In recent years, a growing number of companies have decided to shift their corporate domicile from Delaware to Nevada, a trend sometimes referred to as “Dexit,” the Financial Times reports.
This shift is particularly noticeable among businesses controlled by a founder or dominant shareholder, who often seek a regulatory environment with fewer legal challenges and compliance burdens.
Delaware has long been the preferred state for incorporation due to its well-established legal framework and experienced courts. However, recent developments have made Nevada an increasingly attractive alternative.
One key factor driving this shift is a recent Delaware Supreme Court decision allowing companies to relocate without facing special scrutiny. This ruling came after a stockholder attempted to block Tripadvisor from moving to Nevada without compensating shareholders for losing Delaware-specific rights. The court ultimately ruled that the decision to change domicile should be left to companies, not the courts.
Several well-known companies, including Dropbox, The Trade Desk, and Pershing Square, have recently reincorporated in Nevada. These businesses share a common trait: they are controlled by their founders or a small group of shareholders who hold significant voting power.
Delaware law treats controlled companies differently than other corporations, often imposing stricter legal standards and increased litigation risks. The state’s courts frequently classify companies as “controlled” even if the dominant shareholder holds less than 50% of voting power. For example, Elon Musk was deemed a “controlling shareholder” of Tesla, despite not having a majority stake.
This legal approach can make it more difficult for founder-led companies to:
- Get executive compensation packages approved
- Complete transactions with major shareholders without facing lawsuits
- Avoid prolonged and costly litigation, even when legal requirements are met
By contrast, Nevada offers a more flexible legal environment, making it an appealing choice for companies looking to reduce these risks.
Critics argue that controlled companies could take advantage of a more relaxed regulatory environment to prioritize the interests of dominant shareholders over minority investors. However, studies suggest that moving away from Delaware has no significant negative impact on stock performance.
For example:
- Research by UC Berkeley Law professor Steven Davidoff Solomon found that the last five major companies to leave Delaware did not suffer a decline in stock value.
- Another study showed that controlled Delaware firms are, on average, valued 4.9% lower than similar companies incorporated elsewhere.
This suggests that concerns over losing Delaware’s legal protections may be overstated.
Despite this trend, Delaware still holds key advantages, including:
- A highly experienced judiciary that can quickly resolve shareholder disputes
- A well-funded Secretary of State’s office that streamlines corporate services
However, Nevada is actively working to enhance its appeal. The state is considering a constitutional amendment to establish a specialized business court, similar to those in Delaware and Texas. Currently, Nevada has a dedicated business docket to handle corporate cases, but a more structured court system could strengthen its position as an incorporation hub.
With Delaware’s legislature considering reforms to ease the legal burden on controlled companies, the competition between the two states is likely to continue. Nevada, meanwhile, stands to benefit financially—Delaware earns over $2 billion annually from incorporation fees, and if more companies make the switch, Nevada could claim a larger share of this revenue.
