DealLawyers.com Blog

The Hill recently published an opinion piece by a Texas lawyer who breathlessly announced that Delaware’s “activist judges” were “sending companies packing for states like Texas. . .” As UCLA law professor Stephen Bainbridge points out in his blog, that’s just not the case:

In total, there are almost 400,000 companies incorporated in Delaware. Although Delaware accounts for less than one-third of one percent of the United States’ population, it is the legal home for two-thirds of the Fortune 500 companies. As for the broader set of all public corporations, Delaware is home to more than half of the corporations listed for trading on U.S. stock exchanges. As for newly formed corporations, while most business entities form under the law of the state in which they have their primary place of business, Delaware is the leading choice of businesses that opt to incorporate outside their home state.

Guess how many publicly held Delaware corporations reincorporated outside of Delaware between 2012 and 2024. My research assistants and I have scoured SEC filings and various databases to get the answer. The answer? A whopping total of 65, with seven pending. That’s a total of 72 over 12 years. Six per year.

That’s not flight. That’s rounding error.

The facts cited by Prof. Bainbridge in his rebuttal don’t surprise me – after all, this wouldn’t be the first time that Delaware has muddled through after prominent deal lawyers got their noses way out of joint about Chancery Court decisions. What’s more, the jurisdictions that folks are advocating that Delaware corporations migrate to have their own issues.

In Texas, for example, its much-touted business court is just getting off the ground and it’s hard for me to imagine that many large companies would be interested in beta testing it over the next several years. As for Nevada, while some of its high-profile judicial decisions have been decidedly friendly to boards and controlling stockholders, its judges have been criticized for often looking to Delaware precedent instead of their own statute, and it’s still apparently unclear whether even Nevada’s statute would sanction a governance agreement like the one involved in Moelis.

My guess is that we may see a bit of a bump in re-incorporations over the short term, because hey, there’s always somebody who wants a taste of the flavor of the month, but despite the recent unpleasantness, I’d bet that Delaware is going to remain Delaware, at least for now. Whether the controversies over the Chancery Court’s recent decisions and the legislative reaction to them will buttress or erode the state’s status over the longer term is a question for bigger brains than mine.

– John Jenkins