“TransPerfect” is not the most enthralling of headline words.
Of course, these days it’s difficult to rope readers in with headlines that don’t include “Trump,” “Clinton,” “emails” or “Billy Bush.”
While TransPerfect has no facilities or employees in Delaware, the company’s story is one all Delawareans should be following.
According to the state, 64 percent of Fortune 500 companies are incorporated in Delaware. The First State is also the leading jurisdiction for out-of-state incorporations – companies who, like TransPerfect, incorporate here, but are headquartered elsewhere.
Right or wrong, the state is heavily dependent on the money it makes off of the incorporation business. That dependence has only grown as major employers have left the state or significantly downsized their presence here.
In fiscal year 2015, according to financial reports, 230,558 companies paid the state a total of $677 million in corporate franchise tax.
The only other tax to generate more revenue is the personal income tax, which brought in $1.1 billion in FY 2015.
The TransPerfect story is complicated. The company, which started in 1992, handles language and translation services. It employs some 3,000 people and is headquartered in New York City.
The company’s founders, Elizabeth Elting and Philip Shawe, were once engaged to be married. Now, they’re on opposite sides of a series of legal disputes that threaten not only the future of TransPerfect and its employees, but of Delaware’s earning potential in the incorporation business.
Part of Delaware’s appeal as a state in which to incorporate is its chancery court, widely considered a business-friendly arbiter of corporate legal issues.
In this case, though, the chancery has failed to moderate resolution in the dispute between Elting and Shawe, each of whom essentially owns 50 percent of the company and accuses the other of gross mismanagement.
That failure is not necessarily the court’s fault. Quite simply, Elting and Shawe despise each other.
In June, Chancery Court Chancellor Andre Bouchard ruled that because Elting and Shawe cannot reach an agreement on the future of TransPerfect, the company must be sold. The next owners are under no obligation to maintain the company’s structure, or even its existence.
Bouchard’s ruling would not have raised eyebrows had TransPerfect been on the brink of bankruptcy.
But, according to Forbes, TransPerfect had $505 million in sales in 2015 and was on track to reach $1 billion in revenue by 2019.
While the ruling has concerned many in the business word, our concern lies with the possible fallout. Already, states that compete with Delaware for incorporation revenue – like Nevada, Oklahoma and Rhode Island – are circling like sharks looking to wrest the business away from us.
With a state budget shortfall estimated at $167 million, Delaware cannot afford to let this revenue stream dry up. Regardless of how the TransPerfect case is resolved, we urge members of the General Assembly to explore what, if any, legislation could help the chancery avoid another similar episode.