Delaware hosts over 1.8 million business entities despite a population under 1 million, including 60% of Fortune 500 companies. That dominance is eroding. Tesla reincorporated to Texas with 84% non-controller shareholder support after a Delaware court invalidated Elon Musk's board-approved compensation package twice. SpaceX, Dropbox, TripAdvisor, and others have followed or announced plans to follow. The primary destinations: Nevada and Texas.
The case against Delaware is specific and documented. A Delaware court invalidated Activision's merger approval process despite 98% shareholder support and no evidence of harm. It voided Moelis and Company's founder stockholder agreements that were disclosed at IPO, requiring a legislative fix. It ruled that TripAdvisor's attempt to reincorporate to Nevada itself required special committee approval. The pattern is activist judges applying what critics call creative writing to case law, creating litigation risk that makes routine deals and governance structures unpredictable and expensive.
The full article includes a state-by-state comparison from Ben Potter and team at Latham and Watkins, open-sourced as a PDF, covering litigation risk, business judgment rules, director indemnification, takeover defenses, and setup costs across Delaware, Nevada, and Texas. The key tension worth reading: Nevada encodes fiduciary duties in statute rather than case law, which theoretically protects against the same judicial drift now killing Delaware's reputation, while Texas relies on case law and could face identical risks over time. That distinction is driving the Nevada versus Texas debate among companies currently making the move.
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