropriate choice.

To be sure, publicly traded corporations and companies raising equity capital from sophisticated, institutional funding sources, and their counsel, often choose Delaware, given its internationally recognized and annually updated corporate law, excellent business court system, rich caselaw, and administrative user-friendliness. Yet, for homegrown companies, there are significant and substantial elements in Florida that favor consideration of in-state incorporation or, at least, largely neutralize the seeming advantages of being incorporated in Delaware. This article discusses the results of the BLS survey and analyzes some of the principal differences between Florida and Delaware corporate law, as well as cost, administrative, and other considerations.

Survey Results

Participants — Approximately 200 members of the BLS participated in the survey, with over 70% having more than 16 years of practice experience. Respondents were from large and small firms and included a fair number of solo practitioners, with approximately one-third of the respondents coming from firms of more than 50 lawyers.

Incorporation Data — As noted above, survey responses indicated that approximately 70% of corporations organized by Florida-based practitioners are incorporated in Florida. Of the remaining 30% of out-of-state incorporations, Delaware claimed 73%, with the rest of the states having a small smattering of incorporations (no state exceeded 2%).

Factors Affecting Choice of State — Based on a ratings scale, the following factors were deemed by survey respondents to be the most important in influencing the choice of state for incorporation purposes[3] (see Figure 1).

Figure 1 and Figure 2

The principal influencing factor, location of the business, is reflected in the fact, as demonstrated by the survey results in Figure 2, that most Florida-based practitioners are comfortable with incorporating their clients’ businesses in Florida. However, the influence and expectations of outside investors, particularly private equity, venture capital, and other non-Florida-based institutional investors, are major factors causing out-of-state incorporations, especially in Delaware. Although Delaware’s judicial system, in particular its Court of Chancery comprised of judges experienced and expert in business law matters, is regarded to be the nation’s leading business court, the relatively lower influence percentage for the “judicial system” factor is probably due to the fact that for start-up, early-stage, and other home-grown businesses, that factor is not of critical importance.

• Impact of Recent Revisions to Florida’s Corporation Statute — Survey participants were asked if the recent modernization of and substantial revisions to Florida’s corporate statute[4] encouraged in-state incorporations. The responses are in Figure 2.

The survey results in Figure 2 suggest that the Florida corporate statute revisions have positively impacted the choice of Florida as the state of incorporation.

The BLS survey responses were from a small sample of BLS members. However, there is no reason to believe that the results would have been materially different with a larger response. A review of the results suggests that an analysis of the differences, including the advantages, benefits, costs, and disadvantages, relative to and flowing from Florida and Delaware incorporations is timely and appropriate.

Florida vs. Delaware: Comparative Elements

Opinions will vary as to whether and under what circumstances to incorporate a client’s business in Florida versus Delaware, and which factors are of greater or lesser importance in choosing the state of incorporation. For example, although fees and other costs associated with Florida incorporation may be considerably less than in Delaware, that factor may be of little importance to highly capitalized and profitable businesses. Similarly, while administrative efficiencies and user-friendliness in Delaware are generally viewed as excellent, for many counsel, that factor may not be as important as the approachability and ease of communicating with Florida’s Division of Corporations.

The discussion below that examines comparative factors is not meant to suggest that any one factor is or should be determinative in any given case. Selecting the state of incorporation requires consideration and analysis of a variety of factors that impact the corporation’s structure, ownership, management, and operation. Our principal theme is that “pausing” the instinctive selection of Delaware, and favoring serious consideration of a Florida incorporation, is both desirable and appropriate for many home-grown companies.

Board and Management Factors

Duty of Care — Florida has a specific statutory provision that defines the duty of care applicable to corporate directors.[5] In contrast, Delaware has no statute defining the elements of the duty of care other than a single provision, also found in Florida’s statute, that grants protection to directors who rely on corporate records, officer reports, and third-party opinions that directors reasonably believe are within the professional or expert competence of the third party.[6] Delaware’s lack of clear, central standards leaves the parameters of this core fiduciary duty entirely to judicial precedents and interpretation. While duty of care caselaw in Delaware is, for the most part, similar to Florida standards, for courts and counsel seeking guidance in a particular transaction or matter, Florida offers a more comprehensive statute on which to rely.

Delaware’s judicial system is excellent, but Delaware caselaw regarding the duty of care can be both a blessing and a curse, depending on one’s perspective and circumstances. Delaware courts are not as pro-board and pro-management as popular opinion may hold. For example, duty of care litigation is very much influenced by the so-called business judgment rule. Both Florida and Delaware courts recognize this nonstatutory evidentiary presumption in favor of directors’ actions and decisions.[7] The Delaware Supreme Court’s decision in Smith v. Van Gorkom, 488 A. 2d 858 (Del. 1985), holding directors of a publicly traded corporation, under a gross negligence standard, personally liable for lack of sufficient diligence in valuing the company in light of a cash-out offer, and therefore denying their business judgment rule defense, was considered by many practitioners to be a somewhat shocking result and one that set a high standard of conduct for Delaware corporate directors before the business judgment rule could be applied.[8] In addition, no Florida court has yet imposed upon the board of directors the duty to monitor corporate matters to the extent required by Delaware courts under the case, In re Caremark International, Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996), and doctrine.[9] In Caremark, shareholders brought suit against the corporation’s directors alleging that they were negligent because they had failed to assure that the corporation had in place an adequate process to detect illegal kickbacks made to physicians and others for referring Medicare and Medicaid patients.[10] This case has since been followed by Delaware courts and has caused exposure for directors where there has been “an utter failure to attempt to assure a reasonable information and reporting system exists.”[11] Finally, it is worth noting that, unlike Florida, Delaware has no statutory provision protecting directors who, in discharging their duties, determine to take into account non-financial considerations such as societal, economic, legal, and other effects on a variety of constituencies and concerns, including employees, customers, and the community.[12]

Duty of Loyalty; Director Conflicts of Interest — Conflict of interest and personal benefit concerns are highly sensitive issues in corporations of all sizes and stages of development, but particularly in closely held corporations that have dominant owners who may also be compensated managers. This is an area fraught with minority shareholder claims and related litigation. Florida’s recently amended conflicts of interest provision is both more specific and clearer than Delaware’s in terms of defining what constitutes a conflict of interest transaction, explicating the issue of fairness to the corporation, determining which directors are qualified to vote on the validity of transactions, and setting forth the burden of proof and role of the courts in considering shareholder challenges to such transactions.[13] Much of Delaware’s law in this area is dependent on judicial interpretations of its more limited statute. For counsel that prefers clearer and more comprehensive standards, Florida’s statutory provision may be preferable.

Officer Standards — Florida has a specific statutory provision defining the general standards and obligations of officers.[14] Delaware has no such provision, which leaves open in Delaware questions of proper conduct and responsibilities of management based primarily on fiduciary duty decisions and agency law.[15] While practical differences may be slight, the ability of counsel in Florida to have a specific itemized set of standards may be very useful in formulating opinions and addressing issues of officer responsibilities, including breach of duty claims.

Director Personal Liability — Florida’s provision immunizing directors from personal liability for monetary damages except for certain egregious misconduct automatically applies to all corporations incorporated in Florida.[16] In contrast, Delaware’s analogous provision requires that a corporation specifically adopt the immunizing provisions in its certificate of incorporation.[17] For start-ups, early-stage, and emerging businesses that are pursuing outside investors, founders, and management considering a Delaware incorporation may face the awkward task of explaining why they are recommending or adopting charter provisions that immunize them, as corporate directors, from personal liabilities owing to breach of fiduciary duties. Moreover, Florida’s provision does not have the “good faith” reference that has caused both confusion and litigation in Delaware.[18] Florida’s provision is also more comprehensive than Delaware’s regarding standards applicable to personal liability based on improper personal benefits.[19]

Director Voting — Corporate directors are often placed in positions where shareholders may challenge their votes, consents, or approval based on actual or potential undue influence, such as in conflict of interest transactions, derivative action claims, and indemnification-related considerations. Florida’s statute has carefully delineated provisions stating which particular directors are “qualified” to vote on such matters.[20] Delaware does not have a similarly detailed director qualification provision. Delaware’s provision regarding approval of indemnification, for example, simply provides for a vote by directors who are “not parties to such action.”[21] That standard is unlikely to be dispositive where serious allegations of potential conflict and/or lack of objectivity can be made. If, for example, a board’s decision indemnifying a controlling or otherwise principal director or officer is challenged by shareholders, there may be an issue as to the fairness and objectivity of the directors’ votes, possibly leading to distracting, costly, and time-consuming litigation.[22] Florida’s specific director qualification provisions provide guidance and planning opportunities to counsel when director votes may be required in sensitive situations and may in the long run lessen the risk of claims of improper authorization.

Short-form Mergers — While not a major factor at the time of formation, Florida’s corporate statute allows parent-subsidiary “short-form” mergers with only an 80% parent ownership of subsidiary shares, in contrast to Delaware’s 90% requirement.[23] This operates to facilitate — and reduce disclosure, solicitation, documentation, delays, and other burdens — expedited mergers where 80% or more of the subsidiary’s outstanding shares are owned by the parent.

Shareholder Factors

Shareholder Agreements — It is not uncommon for shareholders in a closely held or non-public corporation to agree in advance as to such matters as board constitution, governance, voting and consent rights, officers, management compensation, option pools, dividend policy, and other matters that ordinarily are within the purview of board of directors’ authority. Florida’s statute expressly authorizes such agreements if unanimous, signed by all shareholders, conspicuously noted on stock certificates and not contrary to public policy.[24] In contrast, Delaware has a much more limited statutory provision authorizing shareholder agreements. Delaware’s statute allows shareholder agreements that appropriate powers of the board to the shareholders only for corporations defined as “close corporations” within the Delaware statute, which requires specific provisions to be included in the certificate of incorporation.[25] It is not clear the extent to which shareholders in Delaware corporations that do not follow these procedures can put in place shareholder agreements that affect or limit board powers.[26]

Shareholder Meetings — Shareholders in a Florida corporation can call a special meeting on application of the holders of 10% or more of the outstanding shares.[27] In Delaware, shareholder meetings may be called only as provided in the articles, the bylaws, or by directors.[28] Florida’s provision is more conducive to allowing meetings at which shareholders may bring action items, voice preferences, seek information or air grievances. The stricter Delaware provision may be seen by corporate founders and management as an advantage by limiting shareholder-called meetings, but there is much to be said for allowing opportunities for open discussions as well as the possibility that shareholder unrest and even litigation may occur if communication or shareholder concerns are stifled.

Corporate Veil Piercing — Florida jurisprudence has created a difficult, high standard for plaintiffs to obtain judgments against shareholders for corporate debts and liabilities. Florida’s leading Supreme Court decision stated that shareholder immunity exists unless the corporation was “formed or used for some illegal, fraudulent, or other unjust purpose which justifies piercing of the corporate veil.”[29] Delaware courts have emphasized an “alter ego” (mere instrumentality) concept that could lead to piercing where there is a substantial overlap between the corporation and its shareholders.[30] Florida courts will also occasionally employ an “alter ego” test, but at bottom in Florida, the element of fraud or proof of shareholder misconduct is dominant.[31]

Appraisal Rights — The Delaware appraisal statute has a more limited set of appraisal rights categories available to shareholders than does Florida. For example, Delaware, unlike Florida, does not provide for appraisal rights in connection with a sale of all or substantially all of the corporate assets.[32] Moreover, the Florida statute contains a list of circumstances requiring appraisal rights not found in Delaware, including altering preemptive rights, altering voting rights, adopting a plan of domestication or conversion and effecting a reclassification of shares.[33] The more limited Delaware list of matters giving rise to shareholder appraisal rights may be appealing to founders and management. However, this supposed advantage is not likely or necessarily dispositive in choosing a state of incorporation. If start-ups and other home-grown companies need to attract investor-shareholders, the more robust appraisal rights in Florida could provide an advantage to founders in the negotiation process. It should also be noted that the Florida statute appears to provide for the modification or elimination of any or all of Florida’s listed appraisal rights through the articles or bylaws, although this provision is relatively recent and has not been judicially tested.[34] Moreover, the 2021 amendments to Florida’s corporate statute eliminated the disturbing prospect of arbitrage by companies that purchase shares after a merger vote and then assert appraisal rights, hoping to profit through the appraisal litigation process.[35] Delaware currently has no comparable provision that protects against abusive arbitrage efforts.

Litigation-Related Factors

Costs — Litigation against a Delaware corporation, or its board of directors or management, can and likely will be pursued in Delaware courts. The fact that the business and its owners are located in Florida is unlikely to cause a Delaware court to remove the case to Florida.[36] The internal affairs doctrine — where matters pertaining to the relationships among the corporation and its current officers, directors, and/or shareholders are at issue — further argues against removal of a case from Delaware.[37] Litigation in Delaware may be considerably more costly and inconvenient for Florida-based corporations, counsel, and individual parties, including the probable need to retain separate Delaware counsel.

Derivative Actions — Florida has extensive, specific provisions regarding the process for bringing derivative actions, the standards for special litigation committees (SLCs), the court’s role in considering motions to dismiss, and the allocation of costs.[38] Delaware has only a single, brief provision regarding standing to bring a derivative action.[39] All of Delaware’s jurisprudence on derivative actions is court-derived. In addition to preferring a more explicit set of standards, counsel may also consider that a leading Delaware decision allows courts, in at least demand-excused cases, to use their own judgment as to the merits of the derivative claim even in the face of a reasoned and apparently independent SLC report recommending dismissal of the action.[40] While the Florida statute also allows courts to use their own judgment, the authors are not aware of any court in Florida having gone as far as Delaware in calling for an independent judicial inquiry.

Judicial System — There is no question that the Delaware judiciary is far more experienced and expert in corporate and business matters than exists in Florida. Moreover, the large body of well-written caselaw in Delaware creates a substantial basis for counsel to guide and advise clients and formulate legal opinions when uncertainties arise. This factor alone may lead some counsel, investors, and clients to choose Delaware as the state of incorporation. However, Florida counsel are not without substantial judicial guidance in many corporate areas. Florida is among the approximately 35 “Model Business Act” states. Florida’s corporate statute is similar to many other Model Business Act states. When and if issues arise as to statutory interpretation, counsel has available Florida caselaw, legislative history and commentary, caselaw from other Model Act states that have examined similar issues, and the notes and explanatory commentary on specific Model Act provisions by the American Bar Association committee responsible for the Model Act. There is also a growing commitment and effort to create and augment specialized business courts in Florida.[41] And if additional guidance is needed, Florida courts and counsel can and have looked to Delaware judicial decisions, although that may not always be wise given the differences in statutes and corporate culture.[42]

Florida is currently not able to duplicate the excellence of the Delaware courts on business law issues, but in considering all matters relative to choosing a state of incorporation, as indicated in the survey results, the preeminence of Delaware’s judiciary and judicial system is an important but not necessarily decisive factor.

Indemnification — While director and officer statutory indemnification provisions are similar in Florida and Delaware, some differences exist. Delaware’s default mandatory indemnification provision requires the indemnification of directors and senior officers for actual expenses reasonably incurred in defending any action or claim to the extent the director or officer is successful.[43] In contrast, Florida’s default mandatory indemnification provision requires indemnification of director and officer expenses incurred only if the defendant is wholly successful on the merits.[44] A director or officer defendant who is successful in defeating some but not all of the counts of a complaint is entitled to mandatory indemnification in Delaware but not Florida. However, this difference may be easily eliminated as Florida’s statute allows indemnification provisions to be altered by the articles of incorporation or bylaws, including the mandatory indemnification provision.[45] An additional difference is that the Delaware statute limits the universe of “officers” that are entitled to mandatory indemnification in Delaware to the president, CEO, COO, CFO, CLO, controller, treasurer, and CAO.[46] Florida’s mandatory indemnification provision applies to all officers.[47] In practice, whether in Florida or Delaware, experienced counsel include detailed, “maximum” indemnification and advancement of expenses provisions to the fullest extent permitted by law in the charter, bylaws, and/or indemnification agreements with directors and officers.

Comparative Fees and Costs

Formation — There may be significant filing cost differences in forming a Delaware rather than Florida corporation. Delaware makes it fairly easy to determine how much a newly formed corporation can expect to pay by providing Excel spreadsheets that automatically calculate the filing fee required for obtaining its certificate of incorporation.[48] That being said, Delaware’s filing fee varies drastically based on the number of shares authorized for issuance and whether or not such authorized shares have a par value.[49] By way of example, suppose corporation A (“NewCo”) decides to authorize 1 million shares for issuance with a par value of. 0001 per share. NewCo would be required to pay only Delaware’s minimum $89 fee. However, if NewCo instead provides for a par value of $1 per share, the filing fee jumps to $274.[50] Or, if NewCo decides to authorize 1 million no-par value shares, NewCo’s incorporation fee would be $5,174.[51]

In short, a corporation organizing in Delaware with no-par value shares will face a range of filing fees between $89 (reserved for Tier 1 corporations that authorize up to 1,500 no-par value shares) and as high as $10,174 or more (reserved for Tier 4 corporations that authorize 2,000,001 or more no par-value shares). A corporation that authorizes 2 million shares with a stated par value of one dollar will pay a $474 filing fee while another corporation that authorizes 2 million no-par value shares will pay at least $10,174. It would appear that Delaware is penalizing corporations that elect either a high par value or no-par value for its authorized shares, or that fail to decide carefully how many shares are needed or appropriate for initial authorization and issuance. In addition, should NewCo subsequently amend its articles to increase the authorized number of shares, it will be subject to a $194 fee. The same fee required to amend the articles of incorporation in Florida is only $35.

Unlike the byzantine fee structure in Delaware, in Florida there is only a $70 incorporation filing fee for any and all corporations. The difference in fee schedules is due in part to the fact that Delaware continues to require a par value or no-par value designation for all shares, unlike Florida and most other Model Business Act states that have eliminated the requirement of par value for authorized shares. Par value is an archaic and not easily understood concept that, in Delaware, affects not only the amount of the incorporation fee and annual franchise tax, but also the determination of dividends paid to shareholders. Florida’s incorporation regime avoids such calculations and includes a much simpler, and less expensive, fee schedule. Delaware hardly seems like the forum of choice from a purely state-imposed-fees standpoint, and that’s not including the ongoing annual fees and franchise taxes, discussed below.

Ongoing & Annual Fees and Franchise Taxes — Once a corporation has been organized under the laws of any state, an ongoing annual fee is usually due, which can vary significantly from state to state, as it does in the case of Florida and Delaware. In Florida, every domestic corporation must file an annual report with the Division of Corporations and pay a filing fee currently fixed at $150, a combined amount of $61.25 for the annual report plus a state-mandated supplemental corporate fee of $88.75.[52] If a homegrown company incorporates in Delaware, or elsewhere, it will have duplicate annual costs, as it will be required to file an annual report and pay annual fees in both the state of incorporation and in Florida, where it will need to register as a foreign corporation doing business in Florida.[53]

Delaware’s annual report fee is only $50, but corporations are also required to pay annual franchise taxes that range from $175 for corporations with 5,000 authorized shares or less to a maximum annual amount of $200,000. Florida does not impose a franchise tax on its corporations. Delaware’s franchise tax is calculated using the lower of an authorized shares method and an assumed par value capital method,[54] but will not be less than $175 or more than $200,000.[55] Corporations organized in Delaware therefore pay annual fees and taxes of not less than $225 and perhaps considerably more. The difference with Florida may be only $75 per year, but for corporations that require or anticipate a significant number of shares being authorized, Delaware fees and franchise taxes each year can be substantially higher than Florida’s single annual report fee. At its annual meeting in 2020, Saga Communications, Inc., a Delaware corporation, proposed to its shareholders reincorporation in Florida, citing as the principal factor a reduction in franchise tax liability. As stated in Saga’s proxy statement:

Unlike Delaware, Florida does not require domestic corporations to pay a franchise tax. We estimate that, if we remain incorporated in Delaware, Saga Delaware will pay approximately $200,000 in franchise taxes to Delaware, with that calculation based on the number of authorized shares of the Company’s stock, and will continue to pay a similar amount in franchise taxes for the foreseeable future. Florida only requires the payment of aggregate annual fees of $150 when a corporation files its annual report, regardless of the number of authorized shares.[56]

The proposal was approved by the shareholders, and Saga is now a Florida corporation.[57]

Additional Factors

Takeover Defenses & Hostile Takeovers — Delaware is by far the leading state when it comes to public corporation hostile takeover litigation and caselaw. However, start-ups, emerging and closely held, home-grown companies are, at the time of incorporation, usually a long way from having to concern themselves about unwelcome, non-negotiated takeover bids. Closely held corporations are nearly always controlled by a single shareholder or small group of shareholders. Even as corporations grow their shareholder base, it may not be imperative that such corporations be incorporated, or reincorporate, in Delaware for defensive purposes. The full panoply of state-of-the-art anti-takeover provisions and hostile takeover defenses permitted in Delaware are available in Florida. In addition, Florida has express statutory provisions not found in Delaware. For corporations with 100 or more shareholders, Florida has a “control-share acquisition” provision that does not exist in Delaware and that gives the board of directors substantial power to “nip in the bud” an attempted hostile takeover.[58] Delaware has a provision regarding “business combinations with interested shareholders,” but that provision is applicable only to corporations with shares 1) listed on a national securities exchange or 2) held of record by more than 2,000 stockholders.[59] In addition, Florida’s separate “affiliated transactions” provision, which also does not exist in Delaware, effectively prevents abusive two-tier, front-end-loaded tender offers.[60] Florida’s corporate statute also includes a provision expressly permitting boards of directors, without shareholder approval or action, to adopt shareholder rights plans (a/k/a “poison pills”).[61] If major takeover-related issues arise not covered by statutory provisions, Florida courts can choose to follow or modify Delaware case law regarding director duties, takeover defenses, and other hostile takeover-related issues. The bottom line is that not only do anti-takeover statutory provisions exist in Florida that are not present in Delaware, but the large body of case law in Delaware can be adapted and utilized in Florida should Florida corporation-based cases arise.

Venture Capital — Attorneys who deal with private equity and venture capital firms have likely been met with the almost universal demand that a Florida-based business receiving investment capital be incorporated (or reincorporated) in Delaware. Apart from the cachet that Delaware incorporation offers, there is little reason for such demand during the early stages of business formation, capitalization, and development. Florida’s statute allows for the issuance of common, preferred, and hybrid shares, classes and series of preferred shares with differing preferences, privileges, limitations, and relative rights, and all other terms and provisions that may be negotiated with founders and existing shareholders to protect private equity and venture capital investors’ interests, including so-called “investor rights agreements” that provide protective rights in favor of new investors. The seeming automatic conclusion among institutional investors that it is better to be a Delaware corporation from the start has little, if any, substantive basis when applied to start-ups, early-stage, and developing home-grown companies.

Down the Road: the Ease of Conversion — As is evident, the authors of this article believe that incorporation in Florida may be the best and most appropriate choice for Florida-based start-ups and other home-grown companies. That being said, if the day comes that private equity, venture capital, or other investors insist on Delaware incorporation, or counsel decides that the company has matured to the point that Delaware has an irresistible pull, it is rather simple and of relatively small cost for a Florida corporation to “convert” to a Delaware corporation. Generally, a plan of conversion must be approved by a majority of the corporation’s shareholders unless the articles of incorporation require a greater vote.[62] Once the conversion is approved and appropriate filings made in both Florida and Delaware, the former Florida corporation becomes ipso facto a Delaware corporation with no change in structure, management, shareholdings, or other corporate elements, except as otherwise provided in the converted corporation’s governing documents.

Limited Liability Companies

The BLS Survey included several questions regarding formation of limited liability companies (LLCs), which have the entity of choice for many businesses.[63] The survey results indicated that approximately 80% of Florida-based, closely held LLCs were formed in Florida, a higher figure than the approximately 70% of business organized as Florida corporations.[64] Again, Delaware accounted for the bulk of out-of-state LLC formations. While many of the statutory and judicial factors discussed with regard to corporations are applicable to LLCs, there are some significant differences between the LLC statutes of Florida and Delaware. A more thorough survey and a comparative analysis of these differences would be necessary to determine the principal causes of and reasons for out-of-state LLC formations. We leave that to another day.


There is no denying the cachet of Delaware as a state of incorporation, the excellence of its judiciary and Division of Corporations, and the engagement of its Bar and responsiveness of its legislature to evolving corporate needs and processes. It is understandable why a great percentage of publicly traded corporations are incorporated (or reincorporated) in Delaware. Yet, many of those corporations did not begin or need to have begun their corporate existence as Delaware corporations. Start-ups, early-stage, and young, developing home-grown companies need only incorporate in a state that has a first-rate, clear corporate statute, an effective state administrative office, and, if need be, a responsive, accessible judicial system. Florida has all of these, as well as an active Florida Bar Business Law Section that, through drafting committees and task forces, is continuously examining ways that corporate laws and enforcement can be improved. Florida’s advantages and benefits as a state of incorporation are, we believe, not adequately understood or recognized and perhaps unfairly stand in the shadow of Delaware’s glow. We commend serious consideration of Florida incorporation to counsel, their clients, and even to the private equity, venture capital, and institutional investors who instinctively, but often without just reason, insist upon Delaware.

[1] The opinions and views expressed in this article are those of the authors only. They do not purport to reflect or represent the opinions or views of the firms and/or organizations to which the authors (or each of them) belong, or any of the members, partners, attorneys, or employees of such firms and/or organizations. In addition, nothing in this article reflects or includes any legal advice or legal opinion(s) from any of the authors (or their firms or organizations). Incorporation statistics can be found on the Florida Division of Corporations’ Yearly Statistics website, available at

[2] The 16-question survey was prepared and conducted by a Florida Bar Business Law Section task force. The tabulated survey results can be found at The survey focused on corporate incorporations. Several questions were also asked about limited liability company formations. Survey results indicated that 80% of Florida-based LLCs were formed in Florida and 17% in Delaware.

[3] In the survey, “judicial system” was couched as “quality, consistency and/or speed of Judicial system.”

[4] F.S. Ch. 607, Part I (effective Jan. 1, 2020). For a description of the principal amendments to Florida’s corporate statute, see Philip B. Schwartz & Gary I. Teblum, Summary of Recently Adopted Changes to the Florida Business Corporation Act, 93 Fla. B. J. 16 (Nov./Dec. 2019) and, by the same authors, Harmonizing Changes to Other Florida Entity Statutes, 94 Fla. B. J. 29 (Jan./Feb. 2020).

[5] Fla. Stat §607.0830.

[6] DGCL §141(e).

[7] See, e.g., Pittman v. Groveowners Cooperative of Loxahatchee, Inc., 534 So. 2d 1207 (Fla. 4th DCA 1988); Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985).

[8] See, e.g., Smith v. Van Gorkom (Del. 1985), annotated by Holger Spamann, available at (“This case caused a storm….Liability insurance rates for directors skyrocketed.”).

[9] In re Caremark, 698 A. 2d at 959, recently applied in Marchand v. Barnhill, 212 A. 3d 805 (Del. 2019).

[10] In re Caremark, 698 A. 2d at 959.

[11] Id. at 971.

[12] A list of the factors a Florida corporate board of directors may consider in discharging its duties is set forth in Fla. Stat. §607.0830(6).

[13] Fla. Stat. §607.0832; See DGCL §144.

[14] Fla. Stat. §607.08411.

[15] See Gantler v. Stephens, 965 A. 2d 695 (Del. 2009), where the Delaware Supreme Court clarified that officers of Delaware corporation owe the same fiduciary duties of care and loyalty that directors owe to the corporation and its stockholders.

[16] Fla. Stat. §607.0831.

[17] DGCL §102(b)(7).

[18] DGCL §102(b)(7)(ii) (excluding “acts or omissions not in good faith”). See, e.g., John L. Reed & Matt Neiderman, “Good Faith” and the Ability of Directors to Assert §102(b)(7) of the Delaware General Corporation Law as a Defense to Claims Alleging Abdication, Lack of Oversight, and Similar Breaches of Fiduciary Duty, 29 Del. J. Corp. L. 111, 119 (2004) (“Accordingly, the answer to the question of what is meant by “not in good faith” for purposes of §102(b)(7) may be of paramount significance in defining the scope of exoneration allowed by §102(b)(7).”).

[19] Fla. Stat§607.0831(3), (4), setting forth particular circumstances under which a director is deemed not to have received an improper personal benefit and stating that such circumstances are not exclusive and do not preclude other circumstances under which the director will be deemed not to have received an improper benefit. Delaware has no comparable provisions.

[20] Fla. Stat. §607.0143.

[21] DGCL §145(d).

[22] Delaware courts have been especially sensitive to issues of director independence and factors affecting the decision-making process. See, e.g., McElrath v. Kalanick, 224 A. 3d 982, 995 (2020) (noting that a director’s independence turns on “whether the plaintiffs have [pleaded] facts from which the director’s ability to act impartially on a matter important to the interested party can be doubted because that director may feel either subject to the interested party’s dominion or beholden to that interested party”); see also Kahn v. Tremont, 694 A. 2d 422, 429-430 (Del. 1997) (“In our view, the Special Committee established to negotiate the purchase of the block of NL stock did not function independently. All three directors had previous affiliations with Simmons or companies which he controlled and, as a result, received significant financial compensation or influential positions on the boards of Simmons’ controlled companies….”).

[23] Fla. Stat. §607.1104; DGCL §253.

[24] Fla. Stat §607.0732(1).

[25] DGCL §350. Delaware’s provision allows for majority shareholder agreement on matters ordinarily within the board’s powers, as opposed to the unanimity requirement in Florida. Majority approval may be a preferred standard but could lead to minority shareholder claims of breach of fiduciary duties or improper allocation of powers. The Delaware statute also allows for the certificate of incorporation to provide that board powers may be exercised by persons other than board members, DGCL §141(a), but again it is unclear under Delaware law the extent to which such provisions may be subject to challenge by disgruntled minority shareholders.

[26] See Nixon v. Blackwell, 626 A. 2d 1366, 1380 (Del. 1992) (“One cannot read into the situation presented in the case at bar any special relief for the minority stockholders in this closely-held, but not statutory “close corporation” because the provisions of Subchapter XIV relating to close corporations and other statutory schemes preempt the field in their respective areas.”). The Delaware Supreme Court’s recent decision in Manti Holdings, LLC v. Authentix Acquisition Co., Inc., 2021 WL 4165159 (Del. 2021), allowing a corporation to enforce an advance waiver of appraisal rights by shareholders, deals with a waiver, not an appropriation, of rights by shareholders.

[27] Fla. Stat §607.0702(1).

[28] DGCL §211.

[29] Dania Jai-Alai Palace, Inc. v. Sykes, 450 So. 2d 1114, 1121 (Fla. 1984) (citing Roberts’ Fish Farm v. Spencer, 153 So. 2d 718 (Fla. 1963)); the court went on to state: “This is the reason for the rule, stated in all Florida cases, that the courts are reluctant to pierce the corporate veil and will do so only in a court of competent jurisdiction, after notice to and full opportunity to be heard by all parties, and upon showing of cause which necessitates the corporate entity being disregarded in order to prevent some injustice.”

[30] See, e.g., Nufarm v. RAM Research, 1998 WL 668648, *4 (Del. Ch. 1998).

[31] Seminole Boatyard, Inc. v. Christoph, 715 So. 2d 987, 990 (Fla. 4th DCA 1998). See also Johnson v. New Destiny Christian Ctr. Church, Inc., 303 F. Supp. 3d 1282, 1286 (M.D. Fla. 2018) (holding that “evidence demonstrating an absence of corporate formalities, lack of equity capital, proof of domination and control, and that a corporation was used as vehicle for personal interests, is not ‘the correct standard’ to pierce the corporate veil” under Florida law, and that the key to determine whether piercing the corporate veil is justified is deliberate improper conduct and misuse of the corporate form “tantamount to fraud”).

[32] DGCL §262; Fla. Stat. §607.1302(1)(d).

[33] Fla. Stat. §607.1302(1)(f)-(i).

[34] Fla. Stat. §607.1302(1)(g), providing that a shareholder is entitled to appraisal rights when there is an “amendment to the articles of incorporation or bylaws of a corporation, the effect of which is to adversely affect the interest of the shareholder by altering or abolishing appraisal rights under this section.” This provision, adopted in 2021, is similar to that found in the analogous Florida LLC statutory provision, Fla. Stat. §605.1006.

[35] Fla. Stat. §607.1321(1)(a) (shareholder asserting appraisal right “[m]ust have beneficially owned the shares…as of the record date for the shareholders’ meeting at which the proposed corporate action is to be submitted to a vote”).

[36] See Devicor Medical Products, Inc. v. Biopsy Sciences, LLC, 2013 WL 1628644 *6 (D. Del. 2013).

[37] See, e.g., McDermott Inc. v. Lewis, 531 A.2d 206 (Del. 1987) (holding that the internal affairs doctrine requires that the laws of the state of incorporation should determine issues relating to internal corporate affairs).

[38] Fla. Stat.§607.0741-0747.

[39] DGCL §327.

[40] Zapata v. Maldonado, 430 A. 2d 779 (Del. 1981) (in reviewing corporation’s motion to dismiss, court first examines independence of the litigation committee and, if that test is met, then considers on its own the merits of the case in light of the motion to dismiss).

[41] Florida currently has four judicial circuits with business divisions: the Ninth, 11th, 13th, and 17th. See Ninth Judicial Circuit of Florida, Business Court,; 13th Judicial Circuit, Business Court,; and 11th Judicial Circuit of Florida, Complex Business Litigation, The COVID-19 pandemic has temporarily halted the efforts of the Business Law Section’s Business Court Task Force to expand the number of business courts, but its goals remain intact. See Jim Ash, Taking a Hard Look at Business Courts, Florida Bar News, Oct. 1, 2018, available at

[42] See Stuart R. Cohn, Dover Judicata: How Much Should Florida Courts Be Influenced by Delaware Corporate Law Decisions, 83 Fla. B. J. 21 (Apr. 2009).

[43] DGCL §145(c).

[44] Fla. Stat. §607.0852.

[45] Fla. Stat. §607.0858(1). This provision provides, in pertinent part: “The indemnification provided pursuant to ss. 607.0851 and 607.0852 and the advancement of expenses provided pursuant to s. 607.0853 are not exclusive, and a corporation may, by a provision in its articles of incorporation, bylaws, or any agreement, or by vote of shareholders or disinterested directors, or otherwise, obligate itself in advance of the act or omission giving rise to a proceeding to provide any other or further indemnification or advancement of expenses to any of its directors or officers.”

[46] DGCL §145(c).

[47] Fla. Stat. §607.0852.

[48] Delaware guidance is available at, Corporate Fee Schedule,

[49] Unlike Florida, which has eliminated the par value concept, Delaware requires that all corporations have a par value for each class of shares. DGCL §151. Because fees are based in part on par value, applicable Delaware fees can be a trap for the unwary counsel or client who is not familiar with par value differences or the fee permutations it can cause.

[50] This calculation was arrived at by using the Delaware Division of Corporations’ stock with par value corporate fee calculator, available at Delaware Divison of Corporations, Corporate Fee Schedule,

[51] Id.

[52] See Fla. Stat. §607.0122. See also Division of Corporations, File Annual Report,

[53] See Fla. Stat. §607.1501 (registration as a foreign corporation); Fla. Stat. §607.1622(1) (filing of annual report by domestic and foreign corporations).

[54] See Franchise Tax Calculator table provided by Delaware’s Division of Corporations,

[55] Id.

[56] U.S. Securities and Exchange Commission, Schedule 14-A, Saga Communications, Inc. Proxy Statement (Apr. 16, 2020), available at

[57] See Saga Communications, Inc. Form 8-K Current Report (May 20, 2020), available at

[58] Fla. Stat.§607.0902.

[59] DGCL §203.

[60] Fla. Stat. §607.0901. Florida’s anti-takeover provisions (in Fla. Stat. §§607.0901 and 607.0902) may be eliminated or modified by amendment to the articles of incorporation and may be waived by the board of directors as provided in the pertinent statute.

[61] Fla. Stat. §607.0624.

[62] Fla. Stat. §607.11932. Reincorporation may also be accomplished via statutory merger (in which the Florida and Delaware corporations merge, with the Delaware corporation surviving). Fla. Stat. §607.1101(1)(a).

[63] As of December 31, 2021, there were 1,912,039 active LLCs organized under Florida law, including over 532,000 formed in 2021. See Division of Corporations, Yearly Statistics,

[64] LLCs are especially preferred in real estate investments and acquisitions. Interestingly, the BLS survey indicated that 83% of Florida-based real estate-oriented ventures organized by Florida-based practitioners were formed as LLCs in Florida.


Stuart CohnStuart Cohn is an emeritus professor of law at the University of Florida Levin College of Law. He is the co-author of Florida Business Laws Annotated and a member of The Florida Bar Business Law Section executive council.



Daniel H. (Danny) AronsonDaniel H. (Danny) Aronson is a partner and chair of the Corporate, Securities and M&A practice at Florida business law firm Berger Singerman LLP. Over the past 20 years, he has participated on a number of BLS committees, subcommittees, and task forces that have surveyed BLS members and have reviewed, considered, and formulated proposals to the Florida Legislature, which have resulted in updating, improving, and modernizing Florida’s business corporations and LLC laws.


Michelle K. Suarez Michelle K. Suarez is the founder and CEO of Florida Entrepreneur Law. She is currently the vice chair of The Florida Bar Business Law Section’s Corporations, Securities and Financial Services Committee and a member of the executive council. She regularly serves as general counsel to businesses in various emerging industries.

This column is submitted on behalf of the Business Law Section, Douglas A. Bates, chair, and Andrew Layden, editor.



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