Oceans of ink have been spilled analyzing the corporate world’s criticism of Delaware case outcomes in recent years and the Delaware legislative response in February 2025. In the wake of all that ink came discussions of whether corporate CEOs, boards, and controlling shareholders should look to Texas, with its wide-open spaces and corporate law. As those who manage and control the largest corporations have shifted from professional managers and directors to founders and controlling shareholders, so have the expectations of state corporate law. Using Tesla’s move from Delaware to Texas in 2024 and legislative reform in both states, I argue in a recent paper that a new era of controller primacy is emerging, displacing Delaware’s longstanding tradition of shareholder primacy, a euphemism for shareholder value-maximizing director primacy. Though some in Texas are optimistic about this new era, I would caution against rapid legal innovation that privileges select corporate actors at the expense of broader market stability.

Delaware’s Dominance and Retreat

No one has to be reminded of Delaware’s dominance in the market for corporate charters, or the Court of Chancery’s superiority in sorting out complex cases quickly and consistently. Out of the 2024 Fortune 500, 344 companies chose Delaware as its state of incorporation, and another 123 companies chose the place in which they are headquartered. Only 33 companies chose a non-Delaware state as an alternative to their home state, and no more than six of those companies chose any one such state. Delaware’s business judgment rule, exculpatory clause under Section 102(b)(7), and procedural hurdles for shareholder litigation create a fortress that shields directors and officers from most lawsuits, protecting directors who are making ordinary business decisions and even those who have “small c” conflicts. The doctrine of shareholder primacy tied board actions to the maximization of shareholder value, allowing legal intervention only in the rare case of egregious conduct and in “big c” conflicts of interest.

However, recent years have seen cracks in that fortress. A cluster of cases involving controlling shareholders such as Tornetta v. Musk, In re Match Group, and In re Sears Hometown Outlet Stores weakened the confidence that managers, even conflicted ones, had wide latitude in running Delaware corporations. Controlling shareholders, often founders, bristled at Delaware’s guardrails on their decisions, which they felt were in everyone’s best interest. Most notably, Tesla  made a noisy exit from Delaware to Texas after CEO Elon Musk’s  $55.8 billion compensation package was invalidated. Though the Delaware legislature responded quickly with amended statutory provisions, the conversation had already begun on whether publicly held corporations should leave Delaware.

The Rise of Texas

Tesla’s reincorporation in Texas signaled a potential exodus, prompting other controller-led corporations like TripAdvisor, The Trade Desk, Meta, and Trump Media to consider new homes. Nevada has been discussed for years as a potential alternative to Delaware, but now Texas found itself in the incorporation beauty contest. Though Texas has long been popular as a location for corporate headquarters, only three Texas corporations other than Tesla were in the 2024 Fortune 500. This new spotlight on Texas corporate law coincided with the launch of the Texas Business Court, a legislative creation years in the making. The time seemed ripe to announce that Texas was open for business incorporations.

Though Tesla’s proxy materials leading up to the 2024 shareholder vote to reincorporate in Texas touted “Texas’ highly defined corporate code” as providing more certainty than Delaware for board decisions, few cases had been decided interpreting that code. The Texas Business Organizations Code (TBOC) could best be described as a mixture between the Delaware General Corporation Law (DGCL) and the Model Business Corporation Act (MBCA). Because few publicly held corporations have chosen Texas law, however, there are no cases in Texas that establish doctrines similar to Delaware’s well-known jurisprudence on poison pills, oversight claims, or conflicted transactions. Even as Tesla’s proxy materials described Texas law as superior and certain, within months after Tesla’s arrival, the Texas legislature entertained proposed amendments to the TBOC, addressing some of the complaints voiced by Musk in Delaware.

Some of the Texas amendments directly responded to the 2025 Delaware amendments, such as new restrictions on books and records requests and a procedure for the Texas Business Court to pre-approve board committees responsible for recommending conflicted transactions. For publicly held corporations or corporations that make an election to be bound by TBOC Section 21.419, that provision codifies the business judgment rule and provides that the presumption can be rebutted only by proving a breach of fiduciary duty and “fraud, intentional misconduct, an ultra vires act, or a knowing violation of law.”

The most novel amendment, however, is TBOC Section 21.552. It allows a publicly held corporation or a corporation with more than 500 shareholders to specify in its certificate of formation or its bylaws a threshold percentage of shares required to be owned to bring a derivative suit on behalf of the corporation, up to 3 percent of outstanding shares. To date, Southwest Airlines, Tesla, and Dillard’s have amended their bylaws to include a 3 percent threshold. On the day that Tesla amended its bylaws, a 3 percent ownership stake would have been worth $32.5 billion dollars. To be clear, the only unaffiliated shareholder eligible to file a derivative suit against Tesla is Vanguard.

Other amendments to the TBOC allow corporations to waive the right of shareholders under the Texas Constitution to a jury trial in the certificate of formation or bylaws, and that waiver will be deemed valid against any shareholder that holds or purchases shares after the waiver. Such a waiver is necessary for the Texas Business Court to aspire to outcomes that are as consistent as those in the Delaware Chancery Court. Finally, a separate law prohibits shareholder proposals against publicly held corporations in Texas that have opted into this provision unless the shareholder or group of shareholders owns $1 million worth of shares or 3 percent of the outstanding shares. The proposing shareholder or group also must solicit at least 67 percent of the voting power of shares entitled to vote on the proposal.

Fortress Building and Shareholder Value

Scholars have argued that corporations moving from Delaware to a low-liability state reduce shareholder value because smart investors avoid investing in those corporations. This argument has most often been applied to Nevada, but Texas now arguably offers an even stronger defense for controllers, allowing boards to block most derivative suits and insulating directors except in cases of fraud or intentional wrongdoing. Since the DGCL amendments were passed in February 2025, Professor Ben Edwards reports that 16 corporations have moved to Nevada, but only two have moved to Texas. Time will tell whether corporations leaving Delaware (if they do) choose Nevada or Texas, but Texas may promise even lower liability risks for managers than Nevada does.

Ultimately, the ability to limit the remedy for breaches of fiduciary duty – derivative suits – to a handful of gigantic institutional investors has the same effect as eliminating fiduciary duties entirely, even the duty of loyalty. Research shows that institutional investors do not bring derivative suits; a 3 percent investor in a corporation can negotiate with management for benefits or protections, which may or may not be shared with other investors. One has to wonder why Texas did not just allow for the waiver of fiduciary duties in corporations, as is allowed in limited partnerships and limited liability companies, because the result is essentially the same. In any event, it will be interesting to watch the effects of reincorporating in Texas, whether and to what extent Texas corporations adopt these optional provisions, and what effect those adoptions have on shareholder value.

This post comes to us from Christine Hurt, the senior associate dean for academic affairs and Alan R. Bromberg Centennial Chair in Corporate, Partnership, and Securities Law at SMU Dedman School of Law. It is based on her recent article, “Texas, Delaware, and the New Controller Primacy,” available here.