by Brett Blair, Associate Member, University of Cincinnati Law Review Vol. 93
I. Introduction
For years, Delaware has been a premiere landing spot for many entities wishing to incorporate their businesses in the United States.[1] Around 67.8% of Fortune 500 companies are incorporated in Delaware, and more than 1.5 million corporations have established their domicile in the state.[2] Recently, however, large companies like SpaceX, Tesla, Dropbox, TripAdvisor, and more have announced plans to move their incorporation status to other states, leaving behind the state once considered the mecca of incorporation.[3] Many have chosen to relocate their companies to states like Texas and Nevada, as these states begin to challenge Delaware’s long-held corporate dominance.[4] The establishment of similar corporate governance structures in other states has led several companies to question whether there is still value in incorporating in Delaware, resulting in numerous efforts to advocate for redomestication.[5] As companies begin to seek domicile elsewhere, Delaware has resorted to desperate measures to retain companies.
This article explores the potential issues and negative impacts associated with the recently proposed changes to the Delaware General Corporation Law (“DGCL”). Part II provides background on Delaware’s status as a prominent location for businesses to incorporate, as well as developments leading to the proposal of amendments to the DGCL. Part III discusses the potential negative impacts expected following Delaware’s attempt to overhaul years of precedent. Part IV offers a brief conclusion explaining why the proposed changes to the DGCL should be rejected by Delaware’s legislature.
II. Background
To properly understand Delaware’s recent attempts to revamp its corporate governance structure, it is necessary to understand Delaware’s history as the premier location for incorporation. For years, companies have flocked to Delaware to incorporate their businesses and reap the benefits afforded by the DGCL.[6] Over time, Delaware has become synonymous with lenient corporate tax policies and minimal restrictions on corporate action.[7] Delaware’s goal was to create a system that would appear attractive to businesses by allowing them to “frolic in the open fields of capitalism, unencumbered by income tax, bureaucratic policing, and shareholder litigation.”[8] However, companies have recently sought redomestication in other states in response to a growing number of lenient corporate governance structures in other states, many of which have been directly competing with Delaware.[9] The exodus of businesses to competing states has led Delaware’s legislature to reflect on the history of corporate governance within its state in search of a more favorable path forward.[10] After illustrating the historical benefits of incorporating in Delaware, this section will further explain the proposed amendments to the DGCL, along with the motivations behind the proposals.
A. Delaware as a Premiere Location for Incorporation
In the early days of corporate law, businesses had to request a charter from a state legislature to form a company.[11] These charters contained very strict limitations and narrowly defined the scope of each company.[12] If a company did not closely abide by the limitations set forth in its charter, it could be found liable for acting outside the scope of its authority.[13] As a result, Delaware saw an opportunity to become an appealing location for businesses to incorporate.[14] In 1875, Delaware amended its constitution to afford the legislature the power to “enact a general incorporation act,” with the DGCL following shortly after.[15] Then, in 1899, Delaware revamped the DGCL, modeling it after New Jersey’s general corporate law, to attract new businesses to the state.[16] Delaware’s revised DGCL created a flexible structure, allowing corporations to have greater power over defining the scope of their charters.[17] The new structure of the DGCL made it significantly easier for everyday businesspeople to apply for a certificate of incorporation for a fee, instead of requiring incorporation by a special act of the legislature.[18] Over time, the DGCL experienced numerous amendments and revisions as legislators tried to create a structure of corporate governance that could attract new corporate players and retain those already incorporated in Delaware by maintaining a high degree of flexibility.[19]
The DGCL, found in Title 8 of the Delaware Code, now governs every aspect of a Delaware corporation’s existence.[20] It dictates the formation of a corporation, the roles and duties of directors and officers, rights associated with the corporation’s stockholders, and even the dissolution of a corporation.[21] The DGCL differs from its counterparts in other states, making it an attractive option for businesses seeking incorporation.[22]
One of the most notable benefits of the DGCL pertains to its favorable business law.[23] Delaware prides itself in keeping its DGCL up to date with the most flexible corporate statutes in the United States.[24] In doing so, the Delaware General Assembly defers to the Delaware State Bar Association, rather than its members, in drafting cutting-edge corporate statutes.[25] This deference sets Delaware apart, as many states simply allow the general assembly to draft corporate statutes, leading to legislation potentially created by individuals outside the field of corporate law.[26]
Corporate statutes under the DGCL heavily favor the rights of management and directors, offering a high degree of flexibility for the executives of a corporation to manage its affairs.[27] Delaware accomplishes this flexibility by affording corporate executives certain protections from liability by utilizing the Business Judgment Rule (“BJR”), which has become a centerpiece of Delaware corporate law.[28] Under the BJR, courts will refrain from reviewing transactions questioned by shareholders unless there is an allegation of self-dealing on the part of the managers or executives of the business.[29] The BJR also aids corporations in warding off frivolous litigation, which enables businesses to make risk-inherent decisions necessary to generate increased profits.[30]
In addition to favorable business law, the DGCL offers directors and officers of a corporation a heightened degree of privacy compared to corporations in other states.[31] The DGCL does not require a corporation to list the names of its directors and officers in the articles of incorporation.[32] Doing so allows corporate executives to make business decisions in relative anonymity, which can serve both as a protective measure against potential legal action and as a safeguard for the personal information of an executive.[33]
The DGCL also includes numerous tax benefits for businesses that choose to incorporate within Delaware. For example, businesses that incorporate in Delaware but do not conduct business in Delaware are not required to pay state corporate income tax.[34] Such tax relief is a useful tool in attracting businesses from all over the United States to incorporate in Delaware, even if the business would have no other ties to the state.[35] The DGCL also does not impose a personal income tax on non-residents.[36] Thus, companies with directors and other employees from out-of-state may find the lack of a personal income tax an attractive benefit of incorporating in Delaware.[37]
Another key benefit of the DGCL lies in the unique court system used to adjudicate corporate disputes within the state.[38] The Delaware Court of Chancery is a special circuit of state courts that only handles corporate legal disputes.[39] Doing so means that judges serving in the circuit are very well-versed in corporate law and require less time to be educated by the parties on the current state of corporate legal doctrines.[40] The heightened knowledge of judges in the Court of Chancery enables corporate legal proceedings to move at a significantly faster pace, allowing the courts to spend a greater deal of time getting to the heart of the issues involved.[41] In addition, the specialized nature of the Court of Chancery enables the system to engage with a wide variety of corporate legal issues, resulting in a very robust body of case law for lawyers and judges to turn to in any given proceeding.[42] This case law often leads to a more predictable court system in which lawyers can better advise their clients on the anticipated outcome of a given dispute.[43]
B. Delaware Courts’ Application of Independence Analysis
To better understand why the case law of the Chancery Court has developed in the manner it has in recent years, it becomes important to understand how Delaware’s Chancery Court conducts its independence analysis.[44] Delaware law does not provide the same bright-line rules for analyzing director independence, as found under the rules governing those companies listed on Nasdaq and the New York Stock Exchange.[45] Instead, Delaware courts have recognized the need to evaluate the non-economic factors that may influence a director or influential shareholder’s decision-making and independence in a corporate context.[46] Ultimately, Delaware’s lack of a bright-line rule in this context was likely intended to give corporate boards the freedom to exercise their discretion regarding independence.[47] However, the lack of clear standards regarding the independence of controlling shareholders has opened the gates to litigation in an area where fact-intensive inquiries are used to determine corporate independence.[48] Such litigation has focused on unearthing the true meaning of Delaware’s undefined standard of corporate independence.[49]
Over time, business practices in Silicon Valley and other key areas have begun to foster “tight networks of repeat players,” leading to close business relationships and economic and non-economic ties between directors and influential shareholders.[50] This has led to a fact-intensive analysis that is applied case-by-case in evaluating transactions and corporate decisions.[51] This method of analysis was addressed in In re Oracle Corp. Derivative Litigation and has continued to grow and develop since.[52]
In In re Oracle, the Delaware Chancery Court developed a fact-intensive analysis that sought to apply fiduciary duties to controlling shareholders within a corporation.[53] In this case, the plaintiff shareholders alleged insider trading against four members of Oracle’s board of directors.[54] In response, Oracle formed a Special Litigation Committee (“SLC”) to investigate the claims under the plaintiffs’ Delaware Derivative Action.[55] Two of the SLC members were business professors at Stanford University, which had received significant donations from the individuals accused of insider trading.[56] After conducting its investigation, the SLC moved to terminate the litigation.[57]
In assessing the claims, the Chancery Court had to determine whether the members of the SLC could be considered independent in the sense that they had no material relationships with the company that would impact their ability to act objectively and in the best interests of the company’s shareholders.[58] In making their ruling, the Chancery Court applied an independence analysis previously utilized by the Delaware Supreme Court that turned on whether there was any substantial reason that a director would be incapable of making a decision that was solely in the best interest of the corporation and its shareholders.[59] In doing so, the Chancery Court determined that conflicted transactions cannot be approved by directors and controlling shareholders who are not truly independent, given their social, economic, and cultural ties to the company.[60] This analysis continues to be utilized in analyzing the independence of directors and controlling shareholders in Delaware courts.[61]
C.Recent Corporate Redomestication Trends
Despite the wide array of benefits historically offered by incorporation status in Delaware, many companies are beginning to redomesticate their businesses to other states during what has been called “DExit,” a response to recent controversial court decisions within the state.[62] Increased efforts in places like Nevada and Texas, along with the increase of activist judges within Delaware, have led many companies to view other states as more ideal for incorporation.[63] Such activism has been a judicial catalyst for DExit, which can be seen in the Chancery Court’s 2024 decision in Tornetta v. Musk.[64]
In Tornetta v. Musk, the Chancery Court considered fiduciary challenges to the “largest executive compensation award in the history of public markets – Tesla, Inc.’s 2018 award to Elon Musk.”[65] At issue was an executive compensation plan approved and adopted by the Tesla Board of Directors on January 21, 2018.[66] Following approval, Tesla stockholder Richard Tornetta filed an action against Musk and Tesla directors alleging that Musk had breached his fiduciary duties as a controlling stockholder in making and approving the compensation plan, and the directors had breached their fiduciary duties as directors in doing the same.[67] Utilizing the entire fairness standard,[68] the Chancery Court invalidated the compensation plan and ordered its recission as a remedy for the breaches of the duty of loyalty on the part of Musk and Tesla’s directors.[69] The Chancery Court held that Tesla’s Board of Directors “capitulated to Musk’s terms and then failed to prove that those terms were entirely fair.”[70] The Chancery Court capitalized on Delaware’s lack of a bright-line standard for assessing corporate independence and deemed that Musk was essentially using his position of influence in a manner similar to a controlling shareholder.[71] Because Musk had exercised control over the transaction of his compensation package, he was not deemed independent from that specific transaction.[72] The Chancery Court thus held that Musk had fiduciary duties to the corporation that were breached by his negotiation of such a large compensation package.[73]
Decisions like Tornetta v. Musk have raised concerns among companies incorporated in Delaware regarding the vagueness of the DGCL, the increase in judicial activism in Delaware’s Chancery Court, and brazen attempts to benefit insiders.[74] There is a growing belief among such companies that these factors are causing Delaware’s judge-made law to swing too far in the pro-plaintiff direction, thereby alienating corporations that have long called Delaware home.[75] Such growing concerns have led companies like SpaceX, Tesla, Dropbox, and TripAdvisor to consider new states for incorporation.[76] As a result, further disputes have arisen in Delaware courts regarding the ability of companies to redomesticate, as evidenced by decisions such as Maffei v. Palkon.[77]
In Maffei v. Palkon, the directors, officers, and stockholders of Tripadvisor decided to change their corporate domicile from Delaware to Nevada in search of a more favorable corporate governance structure.[78] A group of stockholders brought an action against a group comprised of Gregory Maffei, who was effectively the controlling shareholder of Tripadvisor and Liberty Tripadvisor.[79] The Plaintiff stockholders argued that the transition from Delaware to Nevada would provide “non-ratable benefits in the form of reduced liability exposure to Defendants.”[80] In addition, the Plaintiffs believed that the appropriate standard for assessing the decision was the entire fairness standard, which had been upheld in the Chancery Court.[81] The Delaware Supreme Court ultimately reversed the Chancery Court’s decision, holding that the BJR applies in efforts to redomesticate that involved hypothetical, rather than extant conflicts of interest.[82] The court further held that there were no well-pled allegations of self-dealing, and refused to disturb Tripadvisor’s decision to move its domicile from Delaware to Nevada.[83]
The decision in Maffei has significant impacts on the ability of corporations to leave Delaware in search of a more desirable domicile.[84] Ultimately, this decision eases the process for corporations to redomesticate to other states, posing a significant danger to Delaware regarding its ability to maintain its position as the premier state to incorporate.[85] Maffei stands for the principle that there is some flexibility in corporate mobility, unless there are true conflicts of interest that have materialized at the point of litigation.[86]
D. Tesla and SpaceX
Amidst the unfavorable corporate outcomes described above, Musk reincorporated Tesla, Inc. in Texas.[87] Tesla marked the third Musk-owned departure from Delaware, following SpaceX and Neuralink, each of which reincorporated in Texas and Nevada, respectively.[88] Musk’s decision was fueled by the low taxes and light regulatory influence in both Texas and Nevada making the move attractive for both Musk and shareholders as a whole.[89] The moves were collectively viewed as an attempt by Musk to rebuke the decisions of Delaware Chancery Court’s Judge Kathaleen St. J. McCormick, who issued the ruling voiding Musk’s $56 billion compensation package during previous litigation.[90]
E. Proposed Amendments to the DGCL
In a desperate attempt to respond to DExit and keep companies from reincorporating elsewhere, Delaware’s Senate Bill 21 (“SB21”) was recently introduced to amend the DGCL and create a more favorable corporate environment.[91] These amendments largely aim to enhance corporate liability protections for directors and controlling stockholders, giving executives the ability to act under a more flexible corporate governance structure.[92] More specifically, the proposed changes ensure that controlling stockholders or control groups are not liable for monetary damages in the case of a breach of the duty of care.[93] SB21 also attempts to clarify numerous corporate dealmaking matters through the proposed amendments.[94]
To begin, SB21 seeks to simplify the process for “control” deals in the corporate space,[95] imposing stringent procedural protections that must be satisfied by all-controlling stockholder transactions.[96] Failure to comply with all required procedural protections will result in the entire fairness rule being imposed on the deal, forcing controlling stockholders to prove to the court that the process and resulting price of the deal is fair to the corporation.[97] SB21 further impacts controlling stockholder transactions by defining “controlling stockholder” as a stockholder that “owns a majority or holds at least one-third plus managerial authority equivalent to a majority owner.”[98]
SB21 also proposes that directors who are deemed independent under either the NYSE or Nasdaq rules now be presumed disinterested in controlling stockholder transactions unless there is significant evidence to the contrary.[99] In addition, the proposed amendments will substantially limit challenges to board independence by providing narrow statutory definitions of “material interest” and “material relationship.”[100]
Finally, SB21 seeks to establish new hurdles and limits for books and records demands by stockholders.[101] Under the proposed changes, stockholders must not only have a “proper purpose” for requesting such books and records, but the purpose would have to be described with reasonable particularity to show that the materials requested are “specifically related” to the proffered purpose.[102] Ultimately, the proposed amendments would increase the difficulty of stockholders to bring an action against corporate directors and controlling stockholders in Delaware.[103]
Generally, amendments like SB21 first percolate through the Delaware State Bar Association’s Corporation Law Council (“CLC”), which has traditionally been the body that initiates and recommends changes to the DGCL.[104] However, SB21 has been strongly criticized for failing to incorporate input from the CLC before being submitted to the Delaware General Assembly.[105] Instead, business entities enlisted the help of global law firm Latham & Watkins to develop the proposed amendments and provide a pre-written bill to the Delaware General Assembly.[106] The CLC has responded by proposing several recommended changes to the bill, many of which would scale back certain provisions of SB21’s proposed changes to the DGCL.[107] SB21 was passed without opposition by the Delaware Senate, though it remains to be seen whether any of the CLC’s proposed changes will be incorporated before the bill is passed by the Delaware House of Representatives.[108]
III. Discussion
The Delaware Legislature’s proposed amendments to the DGCL represent a desperate attempt to appease corporate directors and controlling stockholders in an attempt to retain their business within the state. While, on the surface, the proposed amendments to the DGCL may seem as if they provide more predictability and benefits to corporations within Delaware, they come at far too great a cost.
A. Who Benefits?
In analyzing the beneficiaries of the proposed amendments to the DGCL, it is abundantly clear that the amendments seek only to serve the interests of directors and controlling stockholders within corporations. As previously discussed, the proposed amendments contain numerous provisions aimed at enhancing protection from corporate liability for directors and controlling stockholders.[109] In addition, the amendments will curtail the ability of ordinary stockholders to access books and recordkeeping for the corporation.[110]
By shielding directors and controlling stockholders from corporate liability, while at the same time handicapping the ability of ordinary stockholders to hold such parties accountable through necessary litigation, the proposed amendments essentially create an environment that fuels only the interests of the elite within society. Had such provisions been in place before the Tornetta decision, the Chancery Court would have likely upheld an executive compensation package that was previously deemed to be fundamentally unfair in light of the entire fairness test.[111] Such provisions benefit only controlling or dominant shareholders, like Musk, casting aside the interests of common stockholders, like Richard Tornetta. Furthermore, such proposed amendments send the message to powerful members of our society, like Musk, that they do not have to play by the same rules as other stockholders. Rather, they need only push back against corporate governance structures that do not work in their favor, and such rules will bend to their will.
B. Eradicating Years of Precedent
In addition to the seemingly elitist outlook proposed by the DGCL amendments, such amendments would essentially eradicate many years of hard-earned precedent in Delaware.[112] In a study by Eric Talley of Columbia Law School, it is estimated that the proposed amendments to the DGCL would overturn “more than 30 key decisions of the Delaware Supreme Court,” dating back as far as the 1980s.[113] Such a vast overhaul of Delaware’s judicial precedent could instill concern in both companies and investors, highlighting the instability of Delaware’s legal code.[114]
As previously mentioned, the proposed amendments did not undergo the usual process of initial development by the Delaware State Bar Association’s CLC.[115] Rather, these amendments were rushed to the floor of the Delaware General Assembly in an attempt to please billionaires like Musk by eliminating accountability for their roles within the corporation.[116] Delaware should not be so quick to throw away decades of legal precedent and effort, which has ultimately shaped Delaware into the mecca of incorporation that it has become. While DExit certainly poses the threat that some companies will redomesticate, 7,000 new companies are incorporated in Delaware each year.[117] That number is continuing to grow and expand as the years pass, meaning that Delaware is likely to continue bringing business to the state.[118]
C. Establishing Predictability
If Delaware’s goal is to establish heightened predictability for companies under the DGCL, the proposed amendments could certainly accomplish that. However, the result may not be quite the type of predictability that many stockholders may desire. The proposed amendments significantly increase the protection of corporate directors and controlling stakeholders, while diminishing the rights and abilities of common stakeholders to review books and records for the company, and, ultimately, to bring actions against the executives for breach of duty.[119] While these proposed measures are certainly likely to bring predictability under the DGCL, the message being sent resembles the idea that corporate directors and controlling stakeholders will almost always win in the event of a dispute.
While companies should certainly be able to anticipate, within reason, what to expect from a corporate governance structure, that does not mean they should have a guaranteed pass to victory every time. Doing so entirely ignores the interests of the common investors, who notably were not represented in the drafting process of the proposed amendments to the DGCL.[120] Thus, while predictability is certainly accomplished under the proposed amendments, that predictability ensures the nearly certain success of the most elite members of society, at the expense of the rest.
D. Eliminating Distinguishing Factors
Finally, the proposed amendments represent a clear attempt to more closely resemble the corporate governance structures of states like Texas and Nevada, both of which give greater flexibility and executive protection to their corporations.[121] In essence, the proposed amendments represent a mistaken attempt to throw years of legal precedent and distinctiveness merely to more closely resemble all the other players on the field and keep companies from fleeing to competing states.
It is Delaware’s distinctiveness that has made it such an attractive place for businesses to incorporate over the years.[122] Delaware has defined itself as the premier state for companies desiring lenient taxes and fewer restrictions on corporate action.[123] By attempting to model its corporate governance structure after the new competitors in the market, Delaware risks losing the very identity that brought it to prestige in this space. As such, the proposed amendments to the DGCL should be vehemently rejected in favor of the continued improvement of Delaware’s identity and precedent.
E. Economic Impact on Delaware’s Corporate Law Bar and Bankruptcy Practice
Delaware’s corporate franchise holds extreme importance to the revenue of the state.[124] Around “one-third of Delaware’s general revenue comes from corporate license fees and associated tax revenues.”[125] Additionally, corporate litigation helps fuel Delaware’s economy, seeing as Delaware has always been an ideal location for companies to incorporate and litigate claims that may arise.[126] Thus, it is not difficult to see why Delaware is taking such desperate measures to keep corporations from redomesticating elsewhere, taking precious revenue with them. However, these very same measures could potentially drive down litigation in the state, seeing as the combination of increased protection for controlling shareholders and limitations on the inspection rights of common shareholders limits the ability of shareholders to challenge corporate actions.[127] Limiting shareholder challenges to corporate actions will drive down the amount of corporate litigation in Delaware. This could have a devastating impact on an economy that relies so heavily on the presence of litigation within its borders.
SB21 also has the potential to eliminate the distinctiveness that has made Delaware an ideal place for corporations to incorporate.[128] Removing such distinctiveness could cause companies to reincorporate elsewhere, which has the potential to further reduce corporate litigation by reducing the number of entities available to litigate. For the same reasons, Delaware’s robust bankruptcy practice may also suffer, seeing as companies that reincorporate elsewhere will no longer conduct their bankruptcy filings within Delaware. Ultimately, SB21 has the potential to cause devastating effects not only to Delaware’s corporate law bar and bankruptcy practice but also to Delaware’s economy, in general.
IV. Conclusion
Delaware’s recently proposed amendments to the DGCL pose potentially damaging impacts to the rights of ordinary investors in favor of elitist. While it is certainly true that the amendments have the potential to increase the predictability of Delaware’s corporate legal system, that is a direct consequence of the fact that decisions will favor the directors and controlling members of corporations, most of the time. Rather, the amendments seek to throw away decades of excellence and tradition within Delaware’s corporate legal field, seemingly in a rash response to the exit of a few prominent businesses. Delaware’s legislature must not allow the actions of a few companies to dictate the direction of its corporate governance structure, a structure that has taken many years to build and perfect.
[1] Brette Sember, Incorporating in Delaware: Advantages and Disadvantages, Legal Zoom (Dec. 4, 2023), https://www.legalzoom.com/articles/incorporating-in-delaware-advantages-and-disadvantages [https://perma.cc/5KN5-GVXC].
[2] Id.
[3] Debra Gatison Hatter et al, States Aim to Edge Out Delaware’s Primacy in Corporate Formation, Bloomberg Law (Aug. 19, 2024), https://news.bloomberglaw.com/us-law-week/states-aim-to-edge-out-delawares-primacy-in-corporate-formation [https://perma.cc/2XEX-MYGG].
[4] Id.
[5] Id.
[6] Zachary Crockett, Why Delaware is the Sexiest Place in America to Incorporate a Company, The Hustle (Apr. 11, 2021), https://thehustle.co/why-delaware-is-the-sexiest-place-in-america-to-incorporate-a-company#:~:text=In%201891%2C%20the%20Garden%20State%20adopted%20an,conglomerates%20took%20up%20this%20offer%20and%20New [https://perma.cc/A3AK-DT5V].
[7] Id.
[8] Id.
[9] Hatter, supra note 3.
[10] Id.
[11] See Harwell Wells, The Modernization of Corporation Law, 1920-1940, 11 U. PA. J. Bus. L. 573, 581 (2009).
[12] Id.
[13] Id.
[14] Id.
[15] Jace D. Lynch, Delaware Corporate Law & The Delaware General Corporation Law (DGCL), Berliner Cohen LLP (Aug. 28, 2024), https://www.berliner.com/articles/delaware-corporate-law-dcgl#:~:text=In%201875%2C%20the%20constitution%20of,the%20payment%20of%20a%20fee [https://perma.cc/WF3B-SJR8].
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] Id.
[21] Id.
[22] Id.
[23] Incorporating in Delaware Explained: Why It’s Such a Popular Option for US Businesses, Stripe (Nov. 6, 2023), https://stripe.com/in/resources/more/incorporating-in-delaware-explained [https://perma.cc/X6MN-M2RU].
[24] Id.
[25] What are the Benefits of a Delaware LLC?, IncNow (July 29, 2020), https://perma.cc/RZZ7-PSLX.
[26] Id.
[27] Incorporating in Delaware Explained: Why It’s Such a Popular Option for US Businesses, supra note 24.
[28] What are the Benefits of a Delaware LLC?, supra note 26.
[29] Id.
[30] Id.
[31] Incorporating in Delaware Explained: Why It’s Such a Popular Option for US Businesses, supra note 24.
[32] Id.
[33] Id.
[34] Id.
[35] Id.
[36] Id.
[37] Id.
[38] Id.
[39] Lynch, supra note 15.
[40] Id.
[41] Id.
[42] Id.
[43] Id.
[44] Independence analysis is undertaken to determine whether a director or controlling shareholder can make decisions objectively, free from undue influence or conflicts of interest that would prevent their ability to act in the best interest of the corporation. This is intended to ensure the integrity of corporate governance and decision-making processes. See Arthur H. Kohn, Update on Director Independence, Clearly Gottlieb (Nov. 6, 2019), https://www.clearymawatch.com/2019/11/update-on-director-independence/ [https://perma.cc/5Q43-N9R8].
[45] Id.
[46] Id.
[47] Id.
[48] See In re Oracle Corp. Derivative Litig., 824 A.2d 917 (Del. Ch. 2003).
[49] Id.
[50] Kohn, supra note 45.
[51] Id.
[52] In re Oracle Corp. Derivative Litig., 824 A.2d at 917.
[53] Id. at 938.
[54] Id. at 921.
[55] Id. at 923.
[56] Id. at 923-24.
[57] Id. at 928.
[58] Id.
[59] Id. at 938.
[60] Id. at 942.
[61] Kohn, supra note 45.
[62] Louis Lehot and Brian C. Wheeler, Delaware State Assembly Moves to Stop DExit in its Tracks, Thomson Reuters (Mar. 13, 2025).
[63] Michael Toth, Why the Corporations are Fleeing Delaware, The Hill (Jun. 12, 2024), https://thehill.com/opinion/finance/4715117-why-the-corporations-are-fleeing-delaware/.
[64] Tornetta v. Musk, 326 A.3d 1203 (Del. Ch. 2024).
[65] Id. at 1212.
[66] Id. at 1214.
[67] Id. at 1215.
[68] The entire fairness standard is a legal test that is used by courts to assess whether a transaction is demonstrably fair in both process and price in cases where a conflict of interest is present. This test shifts the burden of proof to the defendants, requiring them to demonstrate fairness of the transaction. See Fesquet et al., Entire Fairness Review First Applied to Fiduciary Duty Claims Against a SPAC’s Sponsor and Directors, Husch Blackwell (Jan. 5, 2022), https://www.huschblackwell.com/newsandinsights/entire-fairness-review-first-applied-to-fiduciary-duty-claims-against-a-spacs-sponsor-and-directors#:~:text=However%2C%20absent%20certain%20procedural%20safeguards,on%20a%20motion%20to%20dismiss. [https://perma.cc/J8ZT-EKDH].
[69] Musk, 326 A.3d at 1216.
[70] Id.
[71] Id. at 1230-31.
[72] Id.
[73] Id.
[74] Nicholas O’Keefe and Saige G. Gallop, SB21: Delaware Responds in the DExit Battle, The Nat’l L. Rev. (Mar. 6, 2025), https://natlawreview.com/article/sb21-delaware-responds-dexit-battle#google_vignette [https://perma.cc/9WP8-BM28].
[75] Id.
[76] Hatter, supra note 3.
[77] Maffei v. Palkon, No. 125, 2024, 2025 Del. LEXIS 51 (Sup. Ct. Del. Feb. 4, 2025).
[78] Id. at 3.
[79] Id.
[80] Id.
[81] Id. at 3-4.
[82] Id. at 67.
[83] Id.
[84] Yolanda C. Garcia and Mason Parham, “Clear Day” Corporate Travel Gets Green Light from Delaware Supreme Court, Sidley (Feb. 27, 2025), https://ma-litigation.sidley.com/2025/02/clear-day-corporate-travel-gets-green-light-from-delaware-supreme-court/#:~:text=The%20Delaware%20Supreme%20Court’s%20February,considering%20reincorporation%20in%20other%20states [https://perma.cc/SP6K-T778].
[85] Id.
[86] Id.
[87] Madlin Mekelburg, Musk Shifts Tesla Incorporation to Texas After Investor Vote, Bloomberg Law (June 14, 2024), https://news.bloomberglaw.com/esg/musk-shifts-tesla-incorporation-to-texas-after-investor-vote-1 [https://perma.cc/5C8S-BDZJ].
[88] Id.
[89] Id.
[90] Id.
[91] Lehot and Wheeler, supra note 63.
[92] Id.
[93] Id.
[94] Id.
[95] A control deal is a transaction where a buyer acquires a majority ownership stake in a company, which grants them significant control over its operations and future direction.
[96] Id.
[97] Id.
[98] Id.
[99] Id.
[100] Id.
[101] Id.
[102] Id.
[103] Id.
[104] Andrew T. Sumner and Ryan M. Philip, Securities Litigation/Securities Law Advisory: Delaware’s Corporations Law Council Weighs in on Proposed DGCL Amendments, Alston & Bird (Mar. 7, 2025), https://www.alston.com/en/insights/publications/2025/03/delaware-proposed-dgcl-amendments [https://perma.cc/KY8K-EXWT].
[105] Id.
[106] Proposed Amendments to Delaware General Corporation Law Aim to Clarify Corporate Transaction Rules, Latham & Watkins (Feb. 21, 2025), https://www.lw.com/admin/upload/SiteAttachments/Proposed-Amendments-to-Delaware-General-Corporation-Law-Aim-to-Clarify-Corporate-Transaction-Rules.pdf [https://perma.cc/S5TD-LJ2E].
[107] Id.
[108] Karl Baker, Controversial Corporate Law Bill Passes Senate, Spotlight Del. (Mar. 13, 2025), https://spotlightdelaware.org/2025/03/13/sb-21-corporate-law-senate-vote/ [https://perma.cc/BS54-WE79].
[109] Lehot and Wheeler, supra note 63.
[110] Id.
[111] Tornetta v. Musk, 326 A.3d 1203 (Del. Ch. 2024).
[112] Jeff Montgomery, Del. Corporate Law Bill Poses ‘Grave Risk,’ Plaintiffs’ Firms Say, Law 360 (Mar. 5, 2025), https://www.law360.com/appellate/articles/2306479?utm_source=shared-articles&utm_medium=email&utm_campaign=shared-articles [https://perma.cc/2KB5-QA66].
[113] Id.
[114] Id.
[115] Id.
[116] Id.
[117] Id.
[118] Id.
[119] Lehot and Wheeler, supra note 63.
[120] Montgomery, supra note 113.
[121] Hatter, supra note 3.
[122] Crockett, supra note 6.
[123] Id.
[124] Thirty Years Later – Why Companies Continue to Choose Delaware: General Perspectives and Thoughts on Proposed Amendments, Morris Nichols Arsht & Tunnell (Feb. 18, 2025), https://www.morrisnichols.com/insights-thirty-years-later-why-companies-continue-to-choose-delaware-general-perspectives-and-thoughts-on-proposed-amendments [https://perma.cc/PR4X-XUUC].
[125] Id.
[126] Id.
[127] Lehot and Wheeler, supra note 63.
[128] Crockett, supra note 6.
Cover Photo by Benjamin Child on Unsplash.
