As readers undoubtedly have noted, one of the hot topics these days is the question whether corporations should change their state of incorporation from Delaware to that of another state, usually either Nevada or Texas. The dialog on this topic was already underway when Elon Musk supercharged the conversation by vowing, in reaction to the Delaware court’s disallowance of his $56 billion pay package, to have Tesla change its state of incorporation from Delaware to Texas. I suspect that the state of incorporation debate is going to be with us for some time to come, making it important for those of us who might have to participate in (or at least listen to) the conversation to get a handle on the key differences between the states.

In looking into these issues, I was fortunate to find two very good resources: an April 10, 2024, Law360 column by the Baker Botts law firm entitled “Comparing Corporate Law In Delaware, Texas and Nevada” (here, subscription required); and an April 23, 2024 memo from the Wilson Sonsini law firm entitled “Delaware’s Status as the Favored Corporate Home: Reflections and Considerations” (here). Both of these memos are excellent; both cover the topic at length and in depth. My purpose in this post is not to repeat here what these memos have already said so well. Rather, I intend simply to summarize what the two memos identify as the important differences between Delaware, Nevada, and Texas, so that we (that is, both readers and me) can have a better idea of what is at stake in the current re-domestication debate.

Before getting to the differences, it is probably worth reviewing why we are having this debate now. As influential as Musk may be, this is happening now not just because Musk is mouthing off again. Commentators, observers, and practitioners have in fact raised a number of concerns about Delaware.

The Wilson Sonsini memo provides a succinct, bullet-pointed list of  worries about Delaware; to summarize, the voices in the re-domestication debate cite a growing number of cases, particularly in the M&A context, where the courts have reached unexpected results; a perception that Delaware’s courts have adopted an increasingly suspicious or negative tone toward corporate boards and management; the challenges that Delaware case law can present for company founders or controlling shareholders; a sense that Delaware’s courts are skeptical of the governance of venture-backed private companies; and an increasingly active, and successful, specialized plaintiffs’ bar.

These questions increasingly are wrapped up in the larger question whether corporations would be better off reincorporating under the law of a state other than Delaware, particularly Nevada or Texas. Which of course begs the question of what the differences are in the legal environment between the three states.

The Courts

The most important consideration in the discussion has to do with the three states’ respective courts. On this issue, the preference, at least historically and traditionally, would go do Delaware. Delaware has, as the Wilson Sonsini memo puts it, “a talented, responsive, and knowledgeable judiciary.” The Delaware Court of Chancery has “decades of experience and a long track record of handling (often in very expedited fashion) sophisticated business disputes.” Delaware also has well developed case law; Delaware’s extensive and decades-old case law “provides guidance to corporate actors in an array of situations”; no state “comes close to Delaware in the depth and breadth of corporate case law, and Delaware’s cases are routinely cited by courts in every state.”

The situation is different in Nevada and Texas. Nevada does have its own business courts, which it created in 2000, in fact to be modeled on Delaware’s Court of Chancery. But while these specialized courts have been hearing cases for more than 20 years, the trial courts, according to the Baker Botts memo, “do not issue published written decisions,” so there remains a “dearth of case law on may issues that regularly come before the courts.” As a result, the outcome of business disputes in Nevada “can be more unpredictable than in Delaware.”

Texas is about to have its own specialized business courts. The Texas Legislature created separate business courts in 2023. The courts will commence operations later this year. While there is, according to the Baker Botts memo, “currently little written case law in Texas,” the business courts “will be required to issue written opinions” that “over time should help flesh out Texas’ corporate case law, adding to the predictability of acting as a Texas corporation.”

Fiduciary Duties

As I noted in a prior post on this re-domestication issue, one of the reasons some companies have given for their move to reincorporate from Delaware to Nevada is a perception that the companies’ directors and officers are both less likely to face liability in Nevada and less likely to face D&O liability litigation overall.

There are in fact differences in the liability standards of the three states, although it could be argued that the similarities between the states are more important than the differences. As the Baker Botts memo notes, “each of these states requires corporate directors to comply with certain enumerated fiduciary duties, broadly fashioned to ensure that their decisions align with the corporation’s interests.” In all three states, the fiduciary duties include the duty of care, which requires each director to take an active role in the decision-making process and to make informed decisions, and the duty of loyalty. Texas also provides for a duty of obedience, which prohibits directors and officers from exceeding the scope of their powers.

However, unlike Delaware, both Texas and Nevada by statute permit directors to consider interests beyond the maximization of the corporation’s long-term value. Nevada’s statutes specifically allow directors to consider both long- and short-term interests, as well as the interests of employees, suppliers, creditors, or customers, and “the interests of the community.” Texas also permits consideration of both long- and short-term interests, as well as “any social purpose specified in the corporation’s certificate of formation.” Accordingly, corporations that believe their directors should consider such elements, or believe that allowing its directors to do so may “decrease the likelihood of unwarranted stockholder litigation,” may, according to the Baker Botts memo, “favor incorporation in Nevada or Texas.”

All three states also allow for director or officer exculpation for breaches of fiduciary duty, but they differ on when and how the officials may be exculpated. Both Delaware and Texas allow corporations to include in their articles of incorporation provisions exculpating directors for breaches of the duty of care, but not the duty of loyalty. Delaware recently expanded this to allow for officer exculpation. By contrast, Nevada by statute automatically exculpates director and officer liability for any breach of fiduciary duty, unless their breach of involved intentional misconduct, fraud, or a knowing violation of the law. Thus, while all three states allow for exculpation, Nevada’s protection is the most extensive.

Standards of Review

The standards courts are to use in reviewing directors’ compliance with their duties may seem like an arcane issue of interest only to specialized practitioners, but in fact the standard the courts apply can be outcome determinative. Under the law of all three states, the vast majority of business decisions will be reviewed under the deferential business judgment standard. However, Delaware and Texas provide for stricter standards of review in certain cases.

In Delaware, when a decision is made by a board that is not majority independent and disinterested, or involves a controlling shareholder, the courts will use an entire fairness standard of review that places the burden on the directors to show both that the transaction process and the financial determinations were fair. In connection with transactions that result in a change of control, Delaware’s courts will impose a third standard of review, involving enhanced scrutiny, lying between business judgment and entire fairness.

Texas law, according to the Baker Botts memo, “does not provide quite so stringent heightened standards,” and is “generally more deferential” to the decision of fiduciaries than Delaware, but case law does subject transactions in which a fiduciary derived a personal benefit to stricture judicial scrutiny.

Nevada, by contrast, “explicitly rejects the use of any standard other than the business judgment standard, even in the case of interested transactions.” From my perspective, this factor, more than any other, tends to underscore the perception that directors and officers are less likely to be held liable under Nevada law, and less likely to be subject to liability litigation.

Books and Records Requests

Most readers of this blog will be familiar with stockholders’ books and records requests under Delaware General Corporation Law Section 220, which, as the Baker Botts memo notes, “can provide a powerful tool to a stockholder seeking access to a corporation’s books and records” – for example, to investigate wrongdoing or mismanagement, or to value the stockholder’s shares.” Texas’s statutory stockholder information right is, according to the Baker Botts memo, similar to Delaware’s, with some procedural differences, though “there is little case law interpreting it.”

Nevada’s stockholders’ information rights are, by contrast, much more restrictive, limited the right to major stockholders and even then only for specific documents. The Nevada law establishes two tiers: stockholders who have held their shares for more than six months and who own at least 5% of outstanding shares may request the articles of incorporation, the bylaws, and a stock ledger; stockholders owning at least 15% of outstanding shares may access books of account and financial records, however corporations are exempted from providing these records if they give the shareholders a detailed, annual financial statement or comply with SEC reporting requirements.

Books and records requests are a potentially valuable shareholder right. On the other hand, “the volume and breadth of these requests can be a significant expense and burden on the corporation and feed the litigation culture that begets additional cost and distraction.” The Nevada laws clearly are more protective of companies, their boards, and their management.

There are of course other important considerations and differences between the three states. The Wilson Sonsini memo emphasizes the fact that the Delaware legislature regularly reviews and updates the Delaware General Corporation Law, making the state’s corporation laws more flexible and responsive. The law firm memo also cites the professionalism of Delaware’s Secretary of State’s office, which is valuable in connection with corporate transactions. On the other hand, Delaware’s annual franchise tax, which can run as much as $200,000 to $250,000 per year, is appreciably higher than the annual fees required in Nevada and Texas.


While the discussion of these issues can quickly take on a technical, legalistic air, the question of whether companies should re-domesticate has important practical significance. For starters, nearly 70% of the Fortune 500 companies, and nearly 80% of all U.S. IPO companies, are incorporated in Delaware. A shift of public company incorporation away from Delaware would be a watershed event in the corporate legal environment in the United States.

As the above analysis shows, there are in fact important differences between the three states. With respect to at least some of the important considerations, there is evidence to suggest that the liability exposures of corporate directors and officers are less in Nevada than in Delaware, and arguably even in Texas. With that said, there is also little Nevada case law to corroborate this view; the track record in Nevada is nowhere nearly as extensive as in Delaware.

It is also worth emphasizing a point that the Baker Botts memo makes, which is that “although each state’s corporation law is distinct, it bears reminding that at their foundations they are more alike than they are different.” Each state “imposes meaningful fiduciary duties on corporate officers and directors and provides courts and stockholders with means to ensure those duties are followed.”

Just the same, some companies are going to consider re-domesticating from Delaware to another state, including to Nevada. As I discussed in the context of a specific company in a prior blog post, some companies are in fact reincorporating. The fact is that the differences between the states’ legal systems give rise to additional options, and the differences in the systems “may make them more appropriate for some corporations to consider.”

All of that said, Delaware does have the advantage of decades of experience as the central source of corporate law. The “predictability and comprehensiveness of Delaware law, as well as the perception of outside investors’ comfort with that law, will,” according to the Baker Botts memo, “continue to attract most corporations for the foreseeable future.”