By: Ian McConnel, Director of Government Affairs and Associate General Counsel at Corporation Service Company® (CSC®)

Delaware notched a new state record in 2014, when roughly 169,000 new business entities were formed here. The 2014 figure handily beat the former high-water mark, in 2007, of 162,000 Delaware formations, and exceeded the number of 2013 filings by 10%.  At last count, 65% of all Fortune 500® companies were incorporated in Delaware, and during the last 10 years, 85% of all initial public offerings involved companies that were formed here.

No single factor is responsible  for Delaware’s near-dominance  as a business jurisdiction.
No single factor is responsible for Delaware’s near-dominance as a business jurisdiction.

Those are impressive statistics, and they tell us a few things. First, they suggest that the nation’s business climate continues to improve since the financial collapse of 2008, with new entity formations as part and parcel of that recovery. Second, they speak clearly of the continued appeal of the “Diamond State” as a corporate address.

On the surface, Delaware might seem like an unlikely candidate for a center of the business world. In physical terms, it’s the second-smallest U.S. state, and population-wise it hovers near the bottom, too, followed closely by North and South Dakota3, places known more for their windswept prairies than their crowded urban centers. Yet despite Delaware’s diminutive stature, in terms of corporate formations it continues to be a U.S., and indeed an international, heavyweight.

Which raises the question: Why? Truth is, no single factor is responsible for Delaware’s near-dominance as a business jurisdiction. Instead, it’s the combination of a number of elements—some accidents of history, others the result of deliberate, sustained action on the state’s part. For simplicity’s sake, we’ll call it the “Delaware Effect,” and we’ll divide it into four reasons:

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The Delaware Effect: How (and why) the nation’s second-smallest state became a coveted business domicile