Heading for the Dexit? (Re)considering Delaware Incorporation; Considering Other States

Delaware is the legal residence for more than 2 million entities, including two-thirds of Fortune 500 companies. Delaware collects billions of dollars in revenue through corporate registration activity. In 2024, for the first time, more companies in the Russell 3000 Index left Delaware than moved to the state.

Recently, a half dozen billion-dollar corporations left Delaware for Nevada, Texas, and Indiana. Dozens more are considering proposals to move in what many are calling "Dexit" (a nod to "Brexit," the UK's departure from the EU).     

Unfavorable case decisions like Tornetta v. Musk II gave pause to major corporations, heightened Delaware lawmaker anxiety, and catalyzed rapidly adopted legislation intended to strengthen corporate insider protection and shore up eroding corporate confidence. Texas and Nevada likewise seized the opportunity to tweak their own legal landscapes in a battle for the hearts and minds of corporate America. 

Critics claim these changes upset decades of thoughtful Delaware legislation and jurisprudence, bringing disadvantage to common investors like pensioners and middle-class savers, while enabling billionaires and corporate insiders room to violate their fiduciary duty.

Listen as our expert panel covers the advantages and disadvantages of incorporating in Delaware, Texas, or Nevada, including discussion on the factors influencing state choice and the ethical and fiduciary implications for directors and comparative shareholders rights. Help answer the question, "Should your company join Dexit?"  

I. Introduction: purpose and context

II. Why Delaware? Historical dominance, infrastructure (DGCL and Court of Chancery)

III. Rise of Dexit and corporate migration

A. Case catalysts: Tornetta v. Musk II

B. Statutory catalysts: Delaware's SB21, responses in DE, TX, NV, and beyond

IV. Challenges within the Delaware framework

A. Shifting definitions and standards

1. Redefined terms; "controlling shareholder, "controlling stockholder transaction," etc.

2. Evolving standards for director independence, cleansing, coverage of governance conflicts, inspection rights

3. Standard of review for conflicting transactions - from Sinclair Oil to "entire fairness"

V. Advantages and disadvantages to Delaware, Texas, and Nevada incorporation 

A. Strategic considerations

1. Nature and size of the business

2. Legal predictability or flexibility

3. Cost and tax implications

4. Shareholder litigation potential

5. Investor preferences

VI. Ethical and fiduciary implications

VII. Conclusions: Will Dexit be widespread?

The panel will review these and other key issues:

• Assess the risk/reward of state incorporation decisions considering fast-moving developments (e.g., Tornetta v. Musk II, SB21, Texas corporate law changes)
• Gain an updated view of directors' and officers' obligations, the standard of review in conflicted transactions, and how these vary dramatically by jurisdiction
• Guidance on shareholder litigation exposure under Delaware's "entire fairness" vs. Nevada's and Texas' more lenient business judgment rules
• Assist understanding of inspection rights and litigation triggers under different legal regimes
• Encourages discussion of ethical implications and helps counsel provide holistic guidance to boards or clients weighing their incorporation options