Texas, Oklahoma, and Nevada are turning up their charm to bring businesses into their borders. Lawmakers in Texas, Oklahoma and Nevada have recently approved changes aimed at helping their states dip into the lucrative side of corporate litigation that Delaware, with a specialized court and business-friendly laws, has dominated as the world’s incorporation capital.
Now these changes are making another state very nervous. Delaware fears that these new laws may drive businesses out of Delaware, looking for greener pastures in Texas, Oklahoma, and Nevada.
“This is an area in which states, in many ways, are behaving like businesses,” said Robert Ahdieh, dean of the Texas A&M University School of Law, to The Associated Press. “Delaware is selling something. Texas is selling something that they hold out to be better. So it is very much a comparative exercise.”
Fearing that they might lose out on millions in corporate franchise taxes, Delaware officials have responded with their own changes to solidify their status in the business world.
Delaware promotes business through its well-established and business-friendly legal system, particularly the Delaware Court of Chancery. This specialized court handles corporate law cases without juries, allowing for faster, more predictable resolutions based on precedent. Its judges are experts in corporate law, making Delaware a preferred jurisdiction for resolving complex business disputes. The court’s decisions are respected across the U.S., providing companies with legal certainty and stability. This reliability attracts thousands of corporations, including over two-thirds of Fortune 500 companies, to incorporate in Delaware.
In addition to the Chancery Court, Delaware’s General Corporation Law (DGCL) is another key factor in promoting business. The DGCL offers flexibility in corporate structuring and management, including provisions that protect directors and officers from certain liabilities, making it easier to attract qualified leadership. The state’s laws are regularly updated in consultation with legal and business experts, ensuring they remain relevant and competitive.
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Combined with low corporate taxes and a streamlined incorporation process, Delaware creates an efficient legal and regulatory environment that supports both small startups and large multinational corporations.
Latin American e-commerce giant MercadoLibre filed a request for shareholders to approve a Texas relocation in April, citing Delaware’s “less predictable” decision-making process — a common thought among existing companies.
One of the notable reasons for the exodus of companies is concern over Delaware’s increasingly shareholder-friendly court decisions, such as the 2024 ruling against Elon Musk’s Tesla pay package. Executives worry this shift threatens managerial control and corporate flexibility. In response, states like Texas and Nevada have adopted more business-friendly laws, offering stronger protections for directors, reduced shareholder powers, and in some cases, no state corporate income or franchise taxes. These states are positioning themselves as alternatives with favorable legal climates, attracting high-profile companies like Tesla, SpaceX, and Pershing Square.
Amid concerns about more companies reincorporating elsewhere in a so-called “Dexit,” Delaware passed its own legislation to help protect its status as the corporate capital, limiting shareholders’ access to records and increasing protections for leadership. Opposition dubbed it “the Billionaire’s Bill.”
“Ultimately, I think the damage is done because businesses successfully undermined shareholder rights in Delaware,” said Corey Frayer, director of investor protection at Consumer Federation of America, who argues that the Delaware bill was a rash acquiescence to “Dexit” concerns.