Three influential stakeholders are challenging Delaware’s longstanding dominance in the realm of public companies. Tripadvisor, led by media executive Greg Maffei, seeks to reincorporate in Nevada, facing resistance from minority shareholders. Barry Diller anticipates a ruling that could ease Delaware’s scrutiny of transactions, such as the 2020 split of some of his online businesses. Elon Musk, having already reincorporated Twitter as X in Nevada, expresses intent to propose Tesla’s reincorporation in Texas.
Elon Musk’s January 30th recommendation to incorporate in Nevada or Texas for shareholder decision-making aligns with a broader trend challenging Delaware’s historical prominence in U.S. corporate law. Delaware’s grip on corporate registrations is being contested by states like Nevada and Texas, aiming to attract companies by offering an alternative legal environment.
Although companies typically register in their home state or Delaware, the competition is intensifying. Four states have established new statewide business courts since 2019, with Texas set to open a specialized business court in September. Nevada, in particular, has been proactive, enacting legislation to reduce litigation costs and enhance protections for executives. While Delaware remains the legal home for over two-thirds of Fortune 500 companies, states like Nevada are making strategic moves to compete.
Tripadvisor’s attempt to reincorporate in Nevada stirred controversy. Despite receiving support from a majority of votes, dissenting minority shareholders filed a lawsuit in Delaware, alleging that Maffei, with a substantial voting stake, manipulated the outcome to benefit himself. Delaware courts typically defer to a company’s board under the business judgment rule, but a higher standard applies to transactions favoring a controlling shareholder. Nevada’s broader protections for directors and officers could tilt the scale in favor of Tripadvisor’s leadership, raising concerns about minority shareholders’ compensation.
Match Group, the owner of dating services Match and Tinder, is not pursuing relocation but has appealed to the Delaware Supreme Court to ease scrutiny of transactions involving a major shareholder. Barry Diller, Match’s former chairman, awaits a ruling to streamline Delaware’s oversight. The legal landscape is evolving, with calls for lighter court scrutiny if transactions receive approval from an independent board committee or minority shareholders.
Elon Musk, with mixed experiences in Delaware’s courts, expressed frustration and recommended against incorporating companies in the state. Musk’s decision to move Twitter’s domicile from Delaware to Nevada in 2023 reflects a broader sentiment that corporations have alternatives beyond Delaware. Phil Shawe, CEO of TransPerfect, shifted incorporation from Delaware to Nevada in 2018, citing frustration with Delaware’s business court. As more corporations explore alternative options, Delaware faces growing competition.
While Delaware’s influence persists, the evolving legal landscape and competition from other states signal a potential shift. Corporations are increasingly exploring alternatives that offer benefits and cost-effectiveness beyond Delaware’s traditional stronghold. The ongoing legal battles and strategic moves by influential figures indicate a dynamic shift in the corporate registration landscape.
