Delaware Lawmakers Propose Revisions to Corporate Law Amid Corporate Exodus
In a significant move, Delaware lawmakers unveiled a proposed bill on Monday aimed at amending the state’s corporate legislation, which is widely recognized for its impact on corporate governance. This initiative comes in response to several high-profile companies indicating their intent to relocate their legal domicile out of Delaware due to increasing legal pressures.
The proposed legislation outlines measures that corporate boards could adopt to shield directors and controlling shareholders from shareholder lawsuits concerning alleged conflicts of interest. Additionally, it seeks to restrict the types of internal corporate records accessible to shareholders, which are crucial for constructing legal cases against companies.
This bipartisan bill is sponsored by prominent leaders from both the Democratic and Republican parties within Delaware’s state assembly, underscoring the urgency of the situation.
Delaware’s corporate statutes are pivotal in regulating the relationship between company boards and their investors, affecting approximately two-thirds of the companies listed on the S&P 500 index. Many businesses prefer to incorporate in Delaware due to its stable legal framework, esteemed judicial system, and the associated fees that significantly contribute to the state’s budget, accounting for roughly one-third of its general revenue.
However, a growing number of corporations, including notable names such as Meta Platforms, Dropbox, and Bill Ackman’s management company, have recently expressed intentions to shift their incorporation away from Delaware. This trend has been a critical motivation behind the new bill, as highlighted by state Senator Bryan Townsend, a Democrat and the Senate Majority Leader.
Townsend remarked, “This reaction comes at a time when other jurisdictions are emerging as viable alternatives to Delaware, gaining traction in the corporate world.”
Among these alternatives is Texas, which has established a specialized business court designed to compete with Delaware’s prestigious Court of Chancery for handling business and investor disputes. Notably, Elon Musk’s Tesla and SpaceX made headlines last year by relocating their state of incorporation to Texas after a Delaware chancery judge mandated the annulment of Musk’s controversial $56 billion compensation package from Tesla.
Importantly, Townsend clarified that the proposed bill would not retroactively affect the case regarding Musk’s pay, which is currently under appeal before the Delaware Supreme Court. “This legislation is not retroactive, and it has no bearing on Elon Musk’s situation,” he emphasized.
In addition to the corporate law revisions, Townsend has also introduced a separate bill requesting the state bar association to prepare a comprehensive report on the awarding of attorneys’ fees. Delaware judges have recently granted several fee awards that rank among the highest in the past two years, reflecting the growing scrutiny and complexity of corporate litigation.
