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Donahue v. Rodd Electrotype Co. of New England, Inc.
While founders will typically incorporate in either Delaware or their home state, incorporating in the home state may not be without consequence. For example, closely-held corporations in Massachusetts will be subject to Donahue's requirement that shareholders of Massachusetts closely-held corporations owe each other duties of loyalty equivalent to that of partners. The result Donohue is to add unnecessary uncertainty into the investment equation for early-stage venture investors where the venture-backed company is arguably still closely held.
As a consequence, if you are representing a Massachusetts-based start-up enterprise, one of the first things you will do before the company receives venture financing will be to reincorporate the start-up entity into Delaware.
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