Historically, Delaware was the obvious state of choice for incorporating a U.S. company. In the past year, a number of companies have decided to switch their domicile of incorporation from Delaware to another state, most notably Nevada and Texas. In explaining their decision, many of these companies cited lower taxes and better liability protections for directors and executive officers in states outside of Delaware.

Many prominent companies in the tech sector have already left or announced plans to leave Delaware. Examples include Tesla, Meta, Dropbox, Tripadvisor, Roblox, and AMC. The corporate exodus to reincorporate in Navada or Texas could cause harm to Delaware’s economy.

Delaware has long held a reputation of being a business-friendly state to major corporations. As a result of the majority of U.S. companies being legally domiciled in Delaware, the state has well-developed business case law. Many states follow certain aspects of the Delaware General Corporation Law (DGCL). The extensive precedents are helpful for companies and their legal counsel to predict the likelihood of different outcomes.

The state’s corporate law framework drew attention when the Delaware Court of Chancery invalidated Tesla’s $56 billion executive compensation package for Elon Musk. This prompted Elon Musk to reincorporate Tesla in Texas and prompted other companies to follow suit.

Public companies must obtain shareholder approval in order to switch their state of incorporation. This is usually done by adding a shareholder proposal to a company’s annual meeting proxy statement for shareholders to vote on. Once shareholder approval is obtained, the reincorporation process involves filing paperwork with the secretary of state in the respective location.

There are a number of key distinctions between Delaware business law and the corporate law frameworks of Texas and Nevada. Delaware has an annual franchise tax that companies must pay. The amount of the franchise tax payments depends on the size of the company. In contrast, Texas and Nevada do not impose state income taxes on corporations. Texas and Nevada are also viewed as jurisdictions that are better at protecting directors and executive officers from liability for perceived misconduct.

In March 2025, Delaware enacted corporate law reforms. Some of these amendments to the DGCL were intended to reduce litigation risk for directors and executive officers of Delaware corporations. For transactions with controlling stockholders, DGCL 144 was amended to provide certain safe harbors from liability if an independent board committee approved the transaction or the transaction was approved by a majority of the company’s disinterested stockholders. In addition, DGCL 220 was amended to place limitations on the ability of stockholders to inspect the books and records of a Delaware corporation. The amendments clarify that, in order to demand an inspection of a company’s books and records, the stockholders have to properly outline the purpose of such demand. The amendment to DGCL 220 also enables companies to implement confidentiality restrictions as long as they are reasonable.

It remains to be seen whether these Delaware corporate law reforms will be sufficient to curb the movement of companies to reincorporate in other states. If more companies consider moving their legal domicile to another state, it also remains to be seen whether Texas and Nevada will continue to hold sway as the main alternatives to Delaware.