DELWARE'S CORPORATE LAW SUPREMACY UNDER THREAT AS HIGH-PROFILE COMPANIES CONSIDER EXODUS
DOVER, Del. — For decades, Delaware has reigned as the premier destination for corporate incorporations in the United States, with nearly two-thirds of the country's Fortune 500 companies calling the state home. However, a recent wave of high-profile businesses, including Dropbox, Roblox, and Meta, are considering or have already left the state, citing Delaware's increasingly litigious environment and unpredictable court rulings.
The exodus has prompted the state to take drastic measures, passing a new law aimed at curbing the trend and maintaining Delaware's position as the king of U.S. corporate law. Senate Bill 21, signed into law in late March, limits the ability of shareholders to bring lawsuits against controlling shareholders, a move critics argue undermines the stability and predictability that have long made Delaware an attractive destination for businesses.
At the heart of the controversy is the question of how closely controlling shareholders should be scrutinized by the courts. Delaware's business-friendly reputation has been built on its ability to provide a predictable and stable environment for companies to operate, but recent court rulings have sparked concerns that the state is becoming too hospitable to lawsuits.
The potential loss of major corporations could have far-reaching consequences for Delaware, which relies heavily on incorporation fees for revenue. In 2024, these fees accounted for nearly 30% of the state's revenue, helping to keep property taxes low and funding public services. If the trend continues, Delaware may be forced to reexamine its tax structure and budget, potentially impacting residents and businesses alike.
The changes to Delaware's corporate code also have implications for individual investors, who may be affected by the shift in the state's business landscape. With many retirement savings invested in S&P 500 tracker funds composed of mostly Delaware corporations, the impact of these changes could be felt far beyond the boardrooms of corporate America, ultimately reaching into the wallets of everyday investors.
