Delaware retains the dominant position in the jurisdictional competition for corporate charters, but its lead looks increasingly tenuous. During the period 2024 through the first half of 2025, only five public companies with a market capitalization greater than $250 million reincorporated to Delaware, while 16 such companies reincorporated away from Delaware. Also during the 2025 proxy season, there were 29 reincorporation proposals and one action by written consent of shareholders (Dropbox, Inc.) to reincorporate away from Delaware. The number of proposals to reincorporate from Delaware represents a 70.6% increase from the 2024 proxy season, and a 45% increase from the 2023 proxy season. In a new article, I explore the legislative response to the threats to Delaware’s dominance and the reasons that the response is unlikely to resecure Delaware’s historic dominance
The departures from Delaware are attributable to a number of very high-profile court decisions that created great uncertainty about basic issues like the definitions of “controlling shareholder” and “independent director” and the balance of power between courts and corporate boards of directors. Officers and directors seemed increasingly vulnerable to lawsuits, and courts were approving astronomical fees for plaintiffs’ lawyers in a litigation environment that appeared to be spiraling out of control. Plaintiffs’ requests for corporate books and records reached unprecedented levels and were overwhelming officials responsible for managing such requests.
Responding to a feared mass exodus of corporations, in early 2025, the Delaware legislature decisively addressed the growing vulnerability to the state’s competitive position, passing a “critical update to Delaware’s corporate law aimed at ensuring the state remains the premier home for U.S. and global businesses.” The legislation was meant to clarify recently emerged ambiguities in the law and “reinforce Delaware’s reputation for equitable, predictable, and efficient corporate oversight.” Delaware’s governor, Matt Meyer, described the statute, known as Senate Bill 21, as a “‘course correction’ that will bring the Delaware business courts back into alignment with rulings from a decade ago.”
SB21 represents the most significant reform to Delaware corporate law in recent memory, overturning dozens of cases and clarifying the definition of controlling shareholders and independent directors.
Despite this reform effort, Delaware’s dominance remains in doubt. News stories about “DExit,” the moniker for the “wave of high-profile corporations threatening to reincorporate in other states like Nevada”[1] persist and proliferate. Reincorporations to Delaware are down somewhat, as are the number of initial public offerings (IPOs) registering in Delaware.
In my article, I attempt to explain why the statutory reforms, while important and necessary, were insufficient to right the teetering ship and restore Delaware’s competitive position. I identify seven significant and continuing threats to Delaware’s dominance.
First and probably foremost, Delaware judges have expressed intense opposition to recent statutes designed to make the state more competitive. One member of the Court of Chancery wrote in an opinion that the new rules on stockholders’ rights to inspect corporate books and records will make judging more difficult by depriving Delaware courts of the use of “decades of carefully crafted judge-made law.”[2] A veteran corporate law professor criticized the opinion as tantamount to saying that the new statute reflected “minutes of sloppily thrown together statute writing by some unknown law firm associate.”
A second challenge for Delaware that the new legislature has no way of remedying is that incorporating in Delaware is no longer as prestigious as it once was. Large swathes of the academic elite have turned against Delaware, which means that a Delaware charter no longer serves as a form of “virtue-signaling” for companies hoping to convince investors of their commitment to complying with the world’s most sophisticated and nuanced corporate governance regime. Entirely counter-factually, one academic even alleged that the new statue would “enable corruption.”
Third, recent studies have indicated that Delaware lawyers are earning excessive fees, sometimes as high as $18,000 an hour, with multiples of as much as 66 times the lawyers’ standard hourly rate.[3] Eye-popping attorneys’ fees of $267 million and $345 million were awarded in separate cases against Tesla alone.
Fourth, besides their animosity to the new statutes, Delaware judges appear to have a dim view of controlling shareholders, “Superstar CEOs” and other marquis corporate actors. In its new legislation, the Delaware legislature tried to loosen the tight oversight of controlling shareholders that distinguished commentators observed had “pushed the law governing controlling shareholders far beyond legitimate policing into unnecessary and unwise overregulation.”[4] But the legislature can only control the language of the statutes. The courts get to apply the statutes, and high-profile CEOs and directors are understandably reticent about incorporating in a state where they will be scrutinized and evaluated by judges who do not value their contribution to the success of their companies.
A fifth threat to Delaware’s dominance is the erosion of the cohesive legal culture that made Delaware a collegial, drama free forum. The firestorm over the recent changes to Delaware corporate law effectuated by SB21 prompted “sponsored billboards, flyers, and lawn signs denouncing the law, labeling it the ‘billionaire’s bill’ and featuring images of Elon Musk holding a chainsaw.”[5] The traditional “respectful coexistence among the branches of government” that long characterized Delaware’s legal environment simply no longer exists, as Delaware judges have taken to openly swiping at the state’s legislature.
The sixth threat to Delaware reflects the seismic shift away from central planning and towards private ordering. Corporations used to charter in Delaware because of the quality of its judge-made law, and judge-made law is becoming increasingly less important. Corporate law is becoming irrelevant due to the growing recognition that markets and private contracting provide sufficient protection for shareholders and other investors, and that corporate law therefore is less central to corporate governance.
The seventh threat to Delaware is that, to the extent that corporate law has not been replaced by contract law, statutes are replacing judge-made law not only as the primary source of corporate law, but also as the preferred source.With its recent enactments, the Delaware legislature has strongly signaled that it wants to sideline the judiciary and replace court decisions with statutes as the primary source of Delaware corporate law. This change, while necessary, has undermined Delaware’s historical competitive advantage, which was the perceived superiority of its judges.
An example of the problem that judge-made law is posing for Delaware can be found in the recent Court of Chancery decision in Sjunde AP-Fonden v. Activision Blizzard.[6] Plaintiffs sued the directors of Activision Blizzard Inc. for breaching their fiduciary duties in selling Activision Blizzard to Microsoft Corporation. The court found that the corporation had violated certain technical provisions of a Delaware statute by approving a merger agreement that was not “essentially complete,” failing to attach a summary of the merger agreement to the notice to shareholders (attaching it instead to the proxy statement), and improperly delegating authority to negotiate one of the merger agreement provisions to an ad hoc committee of the board. For this reason, the court declined to rule that the shareholder vote in favor of the sale qualified the transaction to be treated deferentially under the business judgment rule. In the court’s judgment, “It is reasonably conceivable that the stockholder vote did not comply with the statutory formalities of the DGCL, as the court held in Activision I. Because it is reasonably conceivable that the stockholder vote did not comply with statutory requirements, Defendants cannot rely on Corwin to lower the standard or review to business judgment at the pleading stage.”
Separately, the court found that the shareholder vote would not qualify the deal for deferential treatment because of various perceived shortcomings in the disclosures regarding the impact of the company’s handling of sexual misconduct complaints on the value of the merger to shareholders. The opinion is laudable for offering strong shareholder protections. However, it also reflects a litigation environment in which foot-faults can be extremely costly and disclosure violations are difficult to avoid. Corporate planners predictably are concerned about the difficulty of achieving deferential protection in a Delaware M&A deal, even in transactions that have been carefully vetted by able counsel, particularly where an “uncoerced and fully informed shareholder vote” is needed to achieve that result. Such concerns inevitably make relocation from Delaware tempting, even for corporate planners advising officers and directors who only want to do right by their shareholders.
When Delaware reigned supreme in the jurisdictional competition for corporate charters the baroque facts and pro-plaintiff outcome in Sjunde AP-Fonden v. Activision Blizzard might have added to Delaware’s luster. In the current, highly fraught competitive environment among the states, the implications of the decisions on corporate relocation decisions are less clear.
ENDNOTES
[1] Bryan Driscoll, “Delaware Overhauls Corporate Law to Stem ‘DExit’,” Best Lawyers Insight, June 16, 2025, https://www.bestlawyers.com/article/delaware-overhauls-corporate-law-stem-dexit/6710.
[2] Operating Engineers Constr. Indus. and Misc. Pension Fund v. Pioneer Nat. Resources Co., No. 2024-0101-SEM, 2025 WL 2106580, at *4. I am grateful to Stephen Bainbridge for noting this “zinger” in a post on X. See Steve Bainbridge, X Post of August 15, 2025, https://x.com/PrawfBainbridge/status/1956481531096314265 (accessed August 19, 2025).
[3] https://fortune.com/2025/06/02/delaware-lawyers-fee-multipliers-dexit/.
[4] https://clsbluesky.law.columbia.edu/2024/11/26/a-course-correction-for-conflicted-controller-transactions/#:~:text=The%20courts%20have%20operationalized%20that,of%20moving%20Tesla%20to%20Texas.
[5] Lawrence Cunningham, “What is the Furor Behind Delaware SB21?” PROMARKET, April 9, 2025, https://www.promarket.org/2025/04/09/what-is-the-furor-behind-delaware-sb-21/
[6] AP-Fonden v. Activision Blizzard, et al, No. 2022-1001-KSJM, 2025 WL 2803254, at *1 (Del. Ch. Oct. 2, 2025).
Jonathan R. Macey is the Sam Harris Professor of Corporate Law, Corporate Finance and Securities Law at Yale Law School. This post is based on his recent article, “From First-Best to Least-Worst: Emerging Threats to Delaware’s Dominance that the Legislature Can’t Fix,” available here.