States Taking Aim at Delaware’s Corporate Crown
By MINGSON LAU, Associated Press
Introduction: The Race for Corporate Dominance
In a rapidly evolving landscape of corporate law, states like Nevada, Texas, and Oklahoma are poised to challenge Delaware’s long-standing reign as the go-to destination for incorporation. With its business-friendly laws and specialized court system, Delaware has long been the favorite choice for corporations. However, recent legislative changes in these states signal a competitive shift aimed at attracting businesses and the substantial revenue that comes with them.
Legislative Changes in Texas
Texas, a state known for its entrepreneurial spirit, has made significant moves to bolster its appeal to businesses. The introduction of a dedicated business court last year was a key step, garnering bipartisan support. Lawmakers have approved legislation that diminishes shareholder powers and offers businesses greater legal protections against shareholder lawsuits. This approach positions Texas as a challenging alternative for companies that may feel constrained by Delaware’s legal framework.
Nevada’s Strategic Moves
Nevada is also in the fray, having taken actionable steps toward establishing a dedicated business court. The recent approval of Assembly Joint Resolution 8 (AJR8) sets the stage for a constitutional amendment that would require further legislative approval in 2027 before going to voters in 2028. If passed, this amendment would facilitate the appointment of judges who specialize in complex business litigation. Secretary of State Cisco Aguilar emphasizes that such a court could foster a more responsive environment for business law cases.
Moreover, Nevada’s Supreme Court is exploring the creation of its own business court using sitting district judges. Chief Justice Douglas Herndon expressed that this would streamline the judicial process for business-related cases, thus eliminating the potential delays associated with constitutional amendments.
Enhancing Business-Friendly Laws
In addition to court reforms, Nevada’s recent passage of Assembly Bill 239 introduces corporation-friendly laws aimed at making the state more attractive to businesses. This legislative push is accompanied by funding to update the SilverFlume system, facilitating online business formation and transactions. Aguilar believes that enhancing technological infrastructure could lead Nevada to capture a sizable share of Delaware’s $2 billion annual revenue from corporate franchise taxes.
High-profile cases have shown promise for Nevada’s appeal, as seen with companies like TripAdvisor and Dropbox opting to incorporate within its borders, citing frustrations with Delaware’s increasingly unpredictable legal landscape.
Oklahoma’s Aspiration
Not one to be left behind, Oklahoma has sanctioned the creation of business courts in its two largest counties. State officials, including Governor Kevin Stitt, are positioning Oklahoma as a contender in the race to become the most business-friendly state. This initiative aims to attract companies that might otherwise consider relocating to states like Texas or Nevada.
The Challenge of Shareholder Rights
While these states are rolling out the red carpet for businesses, concerns have arisen regarding shareholder rights. Critics argue that legislation in Texas, which includes stringent restrictions on shareholder lawsuits, could undermine protections for investors. The new measures raise the bar for initiating derivative lawsuits, potentially shielding corporate officers from accountability.
Despite such changes, some business law experts assert that the average investor is primarily concerned with financial returns. The debate over shareholder rights versus corporate protections continues to unfold as states vie for economic dominance.
Delaware’s Pushback
In response to these legislative initiatives, Delaware has introduced its own measures to safeguard its status as the corporate capital. Recent legislation dubbed "the Billionaire’s Bill" seeks to limit shareholder access to company records and bolster protections for corporate leadership. This has drawn criticism as a capitulation to concerns over “Dexit”—the potential flight of businesses from Delaware.
Delaware Governor Matt Meyer has committed to retaining corporations that may consider moving, emphasizing the state’s unmatched expertise and stability in handling corporate matters.
The Appeal of Legal Predictability
Delaware’s well-respected Court of Chancery remains a compelling draw for businesses, generating significant revenue for the state. The familiar legal environment provides reassurance for corporations, but ongoing dissatisfaction among business leaders regarding control and legal precedents has led some to consider alternatives.
The Long-Term Outlook
While the competitive landscape is shifting, experts caution against overreacting to companies that relocate. Recent data show that Delaware remains home to over 2 million legal entities, including two-thirds of Fortune 500 companies. The state’s entrenched reputation for efficiency and specialized knowledge in corporate law is a tough barrier for newcomers like Nevada and Texas to overcome.
Looking Forward: New Courts and Opportunities
As states like Oklahoma prepare to establish their business courts by 2026, the competition continues to heat up. While some argue that it may take decades for these courts to match Delaware’s reputation, they are nonetheless paving the way for new business opportunities.
Benjamin Edwards, a law professor at the University of Nevada, Las Vegas, suggests that Nevada’s efforts may stimulate interest from new companies while affirming Delaware’s ongoing prevalence in corporate incorporation.
Thus, the battle for corporate supremacy is set to evolve, with states honing their strategies to attract a favorable business climate while balancing the complex dynamics of shareholder rights and corporate protections.