Abstract
Abstract We empirically study formation-state choices of limited liability companies (LLCs). Most firms in our large sample of almost 20,000 LLCs are formed in the state where their principal place of business is located. As their size increases, firms become more likely to be formed outside that state, with Delaware emerging as the primary destination for LLCs that are not formed in the state of the principal place of business. We demonstrate that substantive law matters when LLCs choose their formation state. Limited liability companies are less likely to incorporate locally if their home state offers lax norms for minority-investor protection or creditor-friendly rules for veil piercing. In addition to contributing to the debate on regulatory competition in the law, this paper has implications for theoretical debates pertaining to choice of law in veil-piercing cases, the role of default rules, and the relationship between corporations and LLCs.
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