Name: Tesla Left. Is Meta Next? Delaware’s Corporate Law Crisis, Explained | WSJ
Uploaded: 2025-04-21T09:21:26.000Z
Duration: 6 min 20 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

Most of the country's biggest companies have one thing in common.

They're incorporated here in Delaware, a state famous for being business friendly.

But now high profile businesses from Dropbox to Roblox to Meta have left or are considering it.

So the state recently passed a law to stop the exodus.

When we go a little bit off course, we're going to course correct.

But the course correction itself could risk Delaware's position as the king of U.S. corporate law.

And its impact could reach beyond boardrooms and into your wallets.

A lot of the recent attention on Delaware started when the world's richest man wrote this on X, never incorporate your company in Delaware.

That was his reaction to a Delaware court striking down his 46 billion dollar Tesla pay package after a minority shareholder's lawsuit.

That's a classic example of how an individual shareholder that doesn't have a controlling stake could bring a suit saying something's being done to harm the company.

Really, the fundamental goal of corporate law is to make investors feel comfortable putting their hard earned retirement dollars in companies.

If somebody's coming to me, a controlled company comes to me and they say, you should invest.

I might be a little nervous about that, right?

I might say, I have no idea if you, controlling shareholder, are going to use your influence to make me rich alongside you or whether or not you're going to be taking that investment and using it to fly in the private jet or extract money in other ways.

The question at the heart of the controversy is how closely controlling shareholders should be scrutinized by the courts.

It's boiling up now because this world of the visionary founder, the superstar CEO who can exert all sorts of leverage is, it's much more common than it was historically.

Now, other companies, many of them run by major shareholders, have cited Delaware's recent court rulings as reasons for wanting to leave.

Dropbox announced in January that it had received written consent from its shareholders to reincorporate in Nevada.

In a note to shareholders, the company wrote that it considered the increasingly litigious environment in Delaware.

Roblox is asking its shareholders to approve a move to the West, too.

CEO and controlling shareholder David Bozuki wrote that Nevada's corporate law framework and statutory regime aligns with Roblox's culture of innovation and that it provides a supportive, predictable environment.

Meta is considering moving to Texas, according to people familiar with the matter.

And news site Semaphore reported that Walmart was thinking about leaving, too.

Even with those potential defections, almost 300,000 businesses incorporated in Delaware in 2023.

So the bigger the company leaves and if that creates a wave, more companies leaving, that could be an existential crisis for them.

Delaware Governor Matt Meyer was tasked with keeping that crisis at bay his first months on the job.

The issue really moving forward is a lack of predictability.

That predictability is a key part of what's helped Delaware dominate the business incorporation market.

You've got a body of law that's relatively well developed.

You've got expert courts that can hear cases without juries.

You've got a legislature that's very responsive.

And you've also got a speedy administrative environment.

But what sets Delaware apart is the state's business court system.

They are a bedrock of business operations in the country that people know when writing a contract that it's governed by Delaware law.

And we know, based on over a century of jurisprudence and lawmaking, what that means.

But Delaware didn't always have a wealth of cases to build a legal framework.

A hundred years ago, its neighbor, New Jersey, held the crown for business incorporations.

And the reason they lost it is they didn't stick to those bedrocks of clarity, consistency, predictability and fairness.

Losing too many businesses could mean peril for Delaware.

The state makes so much money from incorporating businesses that it was nearly 30 percent of its revenue in 2024.

At a time when costs are rising so much across our country, Delaware has among the lowest property taxes in the region.

And there are other ways that we're able to make Delaware affordable, in part because we have we have this amazing court system and this amazing corporate franchise that would have to be looked at if we lost some of that revenue.

So many companies and attorneys were asking us to create what they call safe harbors.

That was the genesis of what's now Senate Bill 21, this piece of legislation to address concerns about the lack of predictability that were the result of these court decisions.

The governor signed that bill into law in late March, just months after taking office.

The state law changes the corporate code that would basically limit the ability for shareholders to bring lawsuits in various ways.

The irony is that the courts, the expertise of judges, that's why Delaware was an attractive place.

So I think the critics say if you can just overturn it with a legislation, is there even that stability and predictability and why aren't we relying on the expertise of judges and our corporate code?

The law also explicitly lays out specific guidelines.

For example, it says that a controlling shareholder has to hold at least a third of the shares.

You've made it a lot easier for competitors to do what you do, right?

If all you have is a code that gives rules of the road and you check the box and you've complied, anybody can become Delaware.

But Meyer argues that leaving Delaware for states like Nevada or Texas is risky for companies looking for predictability.

If you want to go to Vegas and roll the dice, you go to Vegas and roll the dice.

Most corporate leaders I know aren't really interested in doing that with their life savings or the business.

But whether Delaware laws continue to shift or companies move to states that are more favorable to controlling shareholders.

They're going to affect you because you have your retirement savings, you know, invested in an S&P 500 tracker fund that's composed of mostly Delaware corporations.