Some founders in California may decide to incorporate their startup as a California C corporation rather than a Delaware C corporation.
However, most VCs who fund startups and investment bankers who later help with an initial public offering (“IPO”) prefer Delaware C corporations. There are many reasons to prefer Delaware as a state of incorporation/organization, including but not limited to, the elegance of Delaware corporate code (“DCGL”), the Delaware case law and venue for disputes (i.e., Court of Chancery), the optics of a national brand and/or company, and Delaware Secretary of State’s excellent customer service and fast filing process.
Problematically, California’s Secretary of State does not recognize a typical conversion from a California C corporation to a Delaware C Corporation. As a result, to change a startup company’s state of incorporation, we have “converted” California C corporations into Delaware C corporations by way of merger. This generally entails creating a new and similarly named Delaware corporation which will survive the California corporation; merging the California corporation with and into the new Delaware corporation; and allowing the new Delaware corporation to survive the merger and ending the existence of the California corporation.
However, like other entity conversions, this process is not a one-and-done. The California corporation has to ensure that it has not entered into any contracts before the merger that would effectively bar or require consent of third parties to the merger. The California corporation’s Board of Directors and shareholders must consent to the proposed Agreement and Plan/Certificate of Merger.
After incorporation, the newly-formed Delaware corporation’s Board of Directors must likewise consent to the merger and related documents before it occurs. The startup then needs to file the Certificate of Merger first in Delaware, and subsequently, file the Delaware-filed Certificate of Merger in California. Finally, the startup, now a Delaware company, must register to do business as a foreign corporation in California.
Smith Shapourian Mignano PC is available to answer any questions or concerns you may have regarding conversion by way of merger of a California C corporation to a Delaware C corporation.
This blog does not constitute solicitation or provision of legal advice, and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter in a timely manner, as statutes of limitations may bar your claim.