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J.Hazelbaker
J.Hazelbaker, Attorney
Category: Business Law
Satisfied Customers: 4385
Experience:  Experienced and trained in the area of business law.
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Our Internet startup is a Delaware Corporation qualified to

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Our Internet startup is a Delaware Corporation qualified to do business in California. In our website terms of use, should we say that all disputes will be governed according to the laws of the State of Delaware or California? Is there a requirement one way or another? Is there an advantage one way or another?

Thanks!

J.Hazelbaker :

Hello.

J.Hazelbaker :

Thank you for using JustAnswer.

J.Hazelbaker :

That is your option.

J.Hazelbaker :

Typically, the state is chosen that has either the most beneficial law or that is the most convenient.

J.Hazelbaker :

In your case, since any lawsuit against you will likely be brought in California (assuming your actual operation is in that state), it would be more convenient and less expensive to choose California. You don't want to have to pay a California attorney to learn Delaware law.

J.Hazelbaker :

Please let me know what follow-up questions you have. If my above responses have been helpful, please click Accept so that I get credit for the time/effort. You may always restart the thread and ask follow-up questions at any time by clicking the “Reply” button at the bottom of the question/answer thread. You can access this thread later in your profile under the “My Questions” tab.

Customer:

Thanks for your response. The reason we chose to incorporate in Delaware is because (a) the laws there are supposed to be favorable towards business, and (b) Delaware law is most widely understood and used. But now you bring up another question: "any lawsuit against you will likely be brought in California"

Customer:

oh this is a chat

Customer:

I did not realize that

Customer:

great

J.Hazelbaker :

No problem

Customer:

so my question is

Customer:

that the terms of use say that the terms are governed by the laws of "..." state

Customer:

so how can someone who brings in a lawsuit choose a state

Customer:

(we an an internet company)

J.Hazelbaker :

You can only be sued in a state that has "jurisdiction" over you. That, primarily, occurs where your business has physical operations.

J.Hazelbaker :

Delaware is chosen as a place to file because it has flexible formation laws, the information on the filer is private, and the filing is relatively cheap.

J.Hazelbaker :

So, you can be sued in California because your physical presence is there, but since you are formed under Delaware law, you can choose that law as your "substantive" law or the law that will apply to any dispute over your terms of service.

J.Hazelbaker :

Thus, the case would proceed in California, using California attorneys and a California judge, but applying Delaware law.

J.Hazelbaker :

This happens all the time and is called "choice of laws".

Customer:

i see

J.Hazelbaker :

But, while it makes sense to form your business in Delaware because the formation laws are flexible, it doesn't make sense to choose Delaware law as our substantive law unless you know of a difference between Cali and Delaware that is to your advantage.

Customer:

i have no idea

Customer:

so should we say in the terms "under california law" instead

J.Hazelbaker :

Even so, you'd have to balance that advantage (assuming there is one) over the headache and expense of making everyone in Cali use Delaware law.

J.Hazelbaker :

That's what I would do

Customer:

ok we did not know that we can do that, now we know

Customer:

thanks!

Customer:

appreciate your help.

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