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June 9, 2014 Q&A

CT seeks to challenge Delaware’s business-friendly legal environment

Q&A talks about efforts to dramatically change Connecticut's corporate and business laws with state Rep. William Tong (D-Stamford), co-chair of the General Assembly's Banks Committee.

Q: You led passage of legislation that establishes the Commission on Connecticut's Leadership in Corporation and Business Law to create a 10-year plan to challenge and eventually overtake Delaware as the leading state in the country for businesses and corporations to locate, incorporate and do business. What is the basic gist of the law and what was your motivation behind it?

A: I believe that Connecticut is a great place for businesses to incorporate and to do business. We've got a highly educated and productive workforce, great universities, we're close to New York City and Boston, and we are a leader in financial services, insurance and defense-related manufacturing.

But for more than 100 years, the business community across the country has seen Delaware as the preferred place to set up shop. Sixty percent of America's businesses are Delaware companies. More than half of America's public companies are Delaware corporations, not to mention the many more limited liability companies that make Delaware their home. Whenever a company looks to change their state of incorporation from their home state, they almost always choose Delaware.

Delaware takes in more than $850 million in taxes from its corporations, and corporate taxes and related revenue constitute approximately 40 percent of their state budget. The Delaware General Corporation Law is widely regarded as the most well developed and stable business law in the nation, and a highly-regarded legal system has grown up around the Delaware Chancery Court.

So I led passage of this law in answer to a simple question: Why can't Connecticut be Delaware?

Q: What are some steps that need to be taken to make Delaware corporations switch their incorporation status to Connecticut?

A: The new law creates a Commission on Connecticut's Leadership in Corporation and Business Law. We're going to bring together some of the most experienced and knowledgeable business people, and business lawyers, in our state to create a 10-year plan to challenge and hopefully supplant Delaware as the leading jurisdiction for businesses in our country. This may mean significant changes to the Connecticut Business Corporation Law, making sure our courts have even more resources and infrastructure to adjudicate business disputes, helping our secretary of the state provide state-of-the-art services to businesses, and making a huge push across the country to convince companies to incorporate here.

Q: You say Delaware has the best corporate law in the country to govern matters related to mergers and acquisitions, corporate governance, shareholders, and business disputes generally. Where would you rank Connecticut when it comes to these issues? Does it have great strides to make or small steps to take?

A: I think the general consensus is that there's Delaware, and then there's everyone else. We are a Model Business Corporation Act state, which means we share a form of corporation law with many other states. There's a lot of work to do, but in talking with many business lawyers in our state, particularly the Connecticut Bar Association's Business Law Section, I think we're ready to go.

Q: What are the potential negatives to this wholesale revamping of business law? What groups don't benefit from these changes?

A: I don't have any illusions about how hard this will be. There is always resistance to change. I am certain there are businesses and practices that are specific to Connecticut that people have become comfortable with. But Nevada, New York and other states are trying to get into the game and challenge Delaware. We have to have the courage to make our own bid.

Q: An interesting charge the proposed commission will study is establishing a court docket with exclusive jurisdiction over business entity organizations, shareholders, securities, and business combinations or transactions involving the sale or transfer of ownership interests. What are some of the challenges to establishing a dedicated docket?

A: I'm working closely with the judicial branch on this. Again, this is a big lift — but we have an excellent and highly experienced judiciary, and leadership in the judicial branch that understands this vision and wants to work with the legislature. To challenge Delaware, we have to challenge the hegemony of the Delaware Chancery Court. And that will take some big changes. 

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