Texas, Oklahoma and Nevada make changes to lure business amid Delaware's ‘Dexit' concern

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9 hours ago

Shown is the Leonard L. Williams Justice Center housing the Court of Chancery in Wilmington, Del., Oct. 4, 2022. (AP Photo/Matt Rourke, File)
CLAYMONT, Del. — Lawmakers in Texas, Oklahoma and Nevada have recently approved changes aimed at helping their states dip into the lucrative side of corporate litigation that Delaware, with a specialized court and business-friendly laws, has dominated as the world's incorporation capital.
Concerned that these changes may lure corporations away from Delaware, thereby causing the small state to lose millions in corporate franchise taxes, Delaware officials have responded with their own changes to solidify their status in the business world.
In Texas, which opened a business court last year, there was bipartisan support for legislation diminishing shareholder powers and giving businesses more legal protections against shareholder lawsuits. Nevada lawmakers approved a corporation-friendly update to its business laws, also with bipartisan support, and separately moved toward asking voters to consider changing the state constitution to create a dedicated business court with appointed judges.
Billionaire Elon Musk had advocated both states as better options for incorporation after a Delaware judge struck down his shareholder-approved $56 billion compensation package from Tesla. Musk's businesses have also changed where they're incorporated: Tesla and SpaceX relocated to Texas, while Neuralink moved to Nevada.
Oklahoma also took action to get in the mix, as the Republican-led Legislature sanctioned the creation of business courts in its two most populous counties, a move the governor said would help Oklahoma become the most business-friendly state.
'This is an area in which states, in many ways, are behaving like businesses,' said Robert Ahdieh, dean of the Texas A&M University School of Law. 'Delaware is selling something. Texas is selling something that they hold out to be better. So it is very much a comparative exercise.'
Concerns about a 'Dexit'
Since 2024, several billion-dollar companies including TripAdvisor and DropBox have relocated to Nevada. More than a dozen others, including the AMC theater chain and video game developer Roblox Corporation, have announced plans to incorporate there this year. Latin American e-commerce giant MercadoLibre filed a request for shareholders to approve a Texas relocation in April, citing Delaware's 'less predictable' decision-making process — a common thought among exiting companies.
Amid concerns about more companies reincorporating elsewhere in a so-called 'Dexit,' Delaware passed its own legislation to help protect its status as the corporate capital, limiting shareholders' access to records and increasing protections for leadership. Opposition dubbed it 'the Billionaire's Bill.'
'Ultimately, I think the damage is done because businesses successfully undermined shareholder rights in Delaware,' said Corey Frayer, director of investor protection at Consumer Federation of America, who argues that the Delaware bill was a rash acquiescence to 'Dexit' concerns.
However, some business law experts, like Ahdieh, say the average shareholder is focused on increasing their returns and does not care about shareholder power or where the company is incorporated.
Delaware Gov. Matt Meyer has vowed to win back companies that leave, arguing his state's experience 'beats going to Vegas and rolling the dice.'
Less predictability
Companies flock to Delaware for its well-respected Court of Chancery, a sophisticated and separate forum focusing on equity, corporate and business law. This incorporation machine generates $2.2 billion annually, about one-third of the state's operating budget.
There is comfort in working in the familiarity of Delaware law, said Ahdieh, but that predictability has come into question in the last decade as corporate leaders grew unhappy over losing precedent-setting court decisions governing corporate conflicts of interest.
Widener University Commonwealth law school professor Christian Johnson acknowledged a shift in Delaware but said reincorporating elsewhere might be 'a bit of an overreaction.' Although a few big-name companies have moved, there are still more than 2 million legal entities incorporated in Delaware, including two-thirds of the Fortune 500.
Statutes in Texas and Nevada may appear more flexible, but they have not been extensively tested, and their courts are not as experienced working with the larger entities that favor Delaware, Johnson said.
Protections in Texas
In May, Texas Gov. Greg Abbott signed legislation providing greater securities for corporate officers and adding restrictions to shareholder records requests. The bill also allows corporations to require an ownership threshold, no more than 3% in outstanding shares, before a shareholder can initiate a derivative lawsuit, typically on behalf of the company and against its own board or directors.
Restrictions on who can initiate such lawsuits are not uncommon, but Texas' implementation imposes a 'far higher barrier than the norm,' Ahdieh said.
Consumer advocates worry the changes endanger shareholder and investor protections by giving owners and directors more protection against lawsuits that could hold them accountable if they violate their fiduciary duty.
For businesses, the changes mean potentially saving millions of dollars in shareholder lawsuit settlements and legal fees by mitigating the likelihood of those costly cases reaching court. For the states, attracting the companies means millions in business activity and revenue from regulatory filing and court case fees and taxes.
New courts
Eyeing a piece of that, Oklahoma is on pace to establish its recently approved business courts in 2026.
'I'm trying to take down Delaware,' said Oklahoma Gov. Kevin Stitt, a Republican. 'We want to be the most business-friendly state.'
Nevada wants to compete, too. It has run business dockets in Washoe and Clark counties since 2001, and it's in the state's interest to expand operations considering its fast-growing economy and population, said Benjamin Edwards, a University of Nevada, Las Vegas law professor who studies business and securities law.
But he said it could take decades to build up a court comparable to Delaware, which has a valuable reputation for handling cases relatively quickly.
Nevada's proposed business court wouldn't take effect until 2028 at the earliest and would require amending the state constitution, which would need approval by the 2027 legislature and voter approval in 2028 to allow for the appointment of judges.
Associated Press reporter Marc Levy in Harrisburg, Pennsylvania, contributed to this report. Mingson Lau, The Associated Press