Once the unquestioned home of American corporations, Delaware is now watching its domestic corporations flee. For many, Nevada is where they’re heading. And, as discussed below, for good reason.
Delaware has long been the most popular jurisdiction to incorporate a business because of its business-friendly statutes and two centuries’ worth of reported corporate case law, both from Delaware’s Court of Chancery, which is exclusively devoted to corporate cases, and its Supreme Court. Over two million businesses are incorporated there, including approximately two-thirds of all Fortune 500 companies. Until recently, despite the efforts of other states to woo corporations, Delaware has maintained its dominance—in fact, more than 90% of U.S.-based companies that went public in 2001 were incorporated in Delaware. But, as the First State recently discovered, its continued dominance is not guaranteed.
At the heart of the recent movement known as “Dexit” is the Delaware Court of Chancery’s controversial ruling in January 2024. In Tornetta v. Musk, the court struck down Tesla’s compensation plan for Elon Musk, which had a potential value of $55.8 billion dollars. Historically, Delaware courts shied away from assessing the fairness of compensation plans, choosing instead to give great deference to boards of directors. However, the court in Tornetta found that Mr. Musk “controlled” Tesla, and therefore placed the burden on Musk and Tesla to prove that the plan was fair to stockholders.
Even though the compensation plan was approved by Tesla’s board of directors and a majority of disinterested shareholders, the court maintained that due to flaws in the approval process, the defendants retained the burden of providing the entire fairness of the transaction. It emphasized the potential conflicts of interest arising from Musk’s personal relationships with many of Tesla’s compensation committee members and his nearly unchecked power over the company as well as the failure to disclose key facts to the shareholders voting on the plan.
Even more unprecedented than the ruling itself was its effect on the state’s corporate landscape. Mere months after the case concluded, Tesla and SpaceX reincorporated in Texas. Other powerhouses followed, perhaps indicating that Musk’s admonition posted on X to “never incorporate your company in the state of Delaware” resonated with these companies. TripAdvisor, AMC Networks and Dropbox moved to Nevada. Meta has also looked into the possibility of moving west.
The Delaware legislature has taken notice and is not standing still. Earlier this year, the state passed Senate Bill 21 which includes provisions that limit small shareholders’ abilities to challenge corporate deals. While it was a promising attempt at quelling executives’ concerns after Tornetta, it is not clear whether the bill will slow the rate at which companies are exiting the state. In short, is the legislature’s action too little and too late?
With other states offering lower expenses and greater protections from liability for board members and officers, along with the perceived failure of Delaware’s courts to provide the reliability they were known for, this chink in Delaware’s armor is unsurprising. The challenge that remains for competing states is securing the spot as the most favorable alternative for other businesses planning to make a swift “Dexit.”
For good reasons, Nevada is one of the states that companies departing Delaware have either chosen or seem to be considering. First, Nevada is far less expensive than Delaware. The maximum annual corporate fee in Nevada is $11,125 compared to as much as $250,000 in Delaware.
Second, Nevada has a statutory fiduciary duty of directors and officers that is highly deferential to directors. Specifically, the duty of directors and officers is to act in good faith and with a view to the interests of the corporation. The statute goes on to provide a presumption of compliance with such duty and, further, that the director or officer acted on an informed basis. If that is not enough, the statute allows directors and officers, in exercising their respective powers, to consider all relevant facts, circumstances, contingencies or constituencies, including (a) employees, suppliers, creditors and customers of the corporation; (b) the interests of the community or society; and (c) the economy of the state or nation. By contrast, in many circumstances, a director of a Delaware corporation may only consider the interests of the corporation’s shareholders. As a result, a director of a Delaware corporation may have a tougher time defending a shareholder’s claim that the director breached their fiduciary duty than would a director of a Nevada corporation.
In addition to the statutory protections and required deference, in a 2021 case, Guzman v. Johnson, the Nevada Supreme Court stated that, even when a conflict of interest is present, the standard and presumption of compliance with a director’s fiduciary duty statute does not change, and the plaintiff must overcome the statutory presumption by showing that the director did not act in good faith, perhaps through evidence of self-interest. By contrast, when a conflict of interest is present, in Delaware the deferential business judgment rule is either thrown out and replaced with a fairness standard or, to avoid that heightened scrutiny, must be the subject of special procedures (e.g., independent committee approval or disinterested shareholder approval), although those requirements have been softened somewhat by Delaware’s recent change to DGCL § 144. Despite those changes, Nevada’s corporate laws remain more friendly to management.
Guzman is interesting for a reason beyond its specific holding. By reading the statute literally and refusing to insert duties not contained in the statute, the Nevada Supreme Court indicated that a board of directors of a Nevada corporation could rely on the plain language of the statute—thereby creating the predictability that corporations covet.
While the Delaware legislature has not stood still, neither has the Nevada legislature. In Assembly Bill 239, passed in the 2025 legislative session, the legislature substantially limited the fiduciary duty of a controlling stockholder. In many states, a controlling shareholder has duties similar to those of a member of the board of directors. The legislation states in part that “[t]he only fiduciary duty of a controlling stockholder . . . in such person’s capacity as a stockholder, is to refrain from exerting undue influence over any director or officer of the corporation with the purpose and proximate effect of inducing a breach of fiduciary duty by such director of officer.” The liability of the controlling stockholder is further limited by the type of breach by the director or officer that must occur for the controlling stockholder to be deemed to have breached their fiduciary duty.
This latest change is just one in a series of changes to Nevada’s corporate laws that, for the most part, are beneficial to management.
In light of the deferential standard of conduct contained in Nevada’s general corporate law, the presumptions incorporated therein, the Nevada Supreme Court’s ruling in Guzman, the Nevada legislature’s history (including the recent change enacted in AB 239); it is clear that, at least from management’s or a controlling shareholder’s perspective, Nevada, as compared to Delaware, is a superior jurisdiction of incorporation.
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Craig Etem is a Director in Fennemore’s Business and Finance practice group, helping clients from startups to public companies and local developers to national builders navigate mergers and acquisitions, recapitalizations, formations, and real estate transactions. He also serves as outside general counsel, providing practical, creative solutions to complex business challenges. Craig can be reached at cetem@fennemorelaw.com.
Molly Allen is a 2027 J.D. Candidate at Arizona State University’s Sandra Day O’Connor College of Law.