More than one million corporations, including two thirds of Fortune 500 companies, today call Delaware home—more companies than there are residents. The 20th century rise of Delaware as the “corporate capital of the world” is a narrative interwoven with strategic legal frameworks, the pro-business Chancery Court, and the early support of specialized banking entities such as the Wilmington Trust Company.
The Rise of the du Ponts and Wilmington Trust Company
At the turn of the 20th century, three du Pont cousins (Coleman, Pierre and Alfred) took their family by storm by acquiring controlling interests in the DuPont Company so it couldn’t be sold to outsiders. On that same theme of full control, they wanted to own a bank to finance the company’s ambitious growth, says one view of history, which is why they created Wilmington Trust Company. And that point is not untrue.
“It’s no accident that Delaware’s ascent as a global hub for business formation began during this decade. The state’s legislators were already embracing company-friendly policies, including low fees and high secrecy chartering laws, a result of 1899’s General Corporation Law.”
The du Ponts’ Strategic Insights
However, it’s important to understand two more things:
- 1) T. Coleman and Pierre S. du Pont organized this banking, trust, and safe deposit institution only one month after Delaware passed 1899’s General Corporation Law, the statute that sought to draw business corporators to charter their companies in Delaware. “The object of this company,” reported Wilmington’s ‘Morning News,’ “is to secure charters for other companies whose corporators may not be familiar with the provisions of the law. The company will also act as financial agent in corporations, will attend to bond issues and underwriting.” The du Ponts reckoned, accurately it turns out, that corporations operating at the same scale as the DuPont Company would be drawn to the level of expertise and sophistication their trust staff could offer.
- 2) When the time came to consolidate the trust’s location, as part of the DuPont Corporation’s new blockwide headquarters at Wilmington’s 10th and Market Streets, the three cousins quibbled over what to name the entire complex. Alfred sought to venerate family ancestors by naming it the “du Pont de Nemours Building.” Coleman took a practical route, saying Alfred’s proposal should be shortened to simply “the DuPont Building,” since that’s what the public would call it anyway. But Pierre suggested “Wilmington Trust Company Building,” explaining to the other two that it would be good advertising for that still young branch of family business. Pierre was not going to be satisfied with an organization that passively handled DuPont dealings and did nothing further.
Wilmington Trust, with Coleman serving as the first president and Pierre as vice president respectively, began conducting business in the first constructed section of the DuPont Building on July 8, 1903. (Alfred du Pont was on the board but was less hands on.)
It’s no accident that Delaware’s ascent as a global hub for business formation began during this decade. The state’s legislators were already embracing company-friendly policies, including low fees and high secrecy chartering laws, a result of 1899’s General Corporation Law.
1907 amendments to that law facilitated an even more favorable environment for holding companies. Delaware eliminated certain taxes on intangible assets and allowed holding companies incorporated in the state to operate without paying any state taxes, provided they did no business there. This positioned Delaware as a preferred location for enterprises seeking favorable tax treatment, and it led to an influx of incorporations in the state.
Wilmington Trust’s Growth and Resilience
Four years after opening, Wilmington Trust survived its first hurdle, muddling through the 1907 recession. The firm issued its first dividend in 1908 and became the state’s biggest bank in 1912 with the acquisitions of National Bank of Wilmington and Brandywine, and First National Bank. In 1916, a falling out between Alfred and Pierre led to the creation of a rival institution, when Alfred and William du Pont bought the smaller Delaware Trust Company to keep their affairs separate from the rest of the family.
Nurturing the needs of multinationals mushroomed over the 20th century into a Delaware cottage industry. Interlocking pieces of the incorporation puzzle continually evolved: tough anti-takeover laws, specialized accounting and banking practices, registration firms, and rent-an-address locations. A senior official of the Cayman Islands government once complained that it is “much, much easier” to start a concern in Delaware than in that British territory.
Why Delaware? The Legal Edge
Why does Delaware remain a preferred choice over states like Nevada and Wyoming, likewise known for their low legal formation fees and weak reporting requirements?
The answer lies in Delaware’s head start in 1792. The state founded the Court of Chancery that year, a court exclusively designed to hear equity cases, and the only one of its kind in the country. This judicial body does not employ juries, but rather has Chancellors and Vice Chancellors who make determinations.
By the time Delaware passed the General Corporation Law, the Court of Chancery was able to hold up a century’s-long commitment to appointing business-friendly judges to its efficient, jury-free chamber.
Conglomerates are reassured by Delaware’s extensive body of case law with finely honed, predictable precedent. Furthermore, in Delaware, lawyers and laymen nominate, the governor approves, and the Senate ratifies Chancery Court judges. Neighboring states, meantime, elect judges, their campaigns funded by private interests.
Delaware’s pro-capitalist culture is so embedded that elected officials of both parties are raised to understand it’s in their interest to allow the state’s corporate lawyers to advise them on tweaking state laws to suit commerce’s needs. Legislators realize the high volume of low-fee corporate business pays a big chunk of the state budget, helping Delaware get by without a sales tax, and with low property taxes.
The Legacy of Delaware’s Corporate Culture
The early synergy between Wilmington Trust and Delaware’s legal framework cannot be overstated. While other states followed suit by offering similarly lenient business laws, Delaware’s unique convergence of law, corporate banking practices, and political acumen has crafted the state’s well-deserved reputation as the corporate capital of America.