Delaware has long been the premier destination for corporate incorporation, with more than two-thirds of the Fortune 500 companies choosing the state due to its business-friendly legal framework. However, recent criticism from Tesla CEO Elon Musk regarding Delaware’s legal system has coincided with a growing trend of major corporations relocating to other states.
Elon Musk’s Legal Battle and Tesla’s Move
Musk has openly condemned Delaware’s courts, arguing that they have denied him a fair payday. The controversy stems from the Delaware Court of Chancery’s decision to strike down his nearly $100 billion pay package. Despite Delaware’s reputation for its specialized business court and expert judges, Musk’s frustration has led Tesla to reincorporate in Texas, bringing widespread attention to the state’s legal environment.
Delaware lawmakers are now working urgently to stem the tide of corporate departures. A law firm that represented Tesla in Musk’s pay dispute has drafted a bill designed to keep major corporations from leaving, though critics argue the expedited process lacks transparency.
Corporate Migration Threatens Delaware’s Economic Dominance
For over a century, Delaware has been the hub of U.S. corporate law, generating billions in revenue and sustaining a thriving legal industry. However, Musk’s criticisms have spurred concerns about a larger corporate exodus. Hedge fund billionaire Bill Ackman recently announced his firm, Pershing Square, is considering reincorporation in Texas or Nevada. Additionally, Meta, Dropbox, and Tripadvisor are among the companies reportedly exploring relocation.
Legislative Response: Senate Bill 21
Delaware Governor Matt Meyer confirmed that legislative changes are underway to maintain the state’s status as the top corporate jurisdiction. On Monday, lawmakers introduced a bipartisan bill, Senate Bill 21, aimed at making corporate statutes more favorable for executives who are also controlling shareholders—such as Musk, Zuckerberg, and Ackman.
“My sense and the governor’s sense was that Delaware needed to act swiftly,” said Lawrence Hamermesh, professor emeritus at Delaware Law School and a key architect of the bill.
Hamermesh collaborated with former Court of Chancery Chancellor William Chandler, former Delaware Supreme Court Chief Justice Leo Strine, and John Mark Zeberkiewicz of Richards, Layton & Finger—the law firm that represented Tesla. The firm maintains that its involvement in drafting the bill was not on behalf of any specific client.
“As many have recognized, statutory changes are necessary to uphold Delaware’s core principles and retain its status as the preeminent incorporation jurisdiction,” said Lisa Schmidt, president of the firm, in a statement.
Criticism and Transparency Concerns
While lawmakers argue that time is of the essence, critics claim the bill’s rapid development bypasses the traditional review process. Typically, amendments to Delaware’s corporate statutes undergo thorough evaluation by the state bar’s corporation law council before legislative consideration.
Charles Elson, founding director of the University of Delaware’s Weinberg Center for Corporate Governance, warns that the bill could weaken Delaware’s influence over U.S. corporate law by diminishing protections for minority shareholders.
“You’re essentially saying our courts are ineffective, which is why we’re overruling them,” Elson remarked.
However, supporters of Senate Bill 21 insist that the accelerated process is necessary, as companies are preparing proxy statements for upcoming shareholder meetings where reincorporation votes may take place.
Attacks on Delaware’s Legal System
Musk’s dissatisfaction with Delaware’s judiciary has sparked broader attacks on the state’s legal system. Chancellor Kathaleen McCormick, who ruled against Musk’s pay package, has been the target of criticism, as have other judges in the Court of Chancery.
Phil Shawe, CEO of TransPerfect, has spent millions on campaigns criticizing Delaware courts following a contentious legal battle with his former fiancée. Shawe also funded a $1.25 million political action committee during Delaware’s 2024 gubernatorial race, primarily aimed at opposing Meyer’s primary opponent.
Despite these controversies, lawmakers maintain that Senate Bill 21 is not tailored to benefit Musk or Shawe but is a proactive measure to preserve Delaware’s corporate appeal. “Our courts are rightfully heralded for their work,” said Townsend, emphasizing the importance of maintaining business confidence in the state’s legal system.
Will Senate Bill 21 Stop the Corporate Exodus?
The fate of Delaware’s dominance in corporate law remains uncertain. With Texas and Nevada aggressively courting companies, Delaware lawmakers must act decisively to retain its long-standing reputation as the go-to incorporation destination. As the legislative process unfolds, the business world will be watching closely to see whether Delaware’s response is enough to keep corporate giants from seeking greener pastures elsewhere.
