Ask the Fool Why Delaware?

Q Are most big companies incorporated in Delaware? Why? — D.D., Lakewood, Colorado

A A lot of them certainly are. According to Delaware’s Secretary of State Jeffrey W. Bullock, Delaware is “the domicile of choice for members of the Fortune 500 at nearly 68%. Approximately 93% of all U.S. initial public offerings are entities registered with Delaware.” Examples include Coca-Cola (which is headquartered in Atlanta) and Walmart (based in Bentonville, Arkansas).

The primary reasons for a company to choose Delaware are tax breaks and a business-friendly court system. While Delaware has a corporate tax rate of 8.7%, companies incorporated there that don’t conduct business in Delaware don’t have to pay state income tax; Delaware also doesn’t impose state or local sales taxes.

As for business courts: While those in many states convene juries, the Delaware Court of Chancery employs judges with great business expertise. That makes legal processes there rather efficient. Also, each written opinion supporting a decision sets precedent that can make future case outcomes more predictable than outcomes in a juried system.

Q What’s a tontine? — H.L., Bridgeport, Kentucky

A To quote the MerriamWebster definition, it’s “a joint financial arrangement” in which “participants usually contribute equally to a prize that is awarded entirely to the participant who survives all the others.” It can take other forms, too: For example, participants might contribute equal sums to a pool and then collect equal payouts from it annually, with payouts increasing in size as the number of living participants shrinks over time.

Tontines were once quite widespread, and there are some annuity products today essentially structured as tontines. Tontines still occasionally appear in movies and TV shows featuring murder plots.