Another company has threatened to move its legal headquarters out of Delaware, even after sweeping corporate law changes were made to protect corporate directors.
Eighty percent of all publicly traded companies come to Delaware for its judicial expertise in business dealings and corporate-friendly tax code, but is a mass exodus really upon the state?
Here’s what to know.
Affirm Holdings considers reincorporation
According to
GuruFocus, financial technology company Affirm Holdings is reportedly contemplating reincorporating its business from Delaware to either Nevada or Texas.
The company’s CEO, Max Levchin, co-founded PayPal and worked with Elon Musk, whose publicly aired disagreements with Delaware’s Court of Chancery attempted to fuel a movement for corporations to leave Delaware.
In recent months, a number of other companies have expressed interest in moving legal headquarters from Delaware to states like Nevada.
AMC Networks, which owns and operates the AMC cable channel, as well as Madison Square Garden’s Entertainment company
cited the increasing franchise tax obligations and uncertainty in judiciary rulings as drivers for reincorporation.
“By re-domesticating the company from Delaware to Nevada, we believe we will be better suited to take advantage of business opportunities and that Nevada law can better provide for our ever-changing business needs and lower our ongoing administrative expenses,” AMC Networks’ proxy statement says.
Other companies like DropBox and Roblox also are in the process of reincorporating to Nevada. Walmart and Meta, which owns Facebook, have reportedly expressed similar desires to leave Delaware, but no progress has been made on their fronts.
What started this pattern?
Delaware’s corporate laws, usually precedented by Delaware Court of Chancery's rulings, dictate how controlling stockholders or Delaware-incorporated companies can cut deals. The speed and expertise of the court is one of the primary reasons companies choose to incorporate in Delaware in the first place.
“Delaware has been famous for its corporate law and its appeal to companies because you could pretty much always count on it doing a very sensible and balanced thing, even if it wasn’t the thing you wish they would have done,” said Larry Cunningham, , director of the University of Delaware’s Weinberg Center for Corporate Governance. Over the past couple of years, there’s been some debate about if that’s still true.”
The debate in question became inflated after December 2024, when a Delaware Chancery Court judge ruled Tesla CEO Elon Musk’s $56 billion pay package invalid for the second time. The decision sparked Musk to
take to social media advising other businesses not to incorporate in Delaware. The ruling against Musk has since been appealed to the Delaware Supreme Court.
A few months later, the Delaware Supreme Court issued a decision in a case
within Match Group Inc, which essentially stated that certain protocols must be taken before an “interested transaction,'' that is one that involves a controlling shareholder with a potential conflict of interest, takes place.
This court decision was viewed by many companies with controlling shareholders as a catalyst of distrust in Delaware’s Court of Chancery, proof that the judiciary was not as reliable as it had long been perceived to be.
Since the Match decision, a number of companies have threatened to reincorporate from Delaware to other states, in a mass exodus that became known as ‘'DExit.''
The DExit scare led legislators and Gov. Matt Meyer to pass Senate Bill 21, essentially meant to reverse the Match decision by protecting directors and controlling stockholders in order to coax businesses to remain in the First State.
Senate Bill 21 was passed nearly unanimously and quickly signed by Meyer in March, but was not without controversy.
Email correspondence made available via Freedom of Information Act Request and a report from
CNBC found that representatives for companies like Meta and Elon Musk’s legal team were involved in the bill’s drafting. Supporters of the bill said the changes are a necessary course correction that will give corporations’ most powerful managers more predictability and consistency as they consider business transactions.
Opponents argued that the bill would hinder the Chancery Court’s ability to rule over conflicts of interest, allowing business leaders to benefit themselves at the expense of pensioners, retirees and ordinary investors.
Is 'DExit' a real threat?
Did SB21 fail in its intention to keep corporations in Delaware? The short answer is no, but it may be too soon to tell.
No matter the political and judicial landscape, one pattern has remained the same – companies leave Delaware every year. While exact numbers are hard to track, it’s generally safe to say that companies incorporated in Delaware far exceed companies that don’t.
“No single factor is going to decide what’s best for a company in terms of where to incorporate it,” said Cunningham. “I wouldn’t have expected [SB21] to promptly change any major decisions. It may have played some role, but it could be one in dozens of factors.”
During a
Joint Finance Committee Hearing on Feb. 13, Delaware’s Department of State showed that over 80% of IPOs (initial public offerings) are incorporated in Delaware.
According to the presentation, the corporate landscape propped up by Delaware’s Division of Corporations, Courts and General Assembly generated around $2 billion in revenue for the state in 2024 from around 2 million entities incorporated in the state.
A number of the publicly available proxy documents that spell out reasons for leaving Delaware cite increasing franchise tax obligations in the state.
According to the
Delaware Division of Revenue, all corporations incorporated in the state have a maximum tax of $200,000 and “large corporate filers” have a tax capped at $250,000. So, even trillion-dollar-companies like Meta pay a maximum of $250,000 in franchise taxes to Delaware - a price that more companies are citing as too high to stay in Delaware.
In terms of the “judicial uncertainty” referenced by many of the corporations threatening to re-incorporate, Cunningham believes the “drama may be overdone.”
“It’s true that businesspeople value certainty when making decisions,” Cunningham said. “I have not detected the pattern that is being described.”
