Even though COVID-19 continues to wreak havoc on the world and the U.S. economy, we continue to work on interesting and complex business deals with our cannabis clients with many clients either looking to acquire or be acquired as the industry matures and inevitable consolidation occurs. And because many deals continue to have a Delaware component, this post addresses relevant issues when forming a Delaware entity, specifically a Delaware C corporation.
In a prior blog post my colleague Vincent Sliwoski said the following regarding Delaware entities:
People will say things like “half of all public companies are registered there,” or “my other company is a Delaware company,” or “Delaware has no state income tax.” Most of the time, none of these are great reasons to register a cannabis company in that state. This is because nearly all cannabis companies are small, privately held businesses that receive no tax benefits and no meaningful liability protection by registering in Delaware, or anywhere out-of-state. Large, publicly traded companies, on the other hand, may prefer Delaware registration for various reasons, including: 1) Delaware law protects directors and officers from derivative liability (to shareholders and non-managing members); 2) Delaware has a unique “Court of