Sean Murphy over at The Bootstrappers Breakfast pointed the group to a good link to some legal advice for startups by George Grellas & Associates. Some really good advice here, but the most interesting point for me was about incorporating in Delaware. Specifically:
On the down side – and this is major – Delaware permits preferred shareholders who control the majority of the company’s voting stock to sell or merge the company without requiring the consent of the common stock holders. This can easily lead to downstream founder “wipe outs” via liquidation preferences held by such controlling shareholders.
I know that Delaware is the preferred state of incorporation for VCs when choosing to invest in a company. I wonder how much the above factors into that.