Delaware has long been the preferred state of incorporation for corporations due to its business friendly legal framework, its specialized Court of Chancery, and its well-developed and unified body of corporate law. However, recent news suggests that corporations are reconsidering their allegiance to the state.[1] Recent changes in regulatory policies, controversial judicial decisions, and tax implications have prompted a significant number of companies to seek incorporation elsewhere.[2] As a result, many believe that Delaware’s “monopoly” over corporate incorporation seems to be showing early signs of collapse. This blog post explores the factors driving this potential corporate exodus and its implications.
The Importance of Incorporation
Incorporation has major legal and financial implications. Different states offer different levels of legal protection, taxation rates, and regulatory requirements. However, one of the most critical legal factors in selecting a state for incorporation is the impact on general and personal jurisdiction.[3] Incorporating in a particular state typically subjects a corporation to that state’s general jurisdiction, meaning the company can be sued in that state for any legal matter, regardless of where the alleged conduct occurred.[4]
Delaware’s Corporate Dominance
Delaware has historically been the preferred jurisdiction for corporations. Today, over 60% of Fortune 500 companies have chosen Delaware as their legal home.[5] This is largely attributed to the stability of Delaware corporate law, the predictability of corporate litigation, and the expertise of the Court of Chancery.[6] However, recent developments have begun to erode this stronghold.
In the last year, many corporations have either moved their incorporation from Delaware to another state or have announced their intention to do so including, Dropbox, Tesla, SpaceX, Meta, Pershing square, and Trip Advisor.[7]
The Catalyst for Corporate Departure
- Judicial Decisions Impacting Business Interests
One of the main reasons for the recent corporate departures is likely the series of high-profile rulings by the Delaware courts that seem to run counter to established Delaware precedent. The Chancery Court has increasingly delivered rulings that expand corporate liability, intensify shareholder scrutiny, and impose heightened governance expectations.
A particularly high-profile case that has shaken corporate confidence is the recent suit involving Elon Musk and Tesla. In Tornetta v. Musk, the Delaware Court of Chancery ruled against Musk in a shareholder lawsuit challenging his $56 billion compensation package.[8] The court found that Tesla’s board had not exercised sufficient independence in approving the package, raising concerns about excessive executive compensation and conflicts of interest.[9] Shortly after this decision, Tesla stockholders overwhelmingly voted to ratify Musk’s compensation package, the same package that the court had previously rescinded.[10] However, the Chancery Court once again rejected this package, determining that the package was excessive and a result of a breach of fiduciary duties.[11] This ruling sent shockwaves through the corporate world, with many executives reevaluating their exposure to heightened judicial scrutiny in Delaware.[12]
Since these rulings, Musk has been on a warpath against Delaware courts, constantly criticizing Delaware’s legal environment on X.[13] His decision to move Tesla’s and SpaceX’s incorporation to Texas have reinforced the perception that the state is no longer as business-friendly as it once was.[14]
Most recently, the Supreme Court of Delaware evaluated whether a more stringent standard of review should be used when determining whether TripAdvisor’s move to incorporate to Nevada from Delaware was legal.[15] After the lower Delaware Chancery Court had ruled that a more stringent “entire fairness” review should apply, the Delaware Supreme Court rejected this standard and instead chose to adopt a more lenient “business judgement” standard.[16] As a result, TripAdvisor was able to officially move its incorporation from Delaware.
To date, these actions by the Chancery Court have and could continue to encourage other high-profile executives to consider similar relocations.
- The Rise of Alternative Jurisdictions
Other states have actively positioned themselves as business-friendly alternatives to Delaware. Nevada, for instance, offers enhanced privacy protections and fewer fiduciary obligations.[17] Texas on the other hand has capitalized on its lack of a corporate income tax to attract businesses seeking cost-effective incorporation.[18] Another jurisdiction that seems to be entering the incorporation battleground is Ohio. Ohio is currently home to more than 15 Fortune 500 companies and offers a statute-based approach to corporate law, which offers companies increased stability.[19] These jurisdictions have made strategic legislative moves to woo corporations away from Delaware.
The Implications of a Potential Delaware Exodus
An exodus of corporations could have dire consequences for Delaware. The state derives a substantial portion of its revenue from incorporation fees and franchise taxes.[20] A decline in corporate registrations may result in budget issues for the state.
Additionally, Delaware’s diminishing influence could disrupt the uniformity of corporate law. The state’s well-developed precedent has provided predictability for businesses nationwide. If companies disperse to multiple jurisdictions, corporate law may become more fragmented, leading to increased legal uncertainty.
Conclusion
The recent exodus of companies from Delaware signals a potential shift in corporate governance and legal strategy. While Delaware remains a dominant force, its grip on the corporate world is loosening as businesses seek more favorable legal and economic climates. Whether Delaware adapts to these changes or continues to lose ground will shape the future landscape of corporate law in the United States.
[1] See Michael Toth, Why the Corporations Are Fleeing Delaware, The Hill (June 12, 2024), https://thehill.com/opinion/finance/4715117-why-the-corporations-are-fleeing-delaware/.
[2] See id.
[3] See Corporate Personal Jurisdiciton, Mallory, and Forum-Shopping: What’s Next for Multistate or International Corporations?, Sidley (Apr. 9, 2024) https://www.sidley.com/en/insights/newsupdates/2024/04/corporate-personal-jurisdiction-mallory-and-forum-shopping.
[4] See Daimler AG v. Bauman, 571 U.S. 117, 137 (2014).
[5] See Delaware’s Status as the Favored Corporate Home: Reflections and Consideration, Wilson Sonsini (Apr. 23, 2024), https://www.wsgr.com/en/insights/delawares-status-as-the-favored-corporate-home-reflections-and-considerations.html; see also Pierluigi Matera, Delaware’s Dominance, Wyoming’s Dare: New Challenge, Same Outcome?, 27 Fordham J. Corp. & Fin. L. 73, 73 (2022).
[6] See Matera, supra note v, at 86, 87.
[7] See Scott Nover, Why Are Tech Bros Leaving Delaware?, Slate (Feb. 05, 2025), https://slate.com/business/2025/02/elon-musk-delaware-judge-meta-mark-zuckerberg-bill-ackman-pershing-texas-nevada.html.
[8] 310 A.3d 430 (Del. Ch. 2024).
[9] See id. at 508-10.
[10] See Delaware Court of Chancery Rejects Elon Musk’s 55.8 Billion Tesla Compensation Package (Again), McCarter & English (Dec. 31, 2024), https://www.mccarter.com/insights/delaware-court-of-chancery-rejects-elon-musks55-8b-tesla-compensation-package-again/.
[11] See id.
[12] See Pershing Square Boss Ackman to Relocate Management Company from Delaware, Hedgeweek (Feb. 4, 2025), https://www.hedgeweek.com/pershing-square-boss-ackman-to-relocate-management-company-from-delaware/#:~:text=Bill%20Ackman%2C%20the%20founder%20of,a%20report%20by%20Business%20Insider.
[13] See Elon Musk (@elonmusk), X (Jan. 30, 2024, 5:14 PM), https://x.com/elonmusk/status/1752455348106166598?lang=en.
[14] See Musk Says SpaceX Has Moved Its Incorporation To Texas From Delaware, Reuters (Feb. 14,2024), https://www.reuters.com/technology/space/musk-says-spacex-has-moved-its-incorporation-texas-delaware-2024-02-15/.
[15] See Jonathan Stempel, Delaware Supreme Court Eases Path for Some Companies to Leave State, Reuters (Feb. 4, 2025), https://www.reuters.com/legal/delaware-supreme-court-eases-path-some-companies-leave-state-2025-02-04/.
[16] See id.
[17] See Viren Mathias, Delaware vs Nevada LLC: Which State is Best for Your Business, Commenda (Feb. 6, 2025), https://www.commenda.io/blog/delaware-vs-nevada-incorporation#:~:text=Nevada%20provides%20even%20stronger%20privacy,the%20identities%20of%20business%20owners.
[18] See Incorporating in Delaware vs. Texas: What Is The Better Option for Your Business?, Crystal Capital Partners (May 3, 2024), https://www.crystalfunds.com/insights/incorporating-in-texas-vs-delaware.
[19] See Edward Babbitt, When Incorporating Your Business, Skip Delaware and Head to Ohio, Bloomberg Law (Mar. 3, 2025), https://news.bloomberglaw.com/securities-law/when-incorporating-your-business-skip-delaware-and-head-to-ohio.
[20] See Jeffrey A. Friedman & Jeremy P. Gove, Alternative Entities, Professional Perspective – The “Secret” Delaware Tax, Bloomberg Law (Mar. 2024), https://www.bloomberglaw.com/external/document/XDJOK4EC000000/alternative-entities-professional-perspective-the-secret-delawar.
