Does my CPG Company need to be organized in Delaware?

Background reading: How CPG Startups differ from Tech Startups

Short Answer: Long-term, possibly. Short-term, probably not.

Delaware by far dominates the tech startup world, for a number of reasons that you can read about extensively on other blogs/articles. Tech venture capitalists often require Delaware, as do many tech accelerators. Most of the standardized investment documents for tech startups assume a Delaware corporation.  But as we wrote about in the above-referenced post, the CPG world is very different from Tech.

First, there are no standardized investment documents for CPG Startups, so there’s no issue with needing to conform to any standardized, DE-based expectations.  There’s a lot more fluidity/flexibility in how CPG startup financings are structured, and that leaves more room for fitting into your particular state’s legal requirements.

Second, LLCs are far more dominant in the CPG world than in tech. LLCs governance is much more contractual in nature; as opposed to statutory. That, to a large extent, makes state law less significant for LLCs than Corporations. This too makes Delaware less of a requirement, certainly at early stage, for CPG startups.

Generally speaking, CPG startups in states with reasonably sophisticated business environments (CA, CO, TX, NY, WA, MA) shouldn’t feel pressured to organize in (or convert to) a Delaware entity unless there are investors requiring them to. Larger institutional CPG investors will still often prefer Delaware, but are less likely than tech investors to set it as a condition to investment.

Our usual approach is that if we’re already going through a significant corporate event, like a conversion from an LLC to a Corp, we might favor moving to Delaware just for long-term planning purposes, but more often than not local state law works just fine for CPG companies.

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