DExit: Signs of Discontent in Biggest Corporate Domicile?

Delaware has long reigned supreme as the state of choice for companies to incorporate in the United States. However, several high-profile corporate announcements of plans to “DExit” – that is, to leave Delaware and reincorporate in another state – have raised concerns among state legislators about the state’s ability to maintain its dominant status. Tesla has moved out of Delaware to reincorporate in Texas, and Meta, Dropbox, and Pershing Square Capital Management have openly discussed the possibility of reincorporating in other states. 

In response, Delaware legislators passed Senate Bill 21 (SB21) on March 26, altering governance dynamics for corporate America. SB21 changes the balance of power between shareholders and management by expanding “safe harbor” protection for transactions with directors, officers and controlling shareholders, changing the definition of “controlling shareholders” and limiting shareholders’ inspection rights. It also lowers the standards for approving conflicted controlling shareholder transactions. Such transactions now need the approval of either a majority of disinterested directors or a majority of disinterested shareholders. Previously, both were required.

Despite concerns of DExit, Delaware’s dominance as the preferred state for incorporation has increased since 2020. Delaware was home to 62% of all Russell 3000 companies in 2024^[1], a 6-percentage point increase since 2020. Maryland was a distant second at 6%, down slightly from 7% in 2020. The share of California and New York declined slightly as well, while the share of most other states remained largely unchanged. 

While Delaware’s overall share of Russell 3000 companies increased, a close examination of proposals to change place of incorporation indicates a different trend. Companies can have multiple reasons to change their state of incorporation, including tax benefits or a favorable legal landscape. Management proposals to change the place of incorporation are rare, and most consist of non-U.S. companies redomiciling in the U.S. and all of those chose Delaware. However, for the first time in 2024, proposals to incorporate in Delaware were outnumbered by those seeking to reincorporate outside of the state. So far this year, only one proposal among Russell 3000 companies called for reincorporating to Delaware while two sought a move away from the state. 

Recent actions, though small in number, seem to indicate that non-Delaware states are gaining popularity. However, considering how infrequent these proposals are, Delaware’s position as the state of choice is unlikely to change significantly, at least in the near term. With SB21, it remains to be seen if there will be fewer proposals to move away from Delaware or if more will seek to incorporate elsewhere.  

Notes:

^[1] Based on place of incorporation at the time of 2024 and 2020 annual shareholder meetings.