Big companies potentially quitting Delaware has been in the news in the past week.
Meta Platforms, the parent company of Facebook, Instagram and other social media platforms, is in discussions to move its incorporation from Delaware, The Wall Street Journal reported last week. Following that news, reports came that Dropbox Inc. and Bill Ackman’s Pershing Square Capital Management are doing the same.
The Wall Street Journal, citing people familiar with the matter, reported that Meta was in talks to move its incorporation to Texas. In response to a social media post about Dropbox moving, Ackman posted social media platform X that his company was doing the same.
“We are reincorporating our management company in Nevada for the same reason. Top law firms are recommending Nevada and Texas over Delaware,” Ackman posted.
A few big companies leaving Delaware won’t register for the average resident, but if it became a larger trend, it could one day have implications for the tax burden on everyday Delawareans.
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Debate over Delaware’s status
Delaware’s status as the incorporation capital moved into the spotlight last year.
Much of that was stoked by Elon Musk’s decision to reincorporate Tesla and SpaceX to Texas following a Delaware Chancery Court decision that ordered him to give up his $56 billion compensation package through Tesla. After the ruling, he posted “never incorporate in the state of Delaware” and took his companies elsewhere.
Read more: Tesla to move from Delaware to Texas, reinstate Musk’s pay deal voided by judge
Then, the Delaware General Assembly saw uncharacteristically intense debate over changes to Delaware Corporation Law. The state regularly passes changes to the law, but without any debate.
Last year was different with lawmakers debating a bill that came directly in response to rulings by state judges, including one ruling known as Moelis that declared that shareholder agreements that turn over power of a company to a single individual are illegal.
Read more: Despite controversy, Delaware lawmakers OK changes to state’s corporate law
Proponents said such agreements are common and must be preserved.
Critics, including dozens of law professors across the country, argued that the bill, which ultimately passed, would hurt small investors and help only the biggest money movers in the economy, such as private equity firms.
Meanwhile, Musk, who now has outsized influence as a close advisor of President Donald Trump, has continued his drumbeat against The First State.
“Any lawyer still recommending incorporation in Delaware at this point should be sued for malpractice,” Musk posted last week on X. “Texas or Nevada actually respect shareholder rights.”
Who cares?
About two-thirds of Fortune 500 companies call Delaware their legal home. Companies tend to favor Delaware’s business-friendly reputation, tax structure and streamlined legal framework for settling corporate disputes.
But Delaware’s status as a place to do business largely exists only on paper. Meta, Tesla or any other company moving their incorporation elsewhere won’t register in the mind of the average Delawarean.
However, it is a fundamental aspect that subsidizes much of Delaware’s government function. That’s because incorporations bring roughly a third of the state’s government revenues each year in the form of taxes and fees related to the incorporation industry. This is part of the reason Delaware has no sales tax and relatively low property taxes.
It’s also the foundation of Delaware’s legal industry, a major employer in Wilmington and New Castle County.
A few companies pulling their incorporation from Delaware’s roster is also not particularly concerning financially for the state, however lawmakers pointed out the concern could snowball while discussing Musk last year.
“He’ll leave, that’s what, a quarter of million? But if he can convince others to do the same thing, eventually a quarter of a million becomes another million becomes 10 million, and then it becomes a problem,” said a member of the General Assembly’s Joint Finance Committee quizzing former Secretary of State Jeffrey Bullock last year.
Asked for comment, a spokesperson for newly elected Governor Matt Meyer pointed at an interview Meyer gave to Business Insider last week.
In the interview, he acknowledged a “competitive environment,” a need to “work to win back” businesses that relocate their incorporation from Delaware and hinted at coming proposals aimed at that.
“My role as governor is to look at the system, make sure the corporate law is fair, make sure it’s predictable, make sure it’s clear and consistent, and make sure we’re making whatever changes are necessary” to improve it, Meyer said in the interview.
Contact Xerxes Wilson at (302) 324-2787 or xwilson@delawareonline.com.