Elon Musk's Dexits Fuel Debate over Delaware's Corporate Dominance
Over the past year, a wave of CEOs have joined Elon Musk in abandoning Delaware as the registered domicile for their companies. Facebook's parent Meta, Dropbox, Pershing Square Capital Management, Trade Desk, Fidelity National Financial, and Sonoma Pharmaceuticals are among those planning to relocate their incorporations.
These departures, known as "Dexits," follow Musk's relocation of Tesla, SpaceX, Neuralink, and X from Delaware. Musk has been vocal in criticizing the state's Chancery Court, alleging unfair treatment and bias.
"There is mounting pressure on Delaware," said University of Virginia Law Professor Michal Barzuza. "The more companies move away, the easier it becomes for others to follow."
Nevada, Texas, and Wyoming are among the states vying to attract corporate registrations by offering business-friendly initiatives. Delaware, however, remains a dominant force, with over two-thirds of Fortune 500 companies incorporated there.
Despite its reputation for corporate friendliness, Delaware is facing revenue losses due to the Dexits. In 2023, the state saw a drop in the percentage of Fortune 500 companies registered there, and generated $1.33 billion in incorporation revenue, a fraction of its total revenue.
The recent departures from Delaware have drawn attention from Governor Matt Meyer, who has launched a working group to address complaints against the Chancery Court.
"Delaware companies and attorneys express concerns about encountering the same judge repeatedly and not receiving fair hearings," said Meyer.
Phil Shawe, CEO of TransPerfect, accused the court of overstepping its authority in a dispute that led to a court-ordered sale of his company. Israeli investor Itzik On cited concerns about the court's handling of corporate disputes and its potential impact on entrepreneurs.
"The Delaware system poses a systematic risk to the corporate and startup worlds," said On. "It discourages investment in the US."
On and his sister are appealing their case to the Delaware Supreme Court. In the meantime, they are moving all their companies out of Delaware.
Legal reporter Alexis Keenan concludes that Delaware's status as the leading state for incorporations is under threat. The recent departures and ongoing concerns over the Chancery Court raise questions about the state's ability to retain its dominance in the corporate arena.