Considering Reincorporation? Why Delaware Remains the Gold Standard

Transcript

The following transcript of this discussion was edited for clarity.

Some companies are starting to question whether Delaware is still the best state to incorporate. But for those considering a Delaware exit (Dexit), there’s one issue that often gets overlooked — what happens when there’s a commercial dispute?

I’m Sarah Cambon, and today I’m joined by Mike Kendall, a partner at Goodwin, to talk about what companies risk losing when they look outside of Delaware. His full article appears in Goodwin’s Forces of Law series.

Sarah Cambon: Mike, thanks so much for being here.

Mike Kendall: Thank you for having me, Sarah.

In recent years we’ve seen what some are calling “Dexits,” or companies leaving Delaware to reincorporate in states like Texas and Nevada. What’s the logic behind these moves?

It all started back in 2018 when Tesla granted a healthy pay package to Elon Musk that was later challenged in a Delaware court.

In 2024, the Delaware Court of Chancery rejected the pay package as a breach of the directors’ fiduciary duties in approving it and of Musk’s fiduciary duties as a controlling shareholder. A separate 2024 case involving the investment bank Moelis resulted in a ruling against a controlling shareholder who also founded the firm.

Those results were a little surprising, and people who were controlling shareholders of big companies, including Musk himself, started thinking about whether they should go somewhere other than Delaware. Of course, Musk eventually took Tesla to Texas.

So that’s how it all started: basically to escape some of what people decided were unfavorable fiduciary duty decisions coming out of Delaware courts.

In terms of the companies that have done this or are considering doing it, it seems like the focus so far has been on governance issues like fiduciary standards and board oversight. What about the commercial litigation side, especially when it comes to contract disputes and M&A disagreements?

I haven’t seen firms other than Goodwin focus on the myriad commercial disputes that companies find themselves embroiled in every day. Those include disputes coming out of M&A transactions, such as breach of contract claims, fraud claims, and breach of covenant claims.

Even people who are in favor of alternative jurisdictions like Nevada and Texas would not dispute that Delaware has a significantly more robust and developed body of law on these issues.

Companies acquiring other businesses assume that courts will protect them if the sellers defraud them to close the deal. But in your article, you note that this assumption looks very different in Texas or Nevada compared to Delaware. What distinguishes Delaware’s approach?

Delaware has set some really clear rules about what it means to commit fraud, how to make a successful fraud claim, and how the seller can use a contract as protection.

In places like Texas and Nevada, case law addressing fraud claims is limited, and existing case law may suggest, for instance, that claims for fraudulent inducement in M&A transactions don’t exist.

So pretty much every state in the country outside of Delaware looks differently at an issue like fraud.

We at Goodwin have spoken at length with some firms in places like Nevada and Texas, and we’ve asked them, “How would your courts decide some of these issues that we deal with every day?”

Often their answer is, “We think our courts might follow the Delaware rules.”

That’s about as far as they can go. They don’t know if that’s the case because there isn’t a case in, for example, Nevada that says when an issue like this comes up, we’re going to follow the Delaware rules.

Companies that leave Delaware might end up in front of a judge or a jury in Nevada, and they won’t have any comfort of knowing whether a Nevada court will or won’t apply Delaware law on deciding that case.

Some boards think they can get the best of both worlds by incorporating in Texas or Nevada for governance but relying on Delaware law and courts for their contracts. Why doesn’t that work in practice?

It might work, but most of what we’ve pointed out to folk in our article and otherwise is the uncertainty over these issues.

Neither Delaware nor Nevada has to respect a party stating in a contract that it wants the law of state X to apply to a matter.

For example, if a Nevada judge determined in a major fraud case that Nevada’s own rules governing fraud and commercial transactions, including M&A deals, were central to the dispute, the judge could override the party’s choice of Delaware law and apply Nevada law instead.

What do you think companies should be weighing when they’re deciding whether to reincorporate outside of Delaware?

Before Delaware recently amended its corporate statute, I would’ve said that, particularly for controlling shareholders and boards that are really worried about their fiduciary risk, there was at least something to think about in terms of leaving Delaware.

Since the amendment of the Delaware statute, the statutory difference between Delaware, on the one hand, and Nevada and Texas on the other, has largely been eliminated.

It’s a bit of a no-brainer for almost every company to stay in Delaware, given its wealth of case law, experience, and professional judges.

And ironically, in December 2025, the Delaware Supreme Court reversed the Chancery Court’s decision on Musk’s pay package, which kicked this whole thing off.

Are you expecting Dexits to become widespread, or do you think that’s unlikely to happen at this point?

I don’t think it’s likely at all.

I’ve had a few conversations recently with friends at Delaware law firms who are watching Dexits and new company formations. They report that there’s still some chatter about it, but there has not been any significant movement of folk to leave.

As I said earlier, the statutory amendment in Delaware slams the door on Dexits, at least for now.

Got it. Mike, thanks so much for your time. 

Thank you, Sarah. I appreciate it.