Foley Attorneys Assess Shifting Landscape of Corporate Incorporation

From Delaware to Texas: The Shifting Landscape of Corporate Incorporation

Since 2023, at least 20 companies, each valued at over $100 million have announced plans to leave Delaware. Big names like Tripadvisor, DropBox, Pershing Square Capital Management, Viewbix Inc., and Neuralink have reincorporated in Nevada. Trump Media successfully reincorporated in Florida, and Texas has gained SpaceX and Tesla.

For decades, Delaware has been the gold standard for U.S. corporate incorporation. Delaware’s established case law, business-friendly court system, and predictable legal framework drew thousands of companies—from fledgling startups to Fortune 500 giants—to incorporate and domicile within its jurisdiction, despite headquarters and operations being elsewhere.

Delaware hasn’t always held its position as the preeminent home for incorporation. In the 1890s, New Jersey led the nation in corporate incorporations, touting business-friendly laws and significant operational freedom. But once the Garden State’s governor began tightening corporate regulations for fear of monopolistic practices, Delaware seized the opportunity, offering a more stable and flexible legal environment. By the 1920s, Delaware had firmly established itself as the premier state for incorporation.

Since then, Delaware has consistently adapted to remain the front runner of corporate formations, but cracks emerged over the past few years as cases coming out of the Delaware Court of Chancery challenged long-standing assumptions about Delaware law. Fast forward to 2025, when these decisions reached a tipping point and spawned a growing movement, dubbed “DExit,” actively challenging Delaware’s dominance. Businesses are increasingly weighing the benefits of alternatives, with Texas, Nevada, Florida, and Wyoming as contenders, while others seek a home court advantage.

At the heart of this shift are deeper questions surrounding how companies make decisions, how they manage stockholder and stakeholder relationships, and which states offer the most supportive environments for growth, stability, innovation and protection.

Why Are Some Companies Considering Leaving Delaware?

The DExit phenomenon is rooted in a confluence of legal and strategic considerations. Following a string of Delaware Chancery Court decisions where judges supplanted the business judgment of directors and, in some cases, a majority of stockholders, with their own, a number of public and private companies, many of them still founder-controlled, have taken their domiciles and moved them elsewhere. Cracks in the state’s long-standing appeal began to grow. True to form, the Delaware legislature promptly responded and passed legislation to address concerns of departing companies. Delaware’s recent legislative changes, including reforms to the Delaware General Corporation Law (DGCL) through Delaware Senate Bill 313 (SB313) and Delaware Senate Bill 21 (SB21), represent attempts to undo recent caselaw, and not without significant controversy and uncertainty.

Notably, in the summer of 2024, Delaware’s SB 313 reaffirmed long-standing protections for corporate directors and officers, providing further clarity around the business judgment rule and derivative litigation standards that were eroded by recent Court of Chancery decisions. More recently, in March 2025, SB21 was passed to limit stockholder demand rights, particularly concerning access to company records, and to remove judicially imposed roadblocks to transactions involving directors and controlling stockholders. Some critics argue these moves are too little, and too late, particularly given Delaware’s historical posture on stockholder rights, which some say leans too far toward activist investors and litigation risks. Other critics decried a Delaware legislative “sellout” to the billionaire founder class and a pilloring of pension funds invested in Delaware corporations that would compromise the retirements of public and private workers. Still others expressed a concern that the changes did not do enough to manage a Court of Chancery that is becoming seen as more hostile to traditional business interests.

The controversy on all sides has given oxygen to the term “DExit”—a corporate migration toward jurisdictions perceived as more aligned with modern business realities or to the state where a company is headquartered. Since 2023, at least 20 companies, each valued at over $100 million have announced plans to leave Delaware. Big names like Tripadvisor, DropBox, Pershing Square Capital Management, Viewbix Inc., and Neuralink have reincorporated in Nevada. Trump Media successfully reincorporated in Florida, and Texas has gained SpaceX and Tesla. Looking to the future, states such as Nevada, Florida and Wyoming have seen the number of companies incorporating in their jurisdictions increase by up to 150% annually in recent years.

Key Factors Still Supporting Delaware

After adoption SB313 and SB21 in Delaware, the law continues to provide some benefits for corporations:

• A century of settled case law.
  • Delaware benefits from a century of case law from its business-focused Chancery Court that provides predictability for corporations (although recent decisions have called that predictability into question in some instances).
  • While Texas and Florida are aiming to improve predictability with a dedicated judiciary for corporations modeled on Delaware, because they are newly established, neither has a history of robust case law provided by Delaware’s Chancery Court. However, Texas seeks to remedy this through greater statutory certainty.
• Efficient systems and infrastructure in place.
  • Delaware has built an infrastructure to support thousands of companies in processing corporate actions efficiently and predictably, and at a competitive price point.
  • While other states can also adjust pricing to compete, they may not have the infrastructure or efficient processes in place and filings may take much longer to be processed, that could cause delays in critical and time-sensitive transactions.
• Lawyers and investors are familiar with Delaware law. 
  • Generations of corporate lawyers have trained on Delaware law and history, and developed established practices to structure and execute transactions on a collective understanding of what is fair.
  • Incorporating elsewhere may fragment a currently efficient Delaware-based ecosystem, which may challenge the legal and investment landscape, making it more difficult for companies to receive investments.
• Protections for intellectual property.
  • Delaware has a long-established body of IP case law, and such matters are handled by specialized courts, making the outcomes easier to anticipate. 
  • Other jurisdictions may not be able to offer the breadth and elevated level of sophistication on these matters.
• Recent bills passed to shore up perceived weaknesses.
  • SB 313 restores legal certainty following recent Delaware Chancery Court rulings that had cast doubt on some common market practices, including authorizing corporations to enter into contracts with current or prospective stockholders that may influence or constrain board decisions, allowing boards to approve merger agreements in “substantially final form” and enabling parties to mergers to predefine penalties and appoint representatives to enforce terms on behalf of stockholders. Here is a rundown:
    • Contractual agreements: SB 313 allows corporations to enter into contracts with stockholders or beneficial owners, even if these provisions are not included in the certificate of incorporation. This includes agreements to restrict or prohibit future corporate actions, require approval from specific parties before taking certain actions, and a covenant to take or refrain from specific actions. This flexibility allows corporations to tailor agreements to specific needs and circumstances, potentially leading to more efficient and customized governance structures 
    • Merger agreements: The bill allows boards of directors to approve merger agreements in “substantially final form,” simplifying the approval process and reducing technical foot faults. It also allows parties to agree on penalties or consequences for breaches of the agreement and appoint stockholder representatives. These changes are expected to make mergers and acquisitions more straightforward and less prone to legal challenges 
    • Restoration of market practices: SB 313 reinstates market practices that were questioned by the Court of Chancery, ensuring that contractual damages for failure to perform or consummate mergers are legally enforceable. This should provide greater clarity and confidence for corporate transactions.
• Delaware Senate Bill (or SB21) was signed into law on March 25, 2025, and aims to provide clarity and predictability for corporate governance, particularly in transactions involving controlling stockholders. Here is a summary of the key provisions:
  • Safe harbor procedures: SB 21 establishes safe harbor procedures for transactions involving controlling stockholders. These transactions are protected from liability if approved by an independent board committee or ratified by a majority of disinterested stockholders. Meanwhile, a board committee can remain independent even if it has a member who is not.
  • Definition of Controlling Stockholders: The bill defines controlling stockholders as those who own or control a majority of voting stock, can appoint directors with majority voting power, or have equivalent control through other means.
  • Inspection Rights: SB 21 amends Section 220 of the DGCL, narrowing the scope of company information that shareholders can inspect and setting higher standards for such requests.  

Implications for Delaware corporations are significant:

• Reduced Litigation Risks: By providing clear guidelines and safe harbor procedures, SB 21 aims to reduce litigation risks associated with controlling stockholder transactions. This can lead to more predictable and efficient corporate governance.
• Enhanced Transaction Certainty: The bill’s provisions help ensure that transactions involving controlling stockholders are less likely to be challenged in court, providing greater certainty for corporate deals.
• Stricter Shareholder Inspection Rights: The amendments to Section 220 limit the scope of records shareholders can inspect, potentially reducing the burden on corporations to disclose sensitive information. No more fishing expeditions on director cellphones …
• Shift in Power Dynamics: By defining controlling stockholders and providing protections for their transactions, SB 21 may shift some power dynamics within corporations, potentially affecting how decisions are made and who has influence.

Overall, SB 21 is designed to enhance the stability and predictability of corporate governance in Delaware, making it a more attractive jurisdiction for incorporation. Not without controversy, as plaintiffs lawyers and advocacy groups for pensioners argue that too much power is concentrated within insiders, whose power will go unchecked at the peril of minority or passive holders. In addition, SB 21 is subject to constitutional challenge, and its effect is uncertain—with legal publications following its passage indicating both that it undoes three dozen cases and does not change Delaware law.

Key Factors Propelling Texas Forward

Texas has long been viewed as an ideal jurisdiction for an oil and gas discovery business. But it has historically not been viewed as a leading state for incorporations.

A succession of pro-business governors has been luring companies to Texas with a business-friendly environment and a lower cost of doing business. A combination of factors in the past few years has accelerated a process where companies have not only moved headquarters and operations to Texas, but also their corporate domicile.

In recent weeks, a bill* was introduced in the Texas legislature that would significantly upgrade its position in the race among states to become America’s preferred jurisdiction for corporations. Here is a rundown of the expected changes:

• Proposed Codification of the Business Judgment Rule
  • With limited large companies incorporated in Texas, there are fewer fact patterns that have been judicially evaluated. Texas has long had a common law business judgment rule, which generally protects officers and directors from personal liability, but edge cases were not defined with the same precision as in Delaware.
  • Texas Senate Bill 29 (SB 29) would codify the “business judgment” rule, and provide that a shareholder claiming a breach of fiduciary duty must overcome the presumption that directors and officers comply with their fiduciary duties, prove that the director or officer actually breached the duty, and that the breach involved intentional misconduct, fraud, an ultra vires act or a knowing violation of law. If adopted, this provision of the bill would provide greater certainty for boards and directors to corporate decision-making.
• Restrictions on Derivative Lawsuits
  • SB 29 also has an innovative provision to protect companies from meritless claims, by letting corporations establish an ownership threshold—not to exceed 3%—that must be met to bring a derivative claim. 
  • It would also prohibit the recovery of attorney fees in cases where derivative lawsuits result in “disclosure-only” settlements.
• Special Litigation Committees
  • A second innovation in SB 29 is that it allows companies to seek upfront judicial determination regarding the independence of directors serving on special committees. This would allow a company to have a judicial presumption of independence prior to approving and reviewing significant transactions.
• Exclusive Venue for Internal Disputes and Waiver of Jury Trial
  • Corporations can specify that internal disputes be resolved in any court of the state of Texas, including the newly constituted Texas Business Court, and to have internal claims resolved without a jury trial.

These reforms aim to strengthen legal protections for business leaders, expedite corporate dispute resolution, and offer more control over corporate litigation, making Texas a more attractive option for incorporation.

Considerations for Companies Looking to Make the Move 

• Involved Process – Moving from Delaware to another state of incorporation is an involved process which includes
  • choosing a method of reincorporation; 
  • forming a new entity in the chosen state;
  • preparing board and stockholder resolutions (a much more complicated process for publicly traded entities); 
  • filing in the chosen state; 
  • dissolving in Delaware (or another state); and 
  • notifying the IRS, banks and other relevant entities.
• Important Considerations—Before making any kind of move, companies must quantify the impact on every stakeholder.  Consider:
  • Taxes! 
  • Third party consents?
  • Regulators or license authorities?

This is particularly important for publicly traded entities. Further, a thorough analysis of the pros and cons of the proposed state of re-incorporation is critical to avoid missteps in legal protections in connection with a company’s unique business attributes and goals.

Perspectives d'avenir

Whether “DExit” turns into a tidal wave or remains a ripple will depend on how companies respond to the evolving legal landscape. For now, one thing is clear: the monopoly Delaware has held for decades is being challenged. The good news for dealmakers and practitioners is that Delaware has responded to the challenge by enacting legislation to keep companies happy. Whether this is ultimately good for businesses incorporated in Delaware remains to be seen.

*On May 7, 2025, the Texas Legislature passed Senate Bill No. 29, which introduces a series of corporate reforms that aim to make Texas a preferred jurisdiction for legal domestication. Because S.B. 29 received a two-thirds majority vote in both chambers of the Legislature, it is set to take immediate effect once signed by Gov. Greg Abbott. Read here for more.

Reprinted with permission from the May 15, 2025, edition of the “Delaware Business Court Insider” © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or [email protected].