As readers of this blog undoubtedly are aware, one of the provocative topics that has emerged in recent months is whether companies incorporated under the laws of Delaware should redomesticate under another state’s law, with Texas and Nevada as the alternative states typically under discussion. This ongoing debate has gained momentum in recent days, as additional firms have signaled an intent to move on from Delaware. There have also been a number of other key developments, including the introduction of legislative initiatives and an important court decision, providing further context for the ongoing discussion. Because the discussion of this topic is unlikely to end any time soon, it is important to recognize and understand the recent developments.

First and foremost in the recent developments is the news from various quarters that a number of additional companies have recently signaled their intent to up stakes from Delaware. Among the firms recently signaling either an intent to change their Delaware incorporation or a consideration of the possibility of doing so are Meta (as discussed here), Pershing Square (discussed here) and Dropbox (discussed here). These companies join others that have already made the move (or that are in process), including Tesla and TripAdvisor, or that announced a plan to move late last year, such as The Trade Desk (here) There is no doubt that the recent company announcements have raised the temperature on these issues.

A second recent development worth considering is that it recently has become clear that the political class in Delaware sees what is going on and they don’t like it as all. There is a good reason why Delaware politicians might be alarmed by companies’ sudden urge to move on from their state. Delaware realizes as much as 20% of its total state tax revenue from its franchise taxes and other fees imposed on companies incorporated in its state. It therefore should come as no surprise that Matt Meyer, the state’s new governor (he was just sworn in last month), recently told the media that he recognizes that it is “really important that we get it right for Elon Musk or whoever the litigants are in Delaware courts,” adding that in coming months “you’re going to see some things rolled out that will help move our state forward,” in order to “make sure we’re protecting and growing the corporate franchise.”

We did not have to wait long to find out about the potential Delaware reforms. On February 17, 2025, a Delaware legislator introduced Senate Bill 21 (a copy of which can be found here), to reform provisions of the Delaware Code, in part in response to the Delaware redomestication debate. Among other things, the bill contains a number of revisions with respect to controller transactions, and also regulates shareholder access to books and records. The bill is extensive and potentially impactful, as detailed in UCLA Law Professor Stephen Bainbridge’s February 17, 2025 post on his ProfessorBainbridge.com blog (here).

An energetic online debate about the new Delaware bill has already launched. For example, a February 18, 2025 post on the CLS Blue Sky Blog written by three prominent law professors (here) called the bill “the most significant single-year revision of Delaware’s corporate code since at least 1967, reshaping everything from how controlling stockholders negotiate major transactions to the mechanics of derivative litigation and shareholder access to corporate records.” Among other things, in their memo the three professors express their concern both about the process that led to the bill and to the risk that the bill could “narrow judicial oversight, empower controllers, and constrain shareholder enforcement.” Other online comments (for example, here) have been more restrained and deferential to the legislature’s authority to act.

Readers may be interested to know that, according to media reports, there are substantial grounds on which to believe that the law firm that represented Elon Musk in his ginormous pay package bill drafted the proposed legislation.

(In a related development, on the same day as Senate Bill 21 was introduced, the same legislator also introduced a proposed concurrent resolution to request the Corporation Law Section of the Delaware Bar to prepare a report of recommendation regarding the award of attorneys’ fees in “certain corporate litigation cases.”)

A third recent development that I think should not be overlooked is that, perhaps because of the involvement of Elon Musk in the debate on these issues, the redomestication issue has been drawn into growing cloud of controversy surrounding the new Trump administration. A February 8, 2025 New York Times Dealbook column entitled “Delaware Law Has Entered the Culture War,” (here) noted that Musk’s “ire” against Delaware has managed to frame the redomestication issue alongside “hot button issues like diversity, equity and inclusion programs, as one further example of overreach.” It has, as one commentator is quoted in the article as saying, become “a highly ideological charged political issue, which it never, ever was before.”

There is one further legal development that should also not be overlooked, and that is the Delaware Supreme Court’s February 4, 2025 decision in the TripAdvisor case. (A copy of the Court’s opinion can be found here). The Supreme Court reversed the decision of the Delaware Court of Chancery to deny the motion to dismiss the breach of fiduciary duty lawsuit that had been filed against the board of TripAdvisor in connection with the board’s decision to move the company’s state of incorporation from Delaware to Nevada.

The Chancery Court had held that because the board was motivated by the perceived benefit of reduced board liability exposure under Nevada law, the board’s decision to reincorporate the state should be assessed under the demanding “entire fairness standard.”

The Supreme Court said that, rather than the “entire fairness” standard, the board’s decision should be assessed under the more lenient “business judgment” rule, because the “hypothetical and contingent impact of Nevada law on unspecified corporate actions” is “too speculative to constitute a material, non-ratable benefit triggering the entire fairness review.”

In a February 12, 2025 memo on the CLS Blue Sky Blog (here), attorneys from the Cleary Gottlieb law firm said the Court’s ruling in the TripAdvisor case means that “stockholder challenges to future conversion decisions by controllers are unlikely to succeed and will be dismissed at the motion to dismiss stage, unless plaintiffs can satisfy that heavy burden that the conversion ‘cannot be attributed to any rational business purpose.’” 

The law firm memo also observes that the Court’s decision is “a clear statement of Delaware’s policy as a moment of public debate surrounding decisions on whether to incorporate or remain domiciled in the state.” Indeed, the Court said that “allowing directors flexibility in determining an entity’s state of incorporation is consistent with this Delaware policy.” The decision, the memo observes, “points to an open door – an easier way to exit the state in this case, but perhaps more importantly, a welcoming symbol for future entrants and current Delaware companies.”

Discussion

There will no doubt be further discussions pertinent to this redomestication debate in the months ahead. But in considering the developments identified above and that are likely to emerge on this issue, there are some important considerations to keep in mind.

First, even though there are a few high-profile companies leaving Delaware, and even though Elon Musk has managed to propel this redometication debate into one of the hot topics in the current culture wars, there is no flood of companies rushing to leave Delaware. As Professor Bainbridge has documented in a separate post on his ProfessorBainbrige.com blog (here), his research shows that what he calls “DExit” is “a trickle not a flood.” For all the high-profile attention this issue has drawn, in the end, we are only talking about a small handful of companies.

Second, even with respect to the few companies that are actually under discussion here, it is important to keep in mind that in almost every case we are talking about companies with controlling shareholders. As I discussed in a December blog post on this topic, an academic article by Yale Law Professor Jonathan Macey correctly points out that much of theoretical justification for the redomestication advocacy, and indeed much of the heat surrounding the debate, arises from what is perceived in certain circles as the “the suspicious and negative tone adopted toward corporate boards and management” particularly with respect to decisions involving controlling shareholders. (Think here, for example, of the Delaware courts’ consideration of Tesla board’s approval of Elon Musk’s massive pay package.) It should not be overlooked that all or virtually all of the companies that have recently announced their plan to leave Delaware are companies with controlling shareholders.

The controlling shareholder issues that predominate the discussion of these issues, while undoubtedly important to certain companies, are simply not relevant to the vast majority of Delaware corporations because they do not have a controlling shareholder. To be sure, because of the high-profile nature of many of the firms that are considering leaving Delaware, we can all expect the public debate of these issues to continue – even if many of the issues are not relevant to most Delaware companies.

The new proposed legislation that has been introduced and that will be considered by the Delaware legislature in the months ahead is intended, among other things, to address many of the issues relating to controller transactions, and to allay fears stirred up in recent Chancery Court decisions. It of course remains to be seen what the final outcome of the proposed legislation will be, but the legislation that ultimately is passed will have a significant impact on the ongoing redomestication debate. The legislation could also have a significant impact overall on Delaware Corporation law.

I have long thought in the discussion of these issues that even if questions have been raised about certain decisions of Delaware’s courts, the state’s overall and historical reputation is likely to ensure that most companies with remain there, in preference to other jurisdictions where the historical record is still being established. As Professor Bainbridge observed in an earlier post about these Delaware reincorporation issues, “Delaware’s competitors face their own hurdles, and the state’s advantages – efficiency, legal expertise, and a comprehensive statutory framework – remain unmatched. As long as Delaware can maintain its reputation as marginally better than its alternatives, it will likely retain its position at the top.”

I will say this. There is one really great thing about having a blog, and that is that there is never a shortage of interesting things to write about.