One of the more interesting recent developments in the U.S. corporate arena has been the recent emergence of a DExit movement – that is, the rise of the argument that companies would be better served to move their state of incorporation from Delaware to another state, usually Nevada or Texas. In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a closer look at the legal changes that have emerged in the wake of the DExit movement, both in Delaware and elsewhere, and considers the extent to which these changes may present D&O risks. My thanks to Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.
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Does Coinbase’s recent reincorporation to Texas from Delaware, and its messaging surrounding the move, raise an emerging D&O underwriting risk related to a company’s state of incorporation?
In his Wall Street Journal opinion piece, Coinbase’s Chief Legal Officer asserts that Delaware’s judicial outcomes have become too unpredictable and that Texas, with recent corporate-law reforms, offers efficiency, flexibility, and legal predictability. He further cites Delaware’s recent jurisprudence, concern about growing shareholder litigation, and desire for statutory protection for fiduciaries, which Delaware does not appear to provide. Coinbase is not the only company to provide similar bases to reincorporate from Delaware over the last year.
Alongside newly enacted corporate-law reforms in states such as Texas and Nevada, a recent Analysis Group review (reported in the Harvard Law School Forum on Corporate Governance) shows a year-over-year increase in public companies seeking shareholder approval to reincorporate out of Delaware. The filings commonly cite motivations which mirrored Coinbase: greater legal certainty, reduced litigation exposure, and lower operating or franchise-tax costs.
As D&O Diary readers may recall, shortly after Delaware signed into law Senate Bill 21 (DE SB 21) in an attempt to blunt corporate reincorporation efforts, the Texas legislature codified Senate Bill 29 (TX SB 29) and Senate Bill 1057 (TX SB 1057), and the Nevada legislature, not to be outdone, revised its corporation code Chapter 78 (NV 78). The impact of each of these state initiatives is just beginning to show, along with the potential risk to D&O underwriters of companies that are weighing whether to stay or leave Delaware.
To appreciate what, if any, additional risk may arise from reincorporation, the following will briefly review the above-referenced Delaware, Texas, and Nevada laws, the recent wave of shareholder proposals seeking reincorporation, and data demonstrating momentum behind DExit.
State Law Developments
Delaware
There have been several D&O Diary posts discussing DE SB 21, including constitutional challenges, so I will only briefly describe the bill as passed. DE SB 21 was enacted in March 2025 and amends select provisions of Sections 144 and 220 of the Delaware General Corporation Law. The effect is to address provisions of the state’s corporate laws to lessen stockholders’ rights relative to claims involving controlling stockholders, particularly as they relate to purportedly conflicted transactions.
Texas
Signed into law by Governor Greg Abbot in May 2025, TX SB 29 codifies the Business Judgment Rule directly into the Texas Business Organizations Code. Under TX SB 29, directors and officers of a Texas corporation (publicly traded or opt-in) are presumed to act (1) in good faith, (2) on an informed basis, (3) in furtherance of the interests of the corporation, and (4) in obedience to the law and the entity’s governing documents. Thus, a plaintiff seeking to hold a director or officer liable must rebut one or more of those presumptions and prove that the act or omission constituted a breach of duty and involved fraud, intentional misconduct, an ultra vires act, or a knowing violation of law.
TX SB 1057, also codified in May, allows certain Texas incorporated companies, under specified circumstances, to include a provision in their governing documents that imposes higher stock ownership requirements on shareholders seeking to submit proposals. To submit a proposal, a shareholder or group must meet either a $1 million market value threshold OR a 3% ownership threshold and hold the shares continuously for at least 6 months.
Nevada
Nevada’s corporation code, anchored in NV 78, presumes that fiduciaries (directors and officers) act in good faith and with a valid business purpose, and it permits broad exculpation along with expansive indemnification for any claim other than intentional misconduct, fraud, or a knowing violation of law. Nevada also imposes higher procedural hurdles on derivative litigation and maintains narrower, less shareholder-friendly books-and-records inspection rights than Delaware.
Discussion
Thus, considering the above and the increasing number of shareholder proposals to reincorporate from Delaware, will shareholder scrutiny over a company’s decision to stay or leave begin to impact D&O underwriter exposure?
First, it is important to note that Delaware continues to attract substantial new entity formations even while high-profile public companies are opting to depart. In 2025, 29 companies, including Coinbase, reincorporated out of Delaware, yet nearly 250,000 new entities (which may include LLPs and LLCs with lower franchise fees) have been formed in the state since the end of September.
However, as noted earlier, in the HLS post, Delaware experienced a net loss of large public companies (with significant or controlling shareholders) through reincorporation in 2024 and the first half of 2025. In addition, in July, Institutional Shareholder Services (ISS) Group presented data that, through the first half of 2025, 18 public companies proposed to reincorporate out of Delaware, compared with 10 companies proposing to move into Delaware from other states.
Proxy-season data from 2025 further showed heightened scrutiny over the state of incorporation. Glass Lewis evaluated 29 reincorporation proposals, plus one written-consent action, representing a 70.6% increase from 2024. Of the 28 proposals that went to a shareholder vote, 18 companies (64.3%) sought to leave Delaware, compared to 23.5% the prior year. 55% of all reincorporation proposals reviewed by Glass Lewis involved companies with significant or controlling shareholders, echoing the HLS post.
One example illustrating how shareholder scrutiny can influence these decisions is the case of MercadoLibre, a $120 billion e-commerce platform that sought approval to move from Delaware to Texas. MercadoLibre also cited Delaware’s “indeterminate” case law and use of “broad, flexible standards” as creating unpredictability. The company emphasized that Texas’s recent reforms, including the codification of the business judgment rule, would “provide greater certainty to the board in its decision-making.” After publicly stating its concerns, MercadoLibre later withdrew its proposal without explanation, perhaps signaling investor sensitivity surrounding reincorporation debates.
D&O exposures may begin to emerge from a company’s deliberation, disclosures, process, and rationale regarding a company’s state of incorporation or reincorporation. For example, if peer companies, like Coinbase, continue to publicly highlight Delaware’s litigation intensity or case-law unpredictability, shareholder plaintiffs may argue that a board failed to adequately evaluate alternatives, resulting in derivative suits asserting Caremark-style oversight claims. In addition, Section 14(a) or 10(b) securities claims alleging misstatements about governance risks or reincorporation may arise when a company describes reincorporation as reducing uncertainty or director liability, if shareholders believe they were misled about the risks and benefits.
Thus, D&O underwriters may want to consider that, as companies publicly cite Delaware’s evolving jurisprudence, active derivative-litigation environment, and expansive books-and-records rights as sources of uncertainty and cost, directors and officers who decide to “stay put” may face scrutiny over whether they adequately evaluated alternatives such as Texas or Nevada’s more management-protective regimes.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with the author’s company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.