Kristin Cunningham
Manuscript Managing Editor, Delaware Journal of Corporate Law, Volume 50
In recent years, a notable trend has emerged among corporations: the decision to reincorporate from Delaware. This movement is influenced by various factors, including litigation considerations, corporate governance preferences, and other strategic advantages. A significant Delaware Supreme Court case—Maffei v. Palkon—has shed light on the complexities and implications of reincorporation.[1] Additionally, high-profile corporate moves, such as Meta Platforms announcing its potential decision to reincorporate in Texas and Dropbox’s recent proxy statement revealing its intent to reincorporate in Nevada, further underscore the growing trend of companies leaving the First State.[2]
Delaware has long been the jurisdiction of choice for many corporations, primarily due to its well-established legal framework, experienced judiciary, and business-friendly environment.[3] Likewise, the Delaware General Corporation Law (DGCL) offers immense flexibility in corporate structuring, and the Court of Chancery provides a specialized forum for resolving corporate disputes.[4] However, recent legal developments have prompted some corporations to reconsider their domicile.
More recently, the corporate world’s attention was captured when Meta Platforms, formerly Facebook, announced it was considering reincorporating to Texas, following Elon Musk’s similar move with Tesla and SpaceX.[5] These relocations are driven by various factors, including favorable tax regimes, regulatory environments, and personal pecuniary interests for executives.[6] Texas, like Nevada, offers a business-friendly climate, with no corporate income tax and a favorable legal framework, the Texas Business Organizations Code, that can be quite advantageous for corporations.[7] Such high-profile moves may, and indeed have, influenced other large companies such as Dropbox to reevaluate their corporate domiciles in search of similar strategic advantages.[8]
Meanwhile, Nevada has positioned itself as an attractive alternative to Delaware for corporate domicile.[9] The state’s corporate laws are perceived as more lenient, particularly concerning director liability and fiduciary duties.[10] Thus, Nevada offers greater protection to directors and officers, reducing the risk of personal liability and making it more challenging for shareholders to bring derivative lawsuits.[11] This legal environment can be appealing to companies seeking to minimize litigation risks and enhance managerial discretion as demonstrated by Palkon.
In Palkon v. Maffei, Vice Chancellor Laster refused to dismiss minority stockholder claims challenging TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc.’s decision to reincorporate from Delaware to Nevada.[12] The court applied the entire fairness standard rather than the deferential business judgment rule, reasoning that the conversion conferred a “non-ratable benefit” on the controlling stockholder and directors by reducing litigation risks under director-friendly Nevada law.[13] The court found sufficient allegations of both substantive and procedural unfairness, particularly since the board failed to implement the twin MFW protections—such as an independent special committee or majority-of-the-minority approval—to safeguard minority shareholders.[14] Although the court declined to enjoin the reincorporation to Nevada, it left open the possibility of monetary damages.[15] Palkon v. Maffei may act as a cautionary precedent, discouraging controlled corporations from reincorporating and pushing boards to prioritize transparency and fairness in jurisdictional decisions—particularly when conflicts of interest arise or directors stand to benefit at shareholders’ expense. However, this perceived cautionary precedent did not last long until the director defendants appealed to the Delaware Supreme Court.
On February 4, 2025, the Delaware Supreme Court issued a significant ruling in Maffei v. Palkon, addressing the standard of review for corporate decisions to reincorporate from Delaware to another jurisdiction like Nevada.[16] The high court unanimously reversed the Court of Chancery’s Palkon decision after determining that such reincorporation decisions should be evaluated under the deferential business judgment rule, rather than the more stringent entire fairness standard.[17] The Supreme Court found these concerns, namely, Nevada’s more favorable legal protections—such as broader indemnification and less stringent fiduciary standards—to be shareholders’ mere “speculation” of the directors’ future liabilities as opposed to the directors receiving a material, non-ratable benefit.[18] The court stressed that the temporality of non-ratable benefits is critical in determining their materiality such that “limiting liability for existing potential liabilities stemming from past conduct may convey a non-ratable benefit on fiduciaries.”[19] In other words, the “hypothetical and contingent impact of Nevada law on unspecified corporate actions” will not trigger entire fairness review unless the reincorporation was made “to avoid any existing or threatened litigation or that they were made in contemplation of any particular transaction.”[20] The downside of Palkon’s reversal is that corporations may be encouraged to consider relocating their domicile from Delaware to states like Nevada or Texas, which offer more management-friendly corporate governance regimes.
All in all, Maffei v. Palkon marks a significant turning point in Delaware corporate law, signaling a shift toward more lenient oversight of reincorporations, even when a controller is involved. By rejecting the stricter entire fairness standard and focusing on the business judgment rule, the Supreme Court diminished the weight of speculative, future-oriented liability conflicts in assessing director decisions. Ultimately, this decision weakens shareholder protections and prioritizes board discretion,[21] potentially giving the green light to corporations seeking to exit Delaware in search of more management-friendly jurisdictions. In the long term, this decision could erode Delaware’s dominance as the preferred legal home for most Fortune 500 companies and U.S. corporations, raising questions (and eyebrows) about its future role in corporate governance. But while Nevada and Texas may seem tempting, companies might soon realize that leaving the First State means giving up the stability, expertise, and predictability offered by Delaware corporate law—like trading a championship-winning coach for an untested rookie.
About the Author
Kristin is a third-year regular division student expected to graduate in May 2025. She attended the University of Delaware where she received her Bachelor of Science in Psychology and double minored in Forensic Science and Neuroscience. Kristin serves as the Manuscript Managing Editor for Volume 50 of the Delaware Journal of Corporate Law, an Academic Success Fellow, and the John F. Schmutz Corporate and Business Law Institute Fellow. In her free time, Kristin likes to play pickleball, read, cook, and shop. During her 1L summer, Kristin was a judicial extern to Chancellor Kathaleen St. Jude McCormick in the Delaware Court of Chancery. In her third year of law school, Kristin has served as a Wolcott Fellow to Vice Chancellor Paul Fioravanti and Senior Magistrate Judge Selena Molina in the Delaware Court of Chancery. After graduation, Kristin will be working as an associate at a large corporate firm in Wilmington, Delaware.
[1] No. 125, 2024, 2025 WL 384054 (Del. Feb. 4, 2025).
[2] Dropbox, Inc., Preliminary Information Statement (Schedule 14C) (Jan. 31, 2025) (requesting stockholders’ written consent in lieu of a stockholders’ meeting to reincorporate from Delaware to Nevada); Emily Glazer et al., Meta in Talks to Reincorporate in Texas or Another State, Exit Delaware, Wall St. J., https://www.wsj.com/tech/meta-incorporation-texas-delware-f06e8bab (Jan. 31, 2025, 5:18 PM); Theo Francis, The Big Loser in Tesla’s Shareholder Vote is Delaware, Wall St. J. (June 16, 2024 5:30 AM), https://www.wsj.com/business/tesla-texas-incorporation-delaware-edcbd0dd; see also Tornetta v. Musk, 310 A.3d 430, 546–48 (Del. Ch. 2024) (ordering rescission of Elon Musk’s $56 billion compensation package after subjecting the transaction to entire fairness review).
[3] See Faith Stevelman, Regulatory Competition, Choice of Forum, and Delaware’s Stake in Corporate Law, 34 Del. J. Corp. L. 57, 59–60 (2009).
[4] See id. at 70–72.
[5] Glazer et al., supra note 2.
[6] See Meta’s Texas Move: A Strategic Shift or a Gamble?, AInvest (Jan 31, 2025, 2:34 PM), https://www.ainvest.com/news/meta-s-texas-move-a-strategic-shift-or-a-gamble-25011010e75515aa10ac892d/.
[7] Why Texas is the Best State for Business, Tex. Econ. Dev. Corp. https://businessintexas.com/why-texas/ (last visited Feb. 7, 2025); see also Tex. Bus. Orgs. Code Ann. §§ 7.001, 8.101–8.106, 21.418.
[8] See, e.g., Gunderson v. The Trade Desk, Inc., 326 A.3d 1264, 1287 (Del. Ch. 2024) (holding that the company’s proposed reincorporation from Delaware to Nevada through a statutory conversion under Section 266 of the Delaware General Corporation Law required only a majority stockholder vote, despite a charter provision mandating a supermajority vote for charter amendments, after applying the doctrine of independent legal significance); Katie Balevic, Billionaire Hedge Fund Manager Bill Ackman Says He Will Move Management Company Out of Delaware, Bus. Insider (Feb. 1, 2025, 11:59 AM), https://www.businessinsider.com/bill-ackman-pershing-square-capital-management-delaware-nevada-2025-2.
[9] See Michal Barzuza, Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction, 98 Va. L. Rev. 935, 938 (2012); Michal Barzuza, Nevada vs. Delaware, 42 Del. Law. 6, 7 (2024) (“Nevada’s law was shaped by what Delaware doesn’t provide.”).
[10] See, e.g., Nev. Rev. Stat. § 78.138(7) (2024) (permitting exculpation for director and officer violations of the duties of loyalty and good faith so long as the actions do not “involve[] intentional misconduct, fraud or a knowing violation of law.”). But see CCSB Fin. Corp. v. Totta, 302 A.3d 387, 400–01 (Del. 2023) (“Section 102(b)(7) . . . specifically prohibits a charter provision that directly or indirectly limits director liability for breaches of the duty of loyalty” because it is “the public policy of this State to hold fiduciaries accountable for breaches of the duty of loyalty.”).
[11] See Michal Barzuza, Inefficient Tailoring: The Private Ordering Paradox in Corporate Law, 8 Harv. Bus. L. Rev. 131, 168–69 (2018) (“As the legislative history of Nevada’s new corporate law system shows, Nevada clearly intended to differentiate itself from Delaware by providing its corporations with minimal liability exposure. Accordingly, Nevada has been marketing its services by highlighting the greater protections afforded to managers, directors and officers under Nevada law. For example, the Nevada Secretary of State’s website explains under the heading ‘Why Nevada?’ that Nevada provides stronger personal liability protection to officers and directors.”); Ofer Eldar, Can Lax Corporate Law Increase Shareholder Value? Evidence from Nevada, 61 J.L. & Econ. 555, 556 (2018); see also Ann Lipton (@AnnMLipton), X (Apr. 10, 2023, 5:48 PM), https://x.com/AnnMLipton/status/1645544410665435137?mx=2 (“I tell my students, Nevada is where you incorporate if you want to do frauds.”).
[12] 311 A.3d 255 at 261–64, rev’d, 2025 WL 384054 (Del. Feb. 4, 2025).
[13] It is important to note that this case was addressed at the pleading stage in which “reasonable conceivability” was the court’s standard for assessing the allegations. Id. at 277, 281 (“When the Company and Holdings were Delaware corporations, the unaffiliated stockholders enjoyed all of the litigation rights provided by Delaware law. After the conversion, the unaffiliated stockholders will possess only the litigation rights provided by Nevada law.”).
[14] Id. at 281–82.
[15] Id. at 285–86 (noting that the proper calculation of damages would be the change in stock trading price to quantify the harm caused by the conversion, rather than “valu[ing] the Company pre-conversion as a Delaware corporation, then valu[ing] the Company post-conversion as Nevada corporation, subtract[ing] the Nevada value from the Delaware value, and calculat[ing] a per share amount.”).
[16] 2025 WL 384054, at *1.
[17] Id. at *28.
[18] Id. at *27–28.
[19] Id. at *25 (emphasis added).
[20] Maffei, 2025 WL 384054, at *26 (emphasis added).
[21] See generally id. at *30 (acknowledging that the court will “[d]eclin[e] to second-guess directors’ decisions to redomesticate where there are no well-pled allegations of a material, non-ratable benefit flowing to the directors or controllers furthers [the] policy [of corporate flexibility.]”).
Leave a Reply