Delaware Governor Signs Bill to Prevent Corporate Exodus

The state makes significant revenues from business incorporations, making it economically critical to prevent any mass exits and fallouts.

The Delaware Legislative Hall, the state capitol building in Dover, Del., on March, 4 2024. Kent Nishimura/Getty Images

Delaware Gov. Matt Meyer signed a bill into law March 26 that amends certain corporate laws as the state moves to ensure it remains attractive to incorporating businesses.

The state House passed Senate Bill 21 by a vote of 32–7 the day prior. The bill is “aimed at ensuring the state remains the premier home for U.S. and global businesses,” the governor’s office said in a March 26 statement.

The bill mostly makes it harder for shareholders to file lawsuits against deals conducted by controlling stockholders if they have a majority of votes.

“Certain acts or transactions involving such directors or officers will be protected if approved or recommended by a majority of the disinterested directors, either serving on a board of directors or a committee of the board of directors, or approved or ratified by a majority of the votes,” the bill text states.

The legislation passed after a major controversy involving a lawsuit filed by a Tesla shareholder against CEO Elon Musk.

The lawsuit, filed in 2018 by Richard Tornetta, who held nine shares in Tesla, sought to nullify a $56 billion pay package from the company to Musk. He argued that the payment was excessive.

In January last year, a Delaware judge sided with Tornetta and blocked the pay package—despite the fact that the payment had been approved by the company’s board of directors in 2018.

In June 2024, Tesla shareholders voted to re-approve the pay package and the judge in December upheld the decision blocking the payout.

During the legal process, Musk criticized Delaware laws. “Never incorporate your company in the state of Delaware,” he said in a Jan. 31, 2024, post on social media platform X. Musk later shifted the incorporation of Tesla as well as SpaceX from Delaware to Texas.

After signing Senate Bill 21, Meyer said that the legislation would balance “the interests of stockholders and corporate boards” and help maintain Delaware as “the best place in the world” to incorporate business. Earlier this month, the governor called on the state’s lawmakers to swiftly pass the bill.

Delaware is home to 2.2 million registered entities, which is over two times the total number of the state’s residents, said the statement from the governor’s office. Last year, the state incorporated 81 percent of all IPOs in the United States.

Moreover, corporate registrations bring in roughly $2.2 billion in annual revenues to the Delaware government, representing a third of the state budget.

Senate Bill 21 also includes measures such as establishing a “balanced framework for stockholder access to corporate books and records,” the governor’s office statement said.

The legislation “clarifies key governance structures to reinforce Delaware’s reputation for equitable, predictable, and efficient corporate oversight.”

Several businesses have been exploring a shift away from Delaware mainly due to legal encroachment. In a March 21 filing with the Securities and Exchange Commission, Simon Property Group, a Delaware corporation, said it was considering incorporating in Nevada.

Businesses incorporated in Delaware are facing an “increasingly litigious environment,” which imposes sizable financial and human resource costs, the filing said.

“This environment has created, and will potentially continue to create, unpredictability in operational decision-making and may impede our ability to adapt to changing business conditions and to act quickly for the benefit of our shareholders.”

Shareholder Rights in Delaware

Multiple groups opposed Senate Bill 21. On March 18, several organizations, such as Americans for Financial Reform, Consumer Federation of America, and Public Citizen, sent a letter to lawmakers, warning against implementing the bill.

The bill “would overhaul Delaware corporate law by severely undermining the ability of regular shareholders, like teachers and firefighters saving for retirement, to hold directors, officers, and controlling stockholders like Elon Musk and Mark Zuckerberg accountable through the Delaware Courts when they overreach and extract value from companies incorporated in Delaware,” the letter said.

“About two-thirds of S&P 500 companies are incorporated in Delaware. This means the effects of SB 21 would reverberate across the country, increasing the power of self-dealing corporate actors and decreasing the power of regular shareholders to hold them accountable.”

In a statement earlier this month, Young Conaway Stargatt & Taylor, LLP, a corporate and bankruptcy law firm in Delaware, expressed support for Senate Bill 21.

The legislation will offer company managers a higher level of certainty when it comes to certain types of transactions, typically involving “controllers” of companies, the firm said.

“That added certainty, and the ability to have such issues heard before the Delaware Court of Chancery, the preeminent business court in the country, will serve to ensure Delaware’s continued stature in the field.”

The Delaware Hotel and Lodging Association (DHLA) also backed the legislation in a statement, saying that the state’s hospitality sector was a beneficiary of the stable corporate climate in the region.

Corporate clients of Delaware’s legal, professional, and financial services companies often lodge in DHLA member properties. “If a mass exodus of corporations were to occur, our members would lose thousands of customers and a perennial source of business,” it said.

“Such a significant loss of income could lead to staff cuts or even property closures, which would harm not only the hospitality industry but the entire Delaware economy.”