In Delaware’s Compensation, I analyzed the relationship between the structure of Delaware’s franchise tax and Delaware’s incentives for producing corporate law.
Conventional wisdom, supported by theory and evidence, has it that the franchise tax plays an important role in shaping Delaware corporate law. Under the widely held account, Delaware offers a product and charges a price, the franchise tax, which creates incentives for the state to attract incorporations. Some argue that this system results in a race to the bottom, while others argue that it results in a race to the top. But no one argues that the tax is unimportant to Delaware, and evidence demonstrates the tax’s significance. The literature, however, fails to address Delaware tax structure, and how such structure affects Delaware’s incentives. Delaware’s Compensation first submitted the view that if the tax matters, then the tax’s structure matters too.