By: Christopher Updike
Delaware is viewed as the gold standard for incorporation, but when its sheen appears to fade, boards can only daydream as to whether the grass is really greener on the other side. In hindsight, the corporate stir of 2025, otherwise known as “Dexit,” was a mere blip in Delaware’s corporate dominance and has since been quelled.[1] But what were the trade-offs for the ones that did inevitably depart Delaware? Did they find Shambhala? This article will highlight key disparities between siren songs sung by competing states’ legislation—namely Delaware, Nevada, and Texas.
Taxes
Taxes, the catalyst of many wars throughout history, remain a focal point for determining where to incorporate.[2] Lower taxes equate to a greater likelihood a corporation will “experience economic growth.”[3] Thus, weighing the tax benefits offered by each state is crucial before incorporating. Often cited as the most pivotal, each state’s corporate income tax and franchise tax are analyzed below.[4]
Texas and Nevada are among “only six states that do not levy a corporate income tax” upon any type of corporation.[5] In contrast, Delaware levies a corporate income tax above the average top marginal rate (8.7% compared to the average 6.57%) upon every foreign and domestic corporation incorporated within Delaware.[6] But this tax only applies to revenues secured through actual operations within Delaware.[7] For established corporations “turning a healthy profit,” this tax is considered a large piece of the taxation puzzle and the lower the rate the more attractive it is for corporations.[8]
States charge corporations franchise taxes “for the right . . . to exist as a legal entity and to [conduct] business within that particular state.”[NP1] [9] “States generally rely on one of four main approaches to calculate franchise taxes: flat fees, net worth or capital stock, gross receipts, or margin-based methods.”[10] However, Delaware implements a “varied approach” by charging LLCs and general partnerships a flat fee of $300[11] “while using a gross receipts tax [between 0.0945%–0.7468%] for other types of entities” generating above $100,000 in revenue.[12] The total franchise tax a Delaware corporation will pay is between $175–$250,000.[13] Nevada does not levy franchise taxes against corporations.[14] Texas requires some entities to file franchise taxes.[15] Those that are required to file franchise taxes in Texas must make above $2,650,000 and compute the amount due based on the type of business it is in.[16]
In a taxational lens, Nevada has a clear advantage against its competition. A profitable entity can enjoy stark financial benefits by avoiding hefty state corporate taxes. Nevada’s taxation may allow entities incorporated therein to undercut a competitor’s price or claim a greater net profit for its shareholders. Though other factors must be considered before making a final decision.
Legal Framework
Selecting the state in which an entity is registered “is a strategic decision that can shape a company’s future trajectory.”[17] Thus, considering the legal framework of a prospective state is important because those “laws govern internal disputes, ownership issues, and fiduciary duties.”[18] Though many components must be weighed to fully analyze the differences between each state’s legal framework, this section will compare each state’s court system and specific areas that impact litigation.
Legal predictability is paramount to any business entity.[19] This is because with legal predictability, business entities can reduce investment risk, simplify complex transactions, and increase confidence in decision making.[20] Delaware’s main offering is legal predictability.[21] “One of the primary reasons Delaware is so popular for incorporation is the Delaware Court of Chancery.”[22] The Delaware Court of Chancery—the key to Delaware’s legal predictability—is unique because it does not use juries and instead relies on the legal experts that preside on its bench.[23] Since the Delaware Court of Chancery’s jurisdiction is limited to claims of equity, it is “free to decide major corporate law disputes and business-to-business contract disputes, such as disputes between joint venture partners, with the speed that modern commerce requires.”[24] Entities questioning where to incorporate or pondering reincorporation should find the legal predictability Delaware offers compelling.
Nevada’s corporate statutes provide fiduciaries with seemingly impenetrable protections against shareholder litigation.[25] “[Shareholders] must plead intentional wrongdoing to survive dismissal, yet Nevada uniquely bars access to the books and records necessary to meet this burden.”[26] In this way, Nevada provides some legal predictability; yet, it still is overshadowed by Delaware. While Nevada provides a high bar for successful litigation, “[t]he [Delaware] Court of Chancery’s tradition of written opinions stretches back more than a hundred years” which provides business entities with broader predictability through an extensive body of case law.[27] Converse to expectations, the vast protections offered through Nevada’s legal framework are not beneficial and might deter potential investors.[28] Though some protections are attractive to fiduciaries, pushing bounds too far may have a negative overall impact. Delaware even received scrutiny from creating safe harbors for conflicted transactions through Delaware SB-21.[29] Now most turmoil has been quelled.[30]
“Texas legislature has adopted sweeping amendments to the Texas Business Organizations Code (the TBOC) designed to make Texas a more attractive destination for businesses.”[31] But are these amendments enough to put Delaware on notice? The amendments aim to emulate portions of Delaware General Corporate Law (“DGCL”) that corporations find attractive.[32] For example, a portion of Texas Senate Bill 29 codifies the business judgment rule and expands it to also encompass claims asserting breaches of loyalty.[33] Texas also attempts to create its own version of Delaware Senate Bill 21 by limiting record demands and providing similar safe harbors for conflicted transactions.[34] Though Texas is trying to adopt many portions of DGCL, Texas is still outmatched because of the long standing case law that provide unmatched predictability for business entities incorporated therein.[35] Lastly, the Texas Business Court may be comparable to the Delaware Court of Chancery but it lacks important details such as judicial fact finders and exclusive jurisdiction over certain cases.[36]
Conclusion
Through this limited scope, while Texas and Nevada may be strengthening their positions, Delaware is still a tier above. Unpredictable rulings can pose a greater risk compared to the capital saved on taxes. Since a large percentage of mergers and acquisitions valued at over $100 million face litigation, predictability is paramount in protecting an entity’s interests.[37] However, as each state continues to embolden their legal framework and improve offerings, the gaps will inevitably diminish.
[1] Andrew Verstein, An Update on DExit, From the Corporate Census, Harv. L. Sch. F. on Corp. Governance (Jan. 15, 2026), https://corpgov.law.harvard.edu/2026/01/15/an-update-on-dexit-from-the-corporate-census/.
[2] See NCH, Choosing the Best State to Incorporate Your Entity,https://nchinc.com/entities/corporation/best-place-to-incorporate-company (last visited Mar. 12, 2026).
[3] Janelle Fritts et al., 2026 State Tax Competitiveness Index, Tax Found. (Oct. 30, 2025), https://taxfoundation.org/research/all/state/2026-state-tax-competitiveness-index/ (“Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), employees (through lower wages or fewer jobs), shareholders (through lower dividends or share value), or some combination of the above.”).
[4] Why Incorporate in Nevada, Nev. Sec’y of St., https://www.nvsos.gov/sos/businesses/commercial-recordings/why-incorporate-in-nevada (last visited Mar. 12, 2026).
[5] The Nation’s Top Corporate Tax Environment, Bus. in Tex., https://businessintexas.com/why-texas/taxes-incentives/taxes/?gad_source=1&gad_campaignid=22922651022&gbraid=0AAAAArApc1GSkKtP3FCCXH_o2Ohf8mCSE&gclid=CjwKCAiA2PrMBhA4EiwAwpHyCwCR6KOi7ik-PSjoIqDAYY2Ntqn73FK1Vr-xIb83mvmo_5R-dOjpehoCBHIQAvD_BwE (last visited Mar. 12, 2026); Nev. Sec’y of St, supra note 4.
[6] Abril Mandal, State Corporate Income Tax Rates and Brackets, 2026, Tax Found. (Jan. 5, 2026), https://taxfoundation.org/data/all/state/state-corporate-income-tax-rates-brackets/; Del. Code Ann. tit. 30 chs. 19, 64 (2025); 2017 Delaware Tax Preference Report, Corporate Income Tax, https://financefiles.delaware.gov/docs/cit.pdf (2017) (“Every domestic and foreign corporation doing business in Delaware is required, unless specifically exempt by law, to file a corporate income tax return regardless of the amount of its gross income or its taxable income.”).
[7] Is Delaware a Tax Haven? Top 10 Tax Tips for Business, DiLucci (last visited Mar. 12, 2026), https://dilucci.com/is-delaware-a-tax-haven-top-10-tax-tips-for-businesses/ (“Delaware apportions income based on what property, payroll, and sales [a] business has in Delaware.”).
[8] Rick Mak, Franchise Taxes by State: 2025 Overview, Bus. Anywhere (Nov. 1, 2025), https://businessanywhere.io/franchise-taxes-by-state-overview.
[9] Franchise Tax, Legal Info. Inst. (last visited Mar. 12, 2026), https://www.law.cornell.edu/wex/franchise_tax.
[10] Mak, supra note 8.
[11] Franchise Taxes, Del., https://revenue.delaware.gov/business-tax-forms/franchise-taxes/ (last visited Mar. 12, 2026).
[12] Mak, supra note 8.
[13] Franchise Taxes, supra note 11.
[14] Logan Jackonis, Delaware vs Nevada LLC: Which State is Better for Your Business?, Commenda (Jan. 2, 2026), https://www.commenda.io/blog/delaware-vs-nevada-incorporation.
[15] Kelly Hancock, Franchise Tax Overview, Comptroller (last visited Mar. 12, 2026), https://comptroller.texas.gov/taxes/publications/98-806.php (entities subject to franchise tax in Texas include: “corporations; limited liability companies (LLCs), including single member LLCs (SMLLCs) and series LLCs; banks; state limited banking associations; savings and loan associations; S corporations; professional corporations; partnerships (general, limited and limited liability); trusts; professional associations; business associations; joint ventures; and other legal entities.”).
[16] Id. (the tax rate for entities in retail or wholesale is 0.375% and all others are subject to a 0.75% tax rate).
[17] What is the Best State to Incorporate in? Here’s How to Decide, Stripe (Nov. 7, 2023), https://stripe.com/resources/more/what-is-the-best-state-to-incorporate-in.
[18] Jackonis, supra note 14.
[19] Doug Davidoff, Business Predictability: A Critical Guide for Mid-Market Companies, Lift (Oct. 7, 2025), https://www.liftenablement.com/blog/the-critical-importance-of-business-predictability-a-strategic-guide-for-mid-market-companies.
[20] Benny Hutahayan et al., Investment Decision, Legal Certianty and its Determinant Factors: Evidence from the Indonesia Stock Exchange, Taylor & Francis (Jan. 18, 2024), https://www.tandfonline.com/doi/full/10.1080/23311975.2024.2332950#d1e180.
[21] Facts and Myths, Del. Corp. L., https://corplaw.delaware.gov/facts-and-myths/ (last visited Mar. 12, 2026).
[22] Nadine Basri, Why Delaware is the Top State for Incorporation: Key Advantages Explained, The Incorporators (June 24, 2025), https://theincorporators.com/blogs/news/why-delaware-is-the-top-state-for-incorporation.
[23] Litigation in the Delaware Court of Chancery and the Delaware Supreme Court, Del. Corp. L., https://corplaw.delaware.gov/delaware-court-chancery-supreme-court/#:~:text=Delaware’s%20courts%20offer%20a%20level%20playing%20field%2C,such%20as%20charters%2C%20bylaws%2C%20and%20merger%20agreements (last visited Mar. 12, 2026).
[24] Id.
[25] Michal Barzuza, Nevada v. Delaware: The New Market for Corporate Law, Harv. L. Sch. F. on Corp. Governance (Feb. 26, 2026), https://corpgov.law.harvard.edu/2026/02/26/nevada-v-delaware-the-new-market-for-corporate-law/.
[26] Id.
[27] Del. Corp. L., supra note 23.
[28] Barzuza, supra note 25.
[29] Michael Watson, Understanding Delaware’s Senate Bill 21 and the Growing Opposition, Deminor (Mar. 3, 2025), https://www.deminor.com/en/news-insights/understanding-delawares-senate-bill-21-and-the-growing-opposition/.
[30] Stephen Bainbridge, Delaware Upholds SB 21: The Court Got It Right, and So Did I, Bainbridge on Corps. (Feb. 27, 2026), https://www.bainbridgeoncorporations.com/p/delaware-upholds-sb-21-the-court.
[31] Latham & Watkins, A New Era of Corporate Law in Texas, Client Alert (Sept. 23, 2025), https://www.lw.com/en/insights/a-new-era-of-corporate-law-in-texas.
[32] Id.
[33] Id.
[34] Id.
[35] Del. Corp. L., supra note 23.
[36] Christopher J. Babcock, John Sepehri & Jack Disorbo, Delaware v. Texas: A Comparison of Corporate Governance and Business Courts, The Advoc. (Jan. 2026), https://www.foley.com/wp-content/uploads/2026/02/Delaware-vs-Texas-A-Comparison-Babcock-and-Sepehri-Jan-2026.pdf.
[37] Judy Greenwald, Shareholders Litigated 82% of $100M-Plus deals: Cornerstone, Bus. Ins. (Sep. 17, 2019), https://www.businessinsurance.com/shareholders-litigated-82-of-100-million-deals-cornerstone/.
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