Greetings, I hope this finds you well. I wanted to bring a recent piece of news to your attention, as it bears on the General Assembly’s treatment of corporate law.
Here’s the thing, though: Andreessen Horowitz (AH Capital Management) is not a Delaware corporation. It’s a Delaware LLC.
As a limited liability company, it can’t “move” its incorporation anywhere; it doesn’t exist. More to the point, none of Andreessen Horowitz’s complaints about Delaware apply to their firm, or to any of the subsidiaries they have registered here as LLCs or Limited Partnerships (LPs), as a quick search of the DE Division of Corporation Business Entity Filing database will attest. This distinction is not a mere matter of synonyms, but one with material consequences for how a business operates. As legal scholars have observed, “An LLC By Any Other Name Is Still Not A Corporation.”
It seems unlikely that the leaders of the world’s wealthiest venture capital firm cannot distinguish between two basic types of business entity structure. It seems equally unlikely, then, that Andreessen Horowitz’s decision to leave Delaware is motivated by their stated reasons. Their critique, in other words, appears to be made in bad faith.
As you and your colleagues contemplate further revisions to Delaware’s corporate law, I urge you to keep this evidence of deceptive arguments from Delaware’s critics in mind – whether they come from business owners, directly, or the locally influentiallegal advocates they employ.
Sincerely, your constituent, DN
NB: most of the outlets reporting on this move – NYT, Bloomberg, Inc – reproduce Andreessen Horowitz’s statement without comment, and thus its errors.
Much like the recent revisions to state law themselves, these reactions to mild criticism are expressions of myopia. Criticism of the sort SB 313 attracted in 2024 – that it proceeded anti-democratically, that it harmed ordinary people, that it was motivated by a small set of special interests’, and would lead to abuse – were leveled at Delaware state legislators when the state’s corporate law first passed in 1899.
If anything, earlier observers of Delaware corporate law in the Gilded Age were far more blunt in their criticism than anyone in the 21st century has ever thought about being. To illustrate, lend your eyes to this brief article from the American Law Review, a legal journal based in St. Louis: “Little Delaware Makes a Bid for the Organization of Trusts,” American Law Review 33, no. 3 (May-June 1899): 418–24.
Well-known to Delaware lawyers – and recently, at least one historian – the article takes the form of an unsigned “note,” one of a few dozen that appeared at the back section of every journal issue, after the treatises and articles, but before the listings of recent major court decisions. My assumption is that it is either written by the editors, Seymour D. Thomson and Leonard A. Jones, or one of their close associates – and either way expresses their editorial views.
And my goodness, are the Am.L. Rev. editors unimpressed with Delaware trying to copy New Jersey’s loose corporate charter rules, much less their attempt to “improve” on them by giving corporations even more expansive powers. After some praise for Delaware’s old Democratic (and enslaving) political establishment (and some sharp elbows at the emerging state Republican party), the editors note that the curious feature of US federalism – that state sovereign powers are equal, and that states set corporate law – is what provides the temptation that Delaware has now given into:
“The “sovereign” States of the American Union are equal: equal in the Senate, for little Delaware wields the same voting power there as does great New York. They are also equal in regard of the deviltry they can do – equal in regard of the injury they can inflict upon their sister States. It is as though a Klondike gold mine had been discovered in New Jersey, and all Delaware were on the rush to get there. In other words little Delaware, gangrened with envy at the spectacle of the truck-patchers, sand-duners, clam-diggers and mosquito-wafters of New Jersey getting all the money in the country into her coffers, – is determined to get her little tiny, sweet, round, baby hand into the grab-bag of sweet things before it is too late.” (p. 419)
And, the editors note, this law will be a jobs-employment program for Delaware politicians; they may need to even import labor:
“But with this exception; and herein the little great “State of Delaware” casts its little great anchor to the windward. Although ” any three persons may organize a corporation,” yet ” only one director need be a resident of Delaware.” And this ” one director'” is going to be paid for being a director, and don’t you forget it. If the rush to organize corporations and trusts under this new Delaware law is as great as under the New Jersey law, there will not be politicians enough in Delaware to serve as directors of corporations and trusts for all the other States of the Union, but professional directors will have to migrate to Delaware from other States, and their name will be Legion.” (p.420)
Delaware legislators’ grandiose proclamations about their new law’s global applicability seem to be particularly grating:
” Nor will you be confined, in the conduct of your business, when so happily incorporated, to your drought-smitten and grasshopper-eaten prairies. “It,” – that is to say you when you have turned yourselves into Delaware corporations – ” may conduct business anywhere in the world.” Certainly you may. Why not? The great State of Delaware says so, and is not that enough?” (p. 421)
Halfway through, the editors re-frame their note as addressing the great political enemies of the Big Corporations in this particular moment – the hardworking, Populist Party-supporting farmers of Kansas. (This is for rhetorical effect; I doubt too many populists were reading this attorney-specialty journal). And in this section, the editors suggest that should these farmers try to use the state power they control, they’ll face a potent force – in law, if not actually in the military.
“If Kansas attempts, through its legislation, to interfere with the sovereign prerogatives of Delaware, Delaware will be there with its oyster-boat and clam-boat navy, and with its unterrified militia; and what then will Kansas do about it?” (p.423)
And then finally, they note the alchemical aspects of Delaware’s new law.
“Let us not forget, oh, toiling brothers of the Kansas deserts, one other feature of this congenial law: 6. “The liability of the stockholder is absolutely limited when the stock has once been issued for cash, property or services.” Brother, do you need to photograph this sentence by means of an X-ray? Can you not see through it? Is it not pellucid ? It says, ” issued for cash.” It does not say paid for in cash. Is it not ” issued for cash” when it is issued for the promise of cash? and is it not issued for property or services when it is issued for the promise of such commodities? And if the gold bugs, bond- holders and other octopi, should render it hard to redeem your promise to pay for your shares – even in chips and whetstones, – why should you so pay? You have launched your corporation; the sovereign laws of Delaware allow you to commence business before any “sum whatever was paid in; ” and who or what is going to stop you from continuing your business? Do you not see that here is a scheme to turn the world into a sudden millennium? And if you object that a millennium must consist of a thousand years and cannot be created in a day, the answer is that all things are possible with the sovereign State of Delaware. What were the dreams of the ancient alchemists to this? They at most could, by processes somewhat tedious and expensive, convert gross metal into gold. But, without any gross metal of any kind to work upon, not even silver at the ratio of 16 to 1, the sovereign State of Delaware stretches forth her wand over the prairies of Kansas and calls upon money to come, and it comes.” (p.424)
What the irritated attorneys have described here is the central magic of finance, generally, and corporate finance, in particular. With some law and a bit of market faith – and a willingness to grift – you can conjure something out of nothing, and profit. Devolving sovereign power onto private parties who derive artificial persons, and then mortgage those “persons’ ” future cash flows for current income to actually do something (well, sometimes) – That’s Capitalism, Baby! If it feels like fraud, well, you probably don’t sit on the right corporate boards.
This is all to say that criticism of those would weave this kind of spell – and of Delaware legislators’ meddling in its magics, specifically – is nothing new in 2024. The First State’s legislators been catching heat for playing sorcerer’s apprentice, and carrying water for outside financial interests, for a very long time. Maybe they should get used to it? (Or, I dunno, change their ways?)
Or, An Investigation Into Just How Deep Delaware’s Commitment to the Bit Goes
Corporate Voters Project – Research Note #1
In Delaware, corporations can vote. So can LLCs, partnerships, and trusts, provided they own real property within the municipality where the election is taking place. In “The Company State,” capital not only has a voice – it has the franchise.
So just as I became a new, working citizen of Delaware, I discovered that my rights paled next to the those enjoyed by old, rentier capital.
Though the election raised many questions – as well as my blood pressure – in the busy season of a new semester on an unfamiliar campus, I let it lie as an oddity. In the wake of that bond election, there was enough concern expressed by other locals that the City Council petitioned the state legislature to revise its charter, to limit the franchise to human residents and human non-resident property owners “in accordance with the principle of ‘one person, one vote.’” The charter was successfully amended in 2019. [1]
But “dead labour” in the form of company capital, wasn’t done enlivening Delaware’s politics. In late spring 2023, news broke that the leaders of Seaford, DE had got a charter revision bill of their own introduced. It was the mirror image of Newark’s reform. Seaford wanted to empower a property owner, “whether a natural person or an artificial entity,” to vote in all town elections. (It seems the unpopular town council in Seaford was eager to substitute property for people, as voters). Delaware Republicans, eager to claim fifteen minutes of public infamy for supporting corporations’ right to stuff the ballot, used parliamentary tactics to bring the legislature to a screeching halt until the bill passed in the House. It did – though the measure was later quietly smothered in a Senate committee, and never became law. [2]
Needled twice by the news, my interest – and my ire – was piqued. And if that’s not a reason for research, what is?
~*~
If there was anywhere in the United States you might expect to find a corporation voting, Delaware is it. A state that only recently reached the milestone of one million human residents, the self-proclaimed “Corporate Capital of the World” is home to over two million business entities, including two-thirds of the Fortune 500.
Corporations and LLCs don’t come here for the beaches, though. They sink shallow roots into our clayey soils because the state government offers a uniquely “business-friendly” regime. In return for filing a simple registration form and paying some light taxes and fees, DE state officials ask few questions, and impose fewer regulations. When conflicts between companies arise, as they tend to in the hurly-burly world of modern business, Delaware’s uniquely commercially-oriented Court of Chancery offers speedy, jury-free resolutions. And if that service fails to satisfy, well, the Delaware legislature is ready to bend to meet the whims of capital with a flexibility an Olympic gymnast would envy.
While intentionally obscured from ordinary residents, “The Franchise,” so-called, is well understood by CEOs and corporate lawyers, as well as the state’s politicians and their lobbyist handlers. For multinational conglomerates, secretive shell companies, and mom & pop landlords alike, Delaware offers the best deal within U.S. territory for running your business cheaply, opaquely, and just “legally” enough.
This frictionless pliability pays for Delaware’s government. In fiscal year 2023, for example, the various fees and taxes levied on nominally Delaware-domiciled corporations and business entities provided $2.9 billion in revenue – a fairly typical 46.4% of total state collections. Whether clued in or not, all Delawareans are complicit in these arrangements. Their tax burden is low, yet their roads remain well-paved – because the First State has decided to use its sovereign power to charge a light toll in return for displacing the true costs of unchecked capitalism onto the rest of the nation, and the world. [3]
It’s a little gift, from our little state.
~*~
Still, even in Delaware, the idea that a corporation can vote gives people pause. It sure as heck arrested my attention, and puzzled me. So as the furor of the 2023 Seaford bill died down, and with my new hometown’s recent bond vote in mind, I’ve spent the last month or so digging into the practice of corporate voting in Delaware.
I’ve tried to keep my questions simple, obvious, and answerable:
How widespread is corporate voting? Does it only happen in Delaware towns, or beyond?
When did the practice take hold – and under what circumstances? Is corporate voting a relic of the state’s Jim Crow past, or a more recent disease of the body politic?
And finally: why? Of all the ways to arbitrarily pervert the democratic process to favor the wealthy, why have Delawareans chosen this method? And how is the local “corporate franchise” connected to “The Franchise” – if it is at all?
My research plan is similarly straightforward. I’ve completed the first step, a close examination of the current charters of all 57 municipalities incorporated in the state of Delaware.
Some early findings:
70% of DE municipalities (40 towns & cities) allow corporations and other “artificial entities” to vote in at least some circumstances, usually referenda on annexation and/or bonds;
Three towns (Dagsboro, Fenwick Island, and Henlopen Acres) allow corporate voting in all circumstances
The local corporate franchise is premised on property ownership: the “entity” must own real property within municipal limits (or proposed municipal limits, for annexations); and generally companies exercise their voting rights through a representative with power of attorney;
Most towns that allow corporate voting limit it using a “one person / one entity” rule – but not all of them do;
There is also a pronounced geography to corporate voting rights in Delaware: it gets more common as you travel south. New Castle County only counts 3 municipalities that allow it; Kent Co. has 16; and Sussex Co., land of beaches, chicken farms, and confederate monuments, has a whopping 21.
Since it quickly became apparent to me reading charters that property ownership is critical to local corporate voting rights, I also tallied how many Delaware towns enfranchise non-resident property owners, and found that:
81% of DE municipalities (46 towns & cities) allow non-resident real property owners to vote in at least some circumstances (again, most commonly annexation and bond elections);
However, fully 23% of them (13 towns & cities) allow non-residents to vote in all elections – and some even allow people who don’t reside within the municipality to govern, as members of the town council!
As with corporate voting, the enfranchisement of non-resident property owners is more common in Sussex (24 towns), than it is in Kent Co. (17 towns), with New Castle coming last in the number of municipalities that allow it (just 5 towns).
Now that I’ve gotten a sense of the current landscape of corporate and property-defined voting, my next task is to dig into the history of a handful of municipalities, using newspapers and legislative archives, to see if I can find out when – and perhaps why – this corporate citizenship first appeared.
I have no doubt but that further unpleasant surprises await; but that’s history, in Delaware.
[2] HS 1 for HB 121: “An Act to Amend the Charter of the City of Seaford Relating to the City’s Ability to Authorize Artificial Entities, Limited Liability Corporations’ Partnerships and Trusts to Vote in Municipal Elections Held in Seaford,” (April 20, 2023), https://legis.delaware.gov/BillDetail?LegislationId=130205.
In my calculation of the revenues generated by “The Franchise,” I include the corporate income tax, the franchise tax, the LLC/LP tax, business entity fees, “unclaimed property” (aka escheatment, aka Delaware skimming off of unused gift cards), and the bank franchise tax.
Dael A. Norwood 