Elon Musk’s Push Towards Texas and Nevada Incorporation Challenges Delaware’s Dominance

Elon Musk, the world’s wealthiest individual, is seeking an exit from Delaware, igniting a potential shift in corporate incorporation preferences. Despite Delaware’s pre-eminence for registering businesses due to its relaxed corporate laws, specialized judiciary, and streamlined filing processes, Musk is advocating for alternative jurisdictions.

For over a century, Delaware has been a preferred location for corporate registration, with over two-thirds of Fortune 500 companies choosing it as their domicile. The state generates multiple billion dollars a year in revenue from these corporations.

This dominance, however, now faces challenges from Nevada, Texas, South Dakota, North Carolina, Washington, and Wyoming. These states are actively promoting their business-friendly policies and offerings, hoping to capture a slice of this lucrative market.

Musk recently intensified this competition when he recommended Texas and Nevada for business incorporation. This action followed a federal judge in Delaware revoking Musk’s $56 billion Tesla pay package. He expressed on his social media platform X, formerly Twitter, his lack of confidence in Delaware, advising businesses to opt for states like Nevada or Texas, where shareholders exercise more decision-making power.

Furthermore, Musk has stated that he will relocate Tesla to Texas from Delaware, pending shareholder approval. He also registered his private neural-interface technology firm, Neuralink, from Delaware to Nevada. In addition, Musk announced that SpaceX, his private rocket manufacturer, has already moved to Texas.

Several companies have already relocated to other jurisdictions, while others are contemplating such decisions. In fact, one company, after moving its corporate domicile to Nevada in 2018, humorously termed its departure a "Dexit".

Delaware remains a formidable power in the corporate domicile space, despite these challenges. The state registered approximately 58,000 new companies in 2022, exhibiting a marginal 6% decline from the prior year, but overall, a robust 41% surge since 2017.

However, the US Census Bureau indicated a contraction in the state’s business applications. Corporate filings in Delaware shrank by 8.5% between December 2022 and December 2023, according to IRS records, reversing the uptrend observed in the two preceding years.

The transition away from Delaware is not always straightforward. For example, online tour and travel firm, TripAdvisor, faced backlash from shareholders following its decision to transition from Delaware to Nevada. These shareholders raised accusations against TripAdvisor’s parent company, Liberty Media’s CEO, Greg Maffei. They charged him with choosing Nevada to mitigate his liability exposure. Liberty Media holds voting command over TripAdvisor. TripAdvisor counters these allegations, arguing that the relocation will lower tax liabilities and offer better litigation protection for board members and senior executives.