Delaware’s capitalist-friendly approach to taxes and regulation has long made it a lynchpin of the American economy: More than 1.5 million businesses from around the world are incorporated in the state. But Elon Musk’s “Dexit” to Nevada could change all that, and state legislators are scrambling to respond.
Musk moved Tesla’s incorporation to Nevada after a Delaware judge ruled last year that his $56 billion pay package “should be rescinded,” said CNBC. He did not stop there. The world’s richest man “smeared the judge” in social media posts and encouraged other business leaders to follow him out of the state. “Never incorporate your company in the state of Delaware,” Musk posted on X in 2024. Meta and Walmart, among other high-powered corporations, are “reportedly considering leaving.”
And so the Delaware state Senate “easily passed” legislation loosening corporate requirements on March 13, said WHYY. The bill “reduces the amount of internal due diligence” companies must do to review pay deals with powerful executives like Musk. Critics are calling it the “billionaires’ bill.” The legislation is a “shakedown, pure and simple,” said James An, a lecturer at Stanford Law School. He said the new rules would allow controlling shareholders of big corporations to “take advantage of pensions, retirees and ordinary investors.”
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‘Race to the bottom’
Musk has “triggered a corporate deregulation bomb,” said Luke Goldstein at The Lever. The new bill would “shield many of the country’s most powerful corporate executives” from scrutiny by shareholders and workers. It is part of a “race to the bottom” that could have “sweeping consequences for corporate behavior across the country.” Shareholder lawsuits like the one that reversed Musk’s pay package are often used by minority stockholders to “hold corporations accountable for misconduct.” The result would end up “fundamentally eroding corporate governance in America.”
Some of the companies leaving Delaware “share a crucial characteristic,” University of Nevada law professor Benjamin Edwards said at the Financial Times. They are “controlled” companies in which the founder “still owns or controls much of the corporation’s voting shares.” Delaware law has until now made it easier for minority shareholders to sue such companies: Controllers can “enrich themselves at the expense of other shareholders,” but they also “have more skin in the game.” So Musk and others are opting to leave. Controlled businesses “must consider whether Delaware is worth the drama.”
‘Reducing costly litigation’
Corporate law “isn’t about fairness — it’s about creating value,” said University of New Hampshire law professor Seth Oranburg at Bloomberg. The lawsuits allowed under current Delaware law are “fact-intensive, drawn-out and costly.” The new legislation would benefit all shareholders by “reducing costly and unpredictable litigation.”
The Delaware bill could spark “wholesale looting of retirement and pension funds across the country,” said Ryan Cooper at The American Prospect. If executives at controlled companies can “run roughshod” over minority shareholders who own part of those companies, “they can’t be said to meaningfully own it after all.”
