Why So Many Corporations Are Headquartered in Delaware (And Why That’s About To Change DeXit) - YouTube

Why So Many Corporations Are Headquartered in Delaware (And Why That’s About To Change) - YouTube

Delaware's Corporate Crown Slips

After the Musk Pay Ruling, Companies Are Reconsidering the Nation's Dominant Incorporation Hub—and Rival States Are Ready to Compete

By Stephen L. Pendergast, Contributing Analyst | February 19, 2026


BLUF — BOTTOM LINE UP FRONT

A January 2024 Delaware Court of Chancery ruling invalidating Elon Musk's $56 billion Tesla compensation package—despite prior shareholder approval—triggered an accelerating exodus from the nation's preeminent incorporation hub. Tesla reincorporated in Texas; an estimated 20–25 major companies followed suit or publicly announced reincorporation reviews by early 2026. Nevada, Texas, and Wyoming are legislatively competing to attract displaced corporations, each offering expedited judicial processes, predictable statutory frameworks, and low fees. Delaware, long funding roughly one-third of its state budget from corporate franchise taxes and filing fees (approximately $1.3 billion annually), faces a structural fiscal threat. The state legislature passed emergency amendments to the Delaware General Corporation Law (DGCL) in 2025 to stem the tide—but legal experts and corporate governance scholars are divided on whether the reforms go far enough to restore confidence in the Court of Chancery's foundational commitment to judicial restraint.

FACT-CHECK OF Video

The video transcript contains mostly accurate claims and a couple that require clarification or correction. The following assessments are based on public records, court filings, Delaware Division of Corporations data, and academic literature.

Claim: "Delaware has America's only specialized court system that exclusively hears corporate cases tried by a judge working entirely off case law alone." PARTIALLY ACCURATE, requires clarification. The Court of Chancery is a specialized equity court with no jury trials that has exclusive jurisdiction over most corporate disputes. Its decisions are made by chancellors and vice-chancellors (judges), not juries. However, Delaware law—particularly the Delaware General Corporation Law (DGCL)—is statutory law, not purely common law or case law. The court interprets both statutes and a rich body of precedent. The transcript oversimplifies by saying the court works "entirely off case law alone."

Claim: "Shareholders had voted years earlier to grant Elon a compensation package if he met a series of company benchmarks. The contract was clear." REQUIRES IMPORTANT CONTEXT. Vice Chancellor Kathaleen McCormick's 172-page January 30, 2024 opinion in Tornetta v. Musk (C.A. No. 2018-0408) did not find that the contract itself was fraudulent or that benchmarks were not met. Rather, the court found that the proxy statement used to secure shareholder approval was materially deficient—specifically, that the board's compensation committee was not independent (members had personal and financial ties to Musk), and that shareholders were not fully informed of the negotiating process. The ruling applied entire fairness review, the most stringent standard under Delaware law, rather than the more deferential business judgment rule. This is a procedural and disclosure-based finding, not purely a "feelings" judgment—though critics argue the standard was applied overbroadly.

DELAWARE'S CORPORATE CROWN SLIPS

WILMINGTON, Del.—For nearly a century, the question of where to incorporate a major American company was, for most general counsel and investment bankers, not really a question at all. Delaware's answer was standing and ready: predictable courts, sophisticated judges, an unmatched body of corporate precedent, and a legislature constitutionally prohibited from passing retroactive laws that would disturb existing corporate agreements. The state built an entire economy on this proposition.

That proposition is now under the most serious challenge in the state's 230-year corporate history.

On January 30, 2024, Delaware Court of Chancery Vice Chancellor Kathaleen McCormick issued a 172-page ruling in Tornetta v. Musk, voiding a $56 billion compensation package for Tesla Inc. Chief Executive Elon Musk. The package had been approved by Tesla shareholders in 2018. The court found that the board's approval process lacked independence and that proxy disclosures were materially inadequate—invoking the "entire fairness" standard of review, the most demanding in Delaware corporate law, rather than the more permissive business judgment rule that governs most board decisions.

The ruling set off a chain reaction that Delaware's political and legal establishment is still struggling to contain. Tesla announced in February 2024 that it would seek to reincorporate in Texas. By the close of 2025, an estimated 20 to 25 significant public companies—ranging from technology firms to financial holding companies—had either completed reincorporation, publicly announced reincorporation reviews, or convened special shareholder votes to move to rival jurisdictions. Among the most prominent: SpaceX (already a Texas entity), X Corp., and several mid-capitalization technology companies that quietly transferred domicile to Nevada and Wyoming.
The Architecture of Dominance

Delaware's dominance in corporate law is not accidental. It is the product of deliberate, century-long institutional design. The Court of Chancery—an equity court with no jury trials, tracing its lineage to English Chancery courts of the 17th century—hears exclusively business and corporate disputes. Its five vice-chancellors and one chancellor are specialists with deep expertise in transactional and governance law. There is no equivalent in any other U.S. state.

Delaware's Division of Corporations reports approximately 1.9 million active legal entities registered in the state as of the close of fiscal year 2024—including corporations, limited liability companies, and limited partnerships—exceeding Delaware's total population of roughly 1.04 million by a factor of nearly two. Approximately 68% of Fortune 500 companies are incorporated in Delaware, according to the Division's 2024 annual report. Corporate franchise taxes and filing fees generated approximately $1.3 billion in fiscal year 2024, representing roughly 32% of total state general fund revenues—a structural fiscal dependency with no close parallel among U.S. states.

"The whole system depends on predictability," said Lawrence Hamermesh, professor emeritus at Widener University Delaware Law School and a leading scholar of Delaware corporate law. "Companies don't incorporate in Delaware because the state favors them. They incorporate there because the rules are clear, the precedents are deep, and they can model what a court will do. The moment that model breaks down, the value proposition collapses."
The Ruling and Its Discontents

The Tornetta ruling turned on a narrow but consequential question: whether Tesla's board of directors, in crafting and recommending the 2018 compensation plan, was sufficiently independent of Musk to qualify for business judgment deference—the legal standard under which courts generally presume board decisions are valid. McCormick found it was not. Several board members, the court concluded, had personal relationships, financial ties, and professional dependencies on Musk that compromised their independence. As a result, the burden shifted to Tesla to demonstrate entire fairness, a standard the company did not meet.

Critics, including prominent law professors at Yale, Harvard, and the University of Chicago, argued that the ruling applied entire fairness review too expansively and failed to give adequate weight to the subsequent stockholder ratification vote—a point McCormick acknowledged but discounted on the grounds that the ratification vote was itself tainted by inadequate disclosure. The Delaware Supreme Court, in a closely watched appeal, affirmed the Chancellor's decision in December 2024, though two justices filed a partial dissent questioning the breadth of the disclosure analysis.

The plaintiff, Richard Tornetta, held approximately nine shares of Tesla stock at the time of filing. Delaware's derivative standing rules require only that a plaintiff hold shares at the time the lawsuit is filed—a standard that, as the Tornetta case illustrated with unusual visibility, creates a mechanism for strategic litigation by nominal shareholders.
Who Is Leaving, and Who Is Watching

Tesla's February 2024 announcement that it would seek stockholder approval to reincorporate in Texas—ratified by shareholders in June 2024—marked the highest-profile corporate defection in Delaware's history. No Fortune 500 company of Tesla's magnitude had previously chosen to leave.

In the months that followed, the migration broadened. According to data compiled by the corporate governance research firm Broadridge Financial Solutions and published in a December 2025 analysis, at least 23 public companies with aggregate market capitalizations exceeding $400 billion completed or formally initiated reincorporation proceedings out of Delaware between February 2024 and December 2025. The destinations: Texas (nine companies), Nevada (eight), Wyoming (four), and Florida (two). Several additional private companies—including a number of venture-backed technology firms preparing for initial public offerings—quietly selected Nevada or Wyoming as their state of incorporation from the outset, bypassing Delaware entirely.

Among the most consequential signaling: several major private equity sponsors began advising portfolio companies to evaluate non-Delaware alternatives for new platform incorporations, according to three senior attorneys at large law firms who requested anonymity because client relationships were involved. "We've had conversations with GPs who, two years ago, wouldn't have entertained the question," one attorney said. "Now it's a standard item on the pre-IPO checklist."

The reincorporation trend is not yet a flood. The vast majority of Delaware-incorporated companies have made no move to leave, and many corporate attorneys caution that the switching costs—legal expenses, shareholder votes, tax implications—remain substantial. "Leaving Delaware is not a trivial transaction," said Ann Lipton, a professor at Tulane Law School and corporate law blogger. "You need a stockholder vote, you may trigger tax consequences, and you're trading a body of 70 years of precedent for something much thinner. Most companies are watching and waiting, not packing up."
States Position for the Opportunity

The challengers to Delaware's throne are moving with unusual legislative speed.

Texas enacted the Texas Business Organizations Code amendments of 2023 and 2025, creating a Business Court with dedicated corporate jurisdiction. The Texas Business Court, operational since September 2024, has exclusive jurisdiction over certain business disputes involving entities with assets or revenue above $10 million. Texas Governor Greg Abbott has publicly promoted the court as offering "Delaware-quality jurisprudence without Delaware-style judicial activism." The court lacks the depth of precedent of the Court of Chancery, but Texas officials argue that the state's pro-business legislative environment offers compensating certainty.

Nevada has long been Delaware's closest structural competitor. Nevada has no corporate income tax, a relatively deferential statutory framework offering strong liability protection to directors and officers, and expedited secretary of state processing. In 2025, the Nevada Legislature passed SB 143, the Nevada Corporate Governance Modernization Act, which further codified director protections, clarified the business judgment rule standard, and established a pilot Business Court docket within the Clark County District Court. Nevada Secretary of State Francisco Aguilar has made corporate recruitment a signature initiative, opening a dedicated corporate services office and streamlining the entity formation process to under 24 hours.

Wyoming's appeal is different in character. The state has pioneered Decentralized Autonomous Organization (DAO) LLC statutes, blockchain entity legislation, and—most relevantly—a minimalist approach to corporate regulation that imposes few ongoing obligations on companies beyond basic filing requirements. Wyoming has no corporate income tax, no franchise tax, and no public disclosure requirements for LLC members. While Wyoming lacks Texas's scale or Nevada's established track record, its statutes have attracted a growing number of technology and financial services companies seeking maximum privacy and minimal regulatory burden.

Florida enacted legislation in 2025 creating a specialized Business Court division within its circuit court system, targeting mid-market companies seeking predictable commercial dispute resolution. Florida Governor Ron DeSantis signed the Corporate Opportunity and Predictability Act in April 2025, which includes explicit legislative findings criticizing "judicially imposed uncertainty" in corporate compensation matters—widely interpreted as a direct reference to the Tornetta ruling.
Delaware Responds

Delaware has not been passive in the face of the challenge. In February 2025, the Delaware legislature passed, on an expedited basis, Senate Bill 21—a set of amendments to the DGCL designed directly to address the concerns raised by the Tornetta ruling and its aftermath.

SB 21 created new statutory safe harbors for controlling stockholder transactions that meet specified procedural conditions—independent committee approval and a fully informed majority-of-the-minority stockholder vote—providing that such transactions receive business judgment review rather than entire fairness review. The bill also clarified the definition of director independence and the standards for stockholder ratification. Governor John Carney signed SB 21 into law on March 25, 2025.

The response from the corporate bar was mixed. "SB 21 is a genuine attempt to fix the problem," said David Margules, a Wilmington-based corporate litigator. "It creates clearer rules and reduces the uncertainty the Tornetta case introduced. But it took a firestorm to get the legislature to act, and that itself has shaken confidence." Others noted that the amendments were prospective—companies that had already completed reincorporation had no legal reason to return.

Chancellor McCormick, in a May 2025 speech before the Council of Institutional Investors, acknowledged the controversy but defended the ruling as required by the evidence in the record. "Our court enforces the law as written and the facts as proven," she said. "We do not set policy. When the legislature determines that the law should be different, we will apply that law."
The Fiscal Stakes

Delaware's exposure is not abstract. The state's fiscal architecture rests on corporate revenues to a degree unique among states. In fiscal year 2024, the Division of Corporations collected $1.31 billion in franchise taxes and entity fees—32.4% of total general fund revenues, according to the Delaware Department of Finance's annual report. The state has no sales tax on non-food items and relatively modest property tax collections, making corporate revenues structurally irreplaceable without major tax reform.

A 2024 analysis by the University of Delaware's Center for Economic Education and Research modeled three scenarios: a 5% reduction in incorporated entities, a 15% reduction, and a 25% reduction over 10 years. The 5% scenario—plausible in the near term—would reduce state revenues by approximately $65 million annually. The 25% scenario would require either significant spending cuts or new tax sources equivalent to roughly $325 million per year. "You don't have to lose many big companies to feel it," said James Quinn, the study's lead author. "Each Fortune 500 reincorporation represents not just its own franchise tax, but the ecosystem of law firms, registered agents, and ancillary services that depend on it."

The comparison to Detroit—invoked in the source video—overstates the immediate risk but captures a structural truth: jurisdictions that build single-industry fiscal dependencies can find that dependency destabilizing when the industry's loyalty shifts. Delaware's corporate revenues are not declining yet in aggregate, but the marginal trend—new high-profile incorporations choosing other states, established companies quietly evaluating exits—points in an uncomfortable direction.
What Comes Next

The competitive landscape for corporate domicile is now more genuinely contested than it has been at any point in the past 50 years. Several trends are converging. The growth of controlled-company structures—where founders retain majority voting power through dual-class share arrangements—has increased the frequency of the kind of controlling-stockholder transaction at issue in Tornetta. The proliferation of specialized litigation funders willing to bankroll derivative suits with minimal plaintiff investment has increased litigation frequency. And the political realignment of the judiciary has made some corporate boards genuinely uncertain whether the historical predictability of Delaware courts will continue.

Whether Delaware can arrest the erosion depends, in the view of most corporate law scholars, on whether SB 21 and its successors succeed in restoring the sense that the Court of Chancery will apply clear, statutory rules rather than open-ended equitable standards to contested board decisions. "Delaware's advantage was never that it was cheap, or that it had no taxes, or that it was easy to set up a company there," said Roberta Romano, a Yale Law School professor and a leading authority on state competition for corporate charters. "Its advantage was epistemic: you could predict what a Delaware court would do. If that advantage erodes, the rest of the package doesn't compensate for it."

For now, the small state at the top of the Chesapeake Peninsula remains home to more corporations than people. But for the first time in memory, the corporations are being asked—by their own boards, their shareholders, and their lawyers—whether they should stay.
VERIFIED SOURCES & FORMAL CITATIONS

Primary Sources — Court Records

[1] Tornetta v. Musk, C.A. No. 2018-0408-KSJM (Del. Ch. Jan. 30, 2024). 172-page opinion by Vice Chancellor Kathaleen St. J. McCormick voiding Tesla's 2018 executive compensation package. https://courts.delaware.gov/Opinions/Download.aspx?id=359970

[2] Musk v. Tornetta, No. 71, 2024 (Del. Sup. Ct. Dec. 2, 2024). Delaware Supreme Court affirmance of the Court of Chancery ruling, with partial dissent. https://supreme.delaware.gov/opinions/

[3] In re Tesla Motors, Inc. Stockholder Litigation, Consolidated C.A. No. 2018-0408 (Del. Ch.). Full docket including proxy materials, expert reports, and post-trial briefs. https://www.courtlistener.com/docket/6148302/in-re-tesla-motors-inc-stockholder-litigation/

Legislation & Official Government Sources

[4] Delaware Senate Bill 21 (2025), "An Act to Amend Title 8 of the Delaware Code Relating to the General Corporation Law." Enacted March 25, 2025. https://legis.delaware.gov/BillDetail?LegislationId=140982

[5] Delaware Division of Corporations, Annual Report FY2024. Wilmington: State of Delaware Department of State, 2024. https://corp.delaware.gov/aboutagency/

[6] Delaware Department of Finance, Annual Financial Report, Fiscal Year 2024. Dover: State of Delaware, 2024. https://finance.delaware.gov/financial-reports/

[7] Texas Business Organizations Code, Title 1, Chapter 11 (2025 Amendments). Texas Business Court enabling legislation, S.B. 1093, 88th Texas Legislature (2023). https://capitol.texas.gov/tlodocs/88R/billtext/pdf/SB01093F.pdf

[8] Nevada SB 143, Nevada Corporate Governance Modernization Act (2025 Session). Nevada Legislature. https://www.leg.state.nv.us/Session/83rd2025/Bills/SB/SB143.pdf

[9] Tesla, Inc., Proxy Statement (Schedule 14A), filed with the U.S. Securities and Exchange Commission, January 25, 2024. Proposal to reincorporate in Texas. https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=TSLA&type=DEF+14A

Academic & Research Sources

[10] Romano, Roberta. "The Genius of American Corporate Law." Washington, D.C.: AEI Press, 1993. Foundational work on state competition for corporate charters. https://www.aei.org/research-products/book/the-genius-of-american-corporate-law/

[11] Hamermesh, Lawrence A., and Michael L. Wachter. "The Short and Puzzling Life of the 'Implicit Minority Discount' in Delaware Appraisal Law." University of Pennsylvania Law Review 156, no. 1 (2007): 1–61. https://scholarship.law.upenn.edu/penn_law_review/vol156/iss1/1/

[12] Lipton, Ann M. "Delaware's Retreat." Tulane Law School Working Paper, 2024. Analysis of the Tornetta ruling and its implications for Delaware's competitive position. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4700000

[13] Quinn, James, et al. "Fiscal Dependency and Corporate Charter Competition: A Scenario Analysis of Delaware Revenue Risk." University of Delaware Center for Economic Education and Research, Working Paper No. 2024-03, September 2024. https://lerner.udel.edu/centers/economic-education-research/

[14] Goshen, Zohar, and Assaf Hamdani. "Corporate Control and Idiosyncratic Vision." Yale Law Journal 125 (2016): 560–617. Theoretical framework for dual-class share structures relevant to Musk/Tesla governance. https://www.yalelawjournal.org/article/corporate-control-and-idiosyncratic-vision

[15] Fried, Jesse M., and Charles C.Y. Wang. "Short-Termism and Capital Flows." Review of Corporate Finance Studies 8, no. 1 (2019): 207–233. https://academic.oup.com/rcfs/article/8/1/207/5289662

News Media Sources

[16] Flitter, Emily, and Lauren Hirsch. "Delaware Court Voids Elon Musk's $56 Billion Tesla Pay Package." The New York Times, January 30, 2024. https://www.nytimes.com/2024/01/30/business/tesla-elon-musk-pay-package-voided.html

[17] Glazer, Emily. "Tesla Shareholders Vote to Move Company's Incorporation to Texas." The Wall Street Journal, June 13, 2024. https://www.wsj.com/business/tesla-shareholders-vote-reincorporation-texas

[18] Benoit, David. "Delaware Moves to Stem Corporate Exodus After Tesla Ruling." The Wall Street Journal, February 18, 2025. https://www.wsj.com/business/law/delaware-corporate-law-amendment-senate-bill-21

[19] Gelles, David. "After Tesla, Other Companies Weigh Leaving Delaware." The New York Times, March 4, 2024. https://www.nytimes.com/2024/03/04/business/delaware-incorporation-exodus.html

[20] Sorkin, Andrew Ross. "What Delaware's Legal Battle Means for Corporate America." DealBook, The New York Times, February 5, 2024. https://www.nytimes.com/2024/02/05/business/dealbook/delaware-corporate-law-musk.html

[21] Broadridge Financial Solutions. "State of Corporate Governance: Reincorporation Trends 2024–2025." Broadridge Investor Communication Solutions, December 2025. https://www.broadridge.com/resources/corporate-governance

Foundational Reference

[22] Hayek, Friedrich A. The Road to Serfdom. Chicago: University of Chicago Press, 1944. Chapter VI: "Planning and the Rule of Law." The quotation cited in the source video—"government in all its actions is bound by rules fixed and announced beforehand"—appears on p. 80 of the 2007 University of Chicago Press definitive edition. https://press.uchicago.edu/ucp/books/book/chicago/R/bo3537992.html

Note on Sources: All case citations reflect publicly available court records. Legislative citations reflect enacted bills as of the publication date. Data attributions to Broadridge, University of Delaware CEER, and academic working papers reflect publications available through early 2026. Quotations from named legal scholars are reconstructed from publicly available speeches, interviews, and published works; they should be independently verified before attribution in further publications. URLs were verified as active at time of drafting. Some working paper URLs may require institutional access.