Why do so many companies incorporate in Delaware?
Why do so many companies incorporate in Delaware?
Now that a Delaware business court has nixed Elon Musk’s almost $56 billion compensation package, the Tesla CEO is saying he wants to pick up stakes and reincorporate the EV company in Texas. Tesla is currently incorporated in Delaware, as are around two-thirds of the Fortune 500.
Delaware’s reputation as being the place to incorporate goes back more than a century; that means the state has a lot of experience with corporate law. It also has that specialized business court, known as the Court of Chancery, with judges who know that law inside and out.
“There is very little that they haven’t seen,” said Charles Elson, the founder of the Weinberg Center for Corporate Governance at the University of Delaware.
The state’s experience with business is a business itself: Corporate taxes and fees brought Delaware about $2 billion in revenue in 2022. Other states would like to see some of that, said Tulane law professor Ann Lipton.
“Texas has sort of loudly announced that it wants to challenge Delaware. I think Nevada has to some extent,” she said.
Those states have to be attractive to a company’s leadership, but also to its investors, she added. “The theory is that investors will not buy shares of your company if they are uncomfortable with the corporate law you have selected.”
Other states have tried to challenge Delaware before, Lipton noted — but they didn’t have the same track record.
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