The Delaware Question

Several high-profile companies have recently quit Delaware, choosing to reincorporate in Texas, Nevada, and other states that promise a more deferential approach — less oversight, more flexibility. These moves, dubbed “Dexits,” have stirred debate in boardrooms and across business publications about whether others should follow.

For companies run by founders or controlled by dominant shareholders, the appeal is clear. But discussion has focused almost entirely on governance: greater deference to management, looser fiduciary standards, less scrutiny of board decisions.

Less attention is paid to the types of commercial litigation that fill court dockets — commercial contract disagreements, M&A disputes, implied covenant claims. These are the types of conflicts companies face on a regular basis, and they shape corporate value far more than any fight over fiduciary duty. The same questions confront new businesses choosing their first jurisdiction, not just those contemplating a move.

Delaware has a century of precedent on these types of issues and dedicated judges with deep experience in commercial law. Other states lack this specialized infrastructure and most allow jury trials for commercial disputes.

The differences aren’t trivial. Moving may make sense for some, but companies weighing a Dexit should understand the trade-offs.

The Certainty Premium

Most companies assume that if they are defrauded by a business counterparty, they can go to court and get a remedy. Sophisticated players in M&A transactions go further. They negotiate specific parameters around fraud liability and expect the terms to mean something.

Delaware delivers on that expectation. The state has a well-developed line of cases establishing clear rules, including clear public policy: No party can shield itself from liability for intentional lies. When parties negotiate fraud provisions under Delaware law, they know what they’re getting.

In Texas and Nevada, cases establishing these rules generally don’t exist. Texas has one case that appears to allow a party to completely disclaim liability for fraudulent inducement. It’s possible judges in these jurisdictions will follow Delaware law on questions not yet decided in their states. But it’s possible they won’t.

The issue isn’t academic. Fraud claims routinely follow deals; they’re the disputes that most often test a contract’s limits. Without clear precedent, parties can’t know whether their carefully negotiated fraud provisions — survival periods, caps, baskets — will hold up in court.

Compounding Uncertainty

The uncertainty isn’t limited to fraud. It touches nearly every provision in a commercial agreement.

Take “efforts” clauses, the language parties use to define how hard they must try to fulfill their obligations, for example. Delaware courts have interpreted the full spectrum: “best efforts,” “reasonable best efforts,” “reasonable efforts,” “commercially reasonable efforts,” and “good faith efforts.” Each standard has established meanings built upon dozens of cases. Lawyers negotiating Delaware agreements know exactly which standard to choose for their situation.

Nevada appears inclined to follow Delaware’s interpretations,¹ but with a twist: These disputes still go to juries (until Nevada decides otherwise in 2027). Ordinary jurors, not specialized business judges, must parse the difference between “reasonable best” and “commercially reasonable” efforts. Texas is murkier still: A 2024 case acknowledged that the Texas Supreme Court hasn’t even decided whether these clauses are generally enforceable.²

Or consider earnouts, provisions in which buyers pay sellers extra if the business outperforms post-sale. Delaware has a plethora of cases establishing how these work and how its courts will analyze them. Nevada has none. Texas appears willing to follow contract language but has allowed judges to imply terms the parties didn’t include.

Uncertainty compounds quickly. When even basic terms are up for debate, entire agreements become unpredictable. The complex deals that work in Delaware become riskier elsewhere.

Both Ways?

Some boards think they’ve found a solution: Incorporate in Nevada or Texas for the governance benefits but require Delaware law and courts for commercial contracts — seeking, in effect, the best of both worlds.

This misunderstands how jurisdiction works. Courts have discretion to decide when a state’s interests override contractual choices. A Nevada court might determine that a contract dispute involving a Nevada corporation should be heard in Nevada under Nevada law, regardless of what the contract says. A Delaware court might decide that Nevada’s public policy interests in its own corporations outweigh Delaware’s and send the case to Nevada.

The party seeking certainty through Delaware contract provisions might end up in a Nevada courtroom anyway, arguing Delaware law to a Nevada judge or jury who rarely hears such cases. Or worse, arguing about which state’s law even applies.

This jurisdictional uncertainty adds another layer to the problem. Companies leaving Delaware not only face uncertainty in how commercial disputes will be resolved but also where and under what law they’ll be resolved. The carefully drafted choice-of-law provision that seemed to solve the problem becomes just another point of litigation.

Weigh What Works

Every company’s calculation will be different. Those with concentrated ownership that rarely do acquisitions might reasonably value governance flexibility over commercial predictability. Others might find Texas or Nevada better suited to their business models.

But the mechanics of leaving add complexity. Reincorporation requires shareholder approval, regulatory filings, and often consent from lenders and counterparties. For companies with multiple financing rounds and layered ownership structures, these hurdles can prove prohibitive.

The landscape is also shifting. Delaware’s legislature meets annually and has already made statutory amendments to rebalance fiduciary rules and inspection rights. The state’s new governor has pledged to keep Delaware competitive, a reminder that the state knows it faces competition. And though experience takes time to develop, Texas and Nevada are building up their business courts and modernizing their corporate codes.

The point isn’t that leaving Delaware is wrong. It’s that the decision involves more than governance, and the current lack of case law, especially in Nevada, means litigation outcomes are less predictable. Companies weighing a move should understand that they’re not just choosing a more accommodating state — they’re choosing a fundamentally different legal landscape for their commercial relationships. That choice deserves careful consideration.

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