The race for corporate America

Midway through the year, Delaware - the dominant state for company incorporations for decades - and two states that are challenging its position by giving attorneys friendlier alternatives all have positive news to highlight.

Nevada and Texas have a combined total of 29 announced corporate moves to their states, fast approaching the total of 36 for all of 2025. The companies on the move include technology company Dell Technologies Inc., which reincorporated from Delaware to Texas last month, and oil giant ExxonMobil Corp., which moved from New Jersey to Texas after a May shareholder vote.

The largest initial public offering in history, Space Exploration Technologies Corp., debuted June 11 as a Texas-incorporated company, which, like Dell, has a founder - Elon Musk -- who controls most voting shares.

Nevada did not attract the mega-cap companies but did see 13 companies reincorporate from Delaware after between 20 and 25 did so last year, according to Benjamin P. Edwards, associate dean and corporate governance professor at UNLV's William S. Boyd School of Law.

While the main proxy season is winding down, Edwards said he expects more companies to reincorporate later in the year, especially founder-controlled ones.

No mass exodus

But Delaware has held up, despite a few high-profile departures, and remains the dominant place for American companies, with two-thirds of them calling the state their corporate home.

Brian M. Rostocki, managing partner of Reed Smith LLP's Wilmington, Delaware office, said he sees no "widespread exodus," only a few founder-led companies departing.

"Texas and Nevada appear to be carving out niches at the margins -- and the formation data confirm Delaware is still the default choice, by a wide margin," he said.

Mallory Tosch Hoggatt, managing partner of Allen Overy Shearman Sterling LLP's Houston office, agreed that there has been no mass exodus from Delaware.

While there has been a "slight uptick" in reincorporation from Delaware to Texas or Nevada this year, she said many corporations are taking a wait-and-see approach.

Tosch Hoggatt said many clients "don't feel a strong need to reincorporate right now. There's a fair amount of work that is required to do it."

Delaware has fought back against the challengers, as its state Supreme Court reversed several rulings that irked corporations while the Legislature passed SB 21, a bill that altered how conflicted transactions are reviewed and limited shareholder inspection rights of corporate books and records.

"It was a significant effort by Delaware to try to restore predictability," said David J. Berger, a partner with Wilson Sonsini Goodrich & Rosati PC in Palo Alto and San Francisco who has advised corporate boards for more than three decades.

"But it's too early to tell if it will succeed ... because Delaware judges [on the Court of Chancery] have considerable discretion in their decisions and the judicial interpretation of this statute is just beginning," he added.

Still, Delaware's efforts have slowed the push for reincorporation, known as DExit, at least for the moment.

"For many companies, the benefits are not so significant at this juncture that it makes sense to make a change," Tosch Hoggatt said, adding that the calculus might shift as the new Texas Stock Exchange opens this month and NYSE Texas settles in.

Corporate concerns linger

Attorneys who represent corporate clients say the risk of adverse decisions, especially on motions to dismiss, still has them concerned about Delaware and open to reincorporating in Nevada or Texas.

Many Silicon Valley companies remain interested in reincorporation, especially founder-led companies. "Companies are continuing to look at it," Berger said. "It becomes an agenda issue when a decision is issued that directors hear about, whether from the news or from their peers."

Delaware's problem, Berger said, is that some companies still view its Court of Chancery -- long considered the gold standard for corporate law, in which judges handle shareholder litigation -- as less predictable than it used to be, even if the state's Supreme Court has reversed some opinions that have been the focus of this controversy.

"My guess is that Delaware is going to continue to be unpredictable for a bit, as the courts sort through the new legislation and some potentially evolving legal standards," Berger continued. "Many directors are questioning whether it's worth the continuing risks and uncertainty."

"It has become more challenging for lawyers and dealmakers to be able to advise their clients on what they can and cannot do," he added. "That's very dangerous, for a state where one of the primary advantages of its corporate law system has been its reasonable predictability for those conducting business under Delaware law."

Texas and Nevada's goals

Nevada and Texas both have their own challenges and different goals.

"Nevada's issue is that it has to establish a solid business court and it has to move quickly," Berger said. "It has to build the infrastructure, such as Delaware's admired and well-established electronic filing system for pleadings and other corporate documents."

Texas, which already has established a business court with appointed judges, "is trying to make itself a home to big business so they will not just incorporate but also relocate some of their operations to the state," Berger said.

Many of the large companies that have reincorporated to Texas already were based there. The Lone Star State is less interested in attracting companies for the incorporation fees they would pay.

Nevada has not established a permanent business court. Such a court would require approval by the Legislature and voters, although the state recently launched a pilot business court program.

The Silver State has drawn more interest from smaller companies that are concerned about Delaware's high franchise fees. Sonoma Pharmaceuticals Inc. -- based in Colorado -- is seeking shareholder approval later this month on a proposal to reincorporate to Nevada.

While touting the allegedly reduced risk of shareholder suits against the company's officers and directors, Sonoma Pharmaceuticals highlights the $200,000 it pays each year in Delaware corporate franchise fees, saying that a move to Nevada would replace that with an annual business license fee of $500 and an annual list of officers' fee of $150.

Gian Brown, a partner with Holland & Hart LLP in Las Vegas, said reincorporation is becoming a "routine consideration" that isn't necessarily tied to Delaware court rulings or legislation.

"What I think is notable is that these departures, once viewed as highly unusual or even controversial, are increasingly being treated as practical business decisions rather than statements about Delaware's legal environment," he said.

Berger regards the evolution of three different models as positive.

"Delaware will continue to have the majority of corporations, but I think you will continue to see alternatives both in Nevada and in Texas, and that this is a good thing for the ongoing development of corporate law," he said.