This a chart comparing some of the high-level pros and cons of being incorporated in Washington versus Delaware. For more information, visit www.theventurealley.com.

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November 16, 2010
Delaware versus Washington:
Where should I incorporate my startup?
Below is a chart comparing some of the high-level pros and cons of being incorporated in
Washington versus Delaware. For more information, visit www.theventurealley.com.
Annual Cost
WASHINGTON POSITION DELAWARE POSITION PRO/CON ANALYSIS
Companies incorporated in
Washington pay only an
annual license fee of $69.
Delaware corporations are
charged annual fees (called a
“franchise tax”) based on total
assets and authorized shares,
which can be up to $180,000
(the maximum).
Washington is far less
expensive. In addition, the
company may be required to
pay a registered agent in
Delaware.
Limitation of Director Liability
WASHINGTON POSITION DELAWARE POSITION PRO/CON ANALYSIS
Companies may release the
personal liability of directors
to the corporation and its
shareholders for monetary
damages for acts or omissions
as directors, except in
specified circumstances
involving:
(a) intentional misconduct or a
knowing violation of law;
(b) unlawful distributions; or
(c) transactions from which
the director personally
receives a benefit in money,
property or services to which
Delaware allows release of
director liability, subject to five
exceptions – three of which
generally track those of the
Washington statute – but the
Delaware statute also adds two
more broad exclusions from the
protections afforded:
(a) breaches of the duty of
loyalty; and
(b) acts or omissions not in
good faith.
Washington provides superior
liability protection for directors
because there are fewer and
narrower exceptions to the
scope of the permitted release.
As demonstrated in In Re The
Walt Disney Company
Derivative Litigation
[http://www.potteranderson.co
m/news-firm-42.html],
directors of Delaware
corporations are subject to
claims that their actions
breached the duties of loyalty
or good faith, neither of which
is defined by statute or well
articulated by judicial
decisions. By contrast,

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the director is not legally
entitled.
Washington is more clear.
Washington exceptions use
terms such as “intentional,”
“knowing” and “personally
received,” which are much
narrower and better defined by
common law.
Director and Officer Indemnification
WASHINGTON POSITION DELAWARE POSITION PRO/CON ANALYSIS
Companies may agree to
indemnify directors and
officers for expenses,
judgments, fines and other
payments in actions brought
by third parties, and
reasonable expenses incurred
in connection with actions
brought by shareholders in the
name of the corporation (so-
called “derivative actions”).
The ability of a Delaware
corporation to indemnify its
directors and officers for
payments in non-derivative
actions is subject to a
determination that the person
acted in “good faith” and in a
manner “in or not opposed to”
the company’s best interests.
Washington provides superior
indemnification protection for
directors and officers because
the exceptions to the indemnity
powers of a Washington
corporation in derivative and
non-derivative actions are
much narrower and better
defined than under Delaware
law.
Reliance on Delaware Case Law
WASHINGTON POSITION DELAWARE POSITION PRO/CON ANALYSIS
There are fewer court cases
construing the Washington
Business Corporation Act. In
the absence of Washington
case law or clear statutory
guidance on a particular point
of Washington corporate law,
Washington’s Supreme Court
and lower courts have
exhibited a pattern of regularly
referring to Delaware case law
as relevant legal authority.
Delaware corporations are
subject to, and have the benefit
of, a large body of Delaware
corporate law court decisions,
including more detail on
governance issues and in the
merger and acquisition context,
where greater predictability of
legal consequences can be
important. At the same time,
Delaware case law has also
created several non-statutory
directors’ duties – such as the
duty of candor – which is not
well-defined and has not yet
Delaware courts have greater
experience with handling cases
interpreting corporate law and
construing director fiduciary
duties, and this body of case
law and judicial experience is
the main reason cited in support
of reincorporating from
Washington to Delaware;
however, Washington judges
can and often do use Delaware
case law to help guide their
Washington corporate law
decisions. The traditional view
that Delaware courts tend to

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been imposed upon directors of
Washington corporations.
rule more “favorably” to
corporations and their
fiduciaries has come into
question in recent years,
particularly as they have
articulated new “duties” as a
basis for fiduciary liability.
Shareholder Approvals
WASHINGTON POSITION DELAWARE POSITION PRO/CON ANALYSIS
Amendments to the articles of
incorporation, a merger,
consolidation, or sale of all or
substantially all of a
corporation’s assets other than
in the usual course of
business, must be approved by
two-thirds of the outstanding
shares, unless the articles of
incorporation provide for a
lesser vote.
Amendments to the certificate
of incorporation, a merger,
consolidation, or sale of all or
substantially all of a company’s
assets other than in the usual
course of business, must be
approved by a majority of the
outstanding shares.
A Washington corporation may
elect to lower (in its articles of
incorporation) the voting
threshold for these corporate
actions to a majority so there
would be no difference
between Delaware and
Washington. On the other hand,
the higher approval required for
mergers of Washington
companies may work in the
company’s favor by enabling it
to insist on a higher price, or
could have a mild antitakeover
effect, in the event of a
proposed acquisition.
Action by Less-than-Unanimous Written Consent
WASHINGTON POSITION DELAWARE POSITION PRO/CON ANALYSIS
If provided in the articles of
incorporation, shareholders
may take action by less-than-
unanimous consent. Action is
effective upon receipt of the
minimum number of votes that
would be necessary to
authorize or take such action
at a meeting at which all
shares entitled to vote were
Stockholders may take action
by less-than-unanimous written
consent, unless otherwise
provided in certificate. Action
is effective upon receipt of the
minimum number of votes that
would be necessary to
authorize or take such action at
a meeting at which all shares
entitled to vote were present.
Delaware requires only one,
after-the-fact notice to
stockholders, while
Washington requires two
notices (one at the time
shareholder approval is sought
and the other after-the-fact
informing shareholders that
such approval has been
obtained).

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present.
Washington requires two
separate notices to
shareholders: (i) the first when
shareholder consents are being
sought, and (ii) the second
when the company has
received sufficient votes
necessary to approve the
proposed action.
“Prompt” notice of the action
taken must be sent to all
stockholders who did not
consent in writing and who
would have been entitled to
notice of a meeting.
Antitakeover Statute
WASHINGTON POSITION DELAWARE POSITION PRO/CON ANALYSIS
10% shareholders are
prohibited from taking certain
actions for a 5-year period
after acquiring a 10% interest.
Such actions include engaging
in mergers or asset sales with
the “target” company.
The only exception to this rule
is where the shareholder
received board approval of the
share acquisition or the
proposed transaction prior to
acquiring the 10% interest.
There is no ability to “opt out”
of this statutory provision.
15% shareholders are
prohibited from taking certain
actions with the “target”
company for a 3-year period
after acquiring the 15%
interest.
This restriction does not apply
where the shareholder received
board approval of the share
acquisition or the proposed
transaction prior to acquiring
the 15% interest, or where the
proposed transaction is
approved by two-thirds of the
voting shares not owned by the
15% shareholder.
Under certain circumstances
shareholders of Delaware
corporations can “opt out” of
this antitakeover statute
entirely.
Washington’s antitakeover
statute does not provide an
ability to “cure” the transaction
prohibition after a non-
approved 10% share acquisition
– this could make an
acquisition of a company more
difficult in some circumstances,
which could be viewed as
favorable or unfavorable,
depending on one’s
perspective. In any event, a
company would likely be
subject to the Washington
statute even if it were
incorporated in Delaware,
because it is headquartered and
has a significant presence in
Washington.

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Dissenters’ Rights
WASHINGTON POSITION DELAWARE POSITION PRO/CON ANALYSIS
Shareholders can dissent from,
and upon perfection of
dissenters’ rights obtain the
fair value of their shares in,
certain corporate actions,
including mergers, sales of all
or substantially all the assets
of the company and articles
amendments that effect a
redemption or cancellation of
all of the shareholder’s shares.
Dissenters’ rights are generally
available only in connection
with cash mergers, unless
otherwise provided in the
company’s certificate of
incorporation. Dissenters’
rights are not available in asset
sales or amendments to the
certificate of incorporation.
Delaware law provides
dissenters’ rights in fewer
circumstances, which could
make it easier to acquire a
Delaware corporation (because
merger agreements typically
limit the percentage of shares
that can dissent as a condition
to closing the merger, and this
extra hurdle to closing would
not exist if there are no
dissenters’ rights as to a
particular form of transaction).