Should Your Company Leave Delaware? Comparing the Best States for Incorporation in 2025 -

For decades, Delaware has reigned supreme as the preferred state of incorporation for businesses across the United States, from burgeoning startups to Fortune 500 giants. This dominance wasn’t accidental; it was carefully cultivated through a combination of a stable legal framework, specialized judicial expertise, and a degree of flexibility that appealed to a wide range of corporate structures.

However, in recent years, a growing sentiment of unease, coupled with high-profile departures and recommendations from influential venture capitalists, is challenging Delaware’s long-held supremacy.

Table of Contents

Delaware’s Enduring Appeal: A Historical Perspective

Historically, companies flocked to Delaware for several compelling reasons:

The Delaware General Corporation Law (DGCL): This comprehensive statute is renowned for its clarity, flexibility, and predictability. It provides a robust legal foundation for corporate governance, allowing businesses to structure themselves in a manner that suits their specific needs while offering significant protections for directors and officers. Its consistent application has created a vast body of legal precedent, offering guidance and reducing uncertainty in corporate transactions and disputes.
The Court of Chancery: Unique to Delaware, this specialized court exclusively handles corporate law matters. Its judges are experts in the intricacies of corporate governance, mergers and acquisitions, and shareholder disputes. The absence of juries in the Court of Chancery often leads to faster, more consistent, and more informed decisions, which is highly valued by businesses seeking efficient resolution of complex legal issues.
Predictable Legal Outcomes: The extensive body of case law developed over decades by the Court of Chancery, coupled with the DGCL’s detailed provisions, has fostered a high degree of predictability in legal outcomes. This predictability is crucial for businesses making long-term strategic decisions, as it helps them assess and manage legal risks more effectively.
Business-Friendly Environment: Delaware has historically been viewed as pro-business, offering a balance that supports both corporate management and shareholder interests. This reputation has made it a preferred choice for investors and legal professionals alike.
Privacy Provisions: Delaware offered a significant degree of privacy for business owners, not requiring the disclosure of names of LLC members or corporate shareholders. This was particularly attractive to individuals seeking to keep their business dealings private.
Tax Advantages (for non-operating companies): While not entirely tax-free, Delaware has offered certain tax advantages, particularly for companies that are incorporated in the state but do not conduct their primary business operations there. This includes no corporate income tax on out-of-state income, no inheritance tax on stock held by non-Delaware residents, and no state sales tax. It does have its infamous “franchise tax” that isn’t about franchises, but a tax on being incorporated in Delaware. This tax often catches unsuspecting companies off guard, though it can be managed.

Recent Shifts in Delaware Law and Growing Discontent

Despite its historical advantages, recent changes to Delaware’s corporate law and judicial interpretations have begun to erode its perceived value for some.

One notable area of concern has been the increasing scrutiny of interested party transactions and fiduciary duties, particularly in cases involving controlling shareholders or “go-private” transactions. While Delaware recently enacted amendments to Sections 144 and 220 of the DGCL in March 2025, aiming to provide “safe harbors” and greater certainty for such transactions, the perception for some is that the legal landscape has become less predictable and potentially more litigious for corporate insiders. These amendments, designed to reduce litigation and provide clear guidelines, are still relatively new and subject to judicial interpretation, leading to some lingering uncertainty.

Another point of contention arises from shareholder inspection rights (DGCL § 220). While the intent is to protect shareholder interests, some companies feel that the increasingly permissive stance of Delaware courts in granting shareholders access to internal documents, including informal communications, creates an undue burden and exposes sensitive information to potential opportunistic litigation.

Furthermore, a significant development in February 2025 saw the Delaware Supreme Court rule that a company’s decision to reincorporate outside of Delaware to reduce litigation exposure is subject to the deferential business judgment rule, provided it’s not made to avoid existing or threatened litigation. While this offers some flexibility, the underlying perception of an increasingly litigation-prone environment in Delaware remains for some.

Prominent Companies Taking Their Leave (or Considering It)

The shift away from Delaware is not merely theoretical; several high-profile companies have either reincorporated or publicly announced their intent to do so, providing tangible evidence of this trend:

Tesla and SpaceX (Elon Musk-led companies): Following a Delaware Chancery Court decision that voided his massive 2018 compensation package, Elon Musk famously announced his intention to reincorporate Tesla from Delaware to Texas in early 2024, encouraging other companies to follow suit. SpaceX, another of his ventures, also made the move to Texas. Musk’s stated reasons included a desire for a more “business-friendly” environment and a less activist judiciary.
Roblox Corporation: The popular video game developer announced its intention to reincorporate in Nevada, citing concerns about Delaware’s evolving legal environment and the potential for increased litigation and business planning concerns. They explicitly noted Delaware’s recent statutory amendments as “new, untested and subject to judicial interpretation.”
Dropbox and Tripadvisor: These tech companies have also reportedly reincorporated or expressed intentions to move out of Delaware, often seeking jurisdictions perceived as more favorable to technology companies or offering lower compliance costs.
Walmart and Meta Platforms (Facebook, Instagram, WhatsApp parent company): While not confirmed, reports have indicated that these corporate giants are also considering moving their state of incorporation, signaling a broader evaluation of Delaware’s corporate governance landscape. Their concerns often revolve around potential threats to shareholder rights and corporate governance capabilities within Delaware’s framework.

Common reasons cited by these companies for their departures include:

Lower compliance costs: Alternative states often have lower franchise taxes and annual fees.
Predictable legal standards: A desire for legal environments perceived as less prone to activist litigation or unexpected judicial rulings.
Protection against activist litigation: Some companies seek jurisdictions where shareholder lawsuits, particularly derivative suits and M&A-related challenges, are harder to file and win.

Why Venture Capitalists Are Joining the Chorus

The recommendation to leave Delaware is no longer confined to individual companies; influential venture capital firms are now publicly advocating for it. Most notably, Andreessen Horowitz (a16z), a prominent Silicon Valley VC firm, announced in July 2025 that it was reincorporating its own business from Delaware to Nevada and urged its portfolio companies to consider similar moves.

A16z’s rationale is significant:

Perceived Bias Against Founders and Boards: The firm explicitly stated concerns over the Delaware Court of Chancery injecting an “unprecedented level of subjectivity” into judicial decisions, leading to what they perceive as a bias against technology startup founders and their boards. They argued that recent rulings have undermined the traditional business protections that made Delaware the default choice for tech companies.
Cost and Time of Litigation: Even successfully defended litigation is costly and time-consuming, particularly for lean tech startups that need to conserve capital for innovation and growth. VCs are keen to minimize these distractions for their portfolio companies.
Uncertainty for Board Members: A16z indicated that General Partners in their firm are reconsidering serving on the boards of Delaware companies due to the perceived increase in litigation risk and the potential for large damages against defendants.
Seeking Alternatives with Statutory Business Judgment Rule: They highlighted states like Nevada that offer a statutory business judgment rule, which they believe provides greater predictability and protection for directors compared to Delaware’s common law approach, which they feel is subject to more judicial interpretation.

While A16z clarified that they will continue to fund companies incorporated in Delaware, their public stance sends a powerful signal to the broader tech and VC communities, encouraging a re-evaluation of long-held assumptions.

Alternatives to Delaware and Their Claimed Advantages

As companies and VCs explore options, several states are positioning themselves as attractive alternatives to Delaware:

Nevada:

Tax Advantages: No state corporate income tax, no personal income tax, and no franchise tax for corporations or LLCs (though annual fees and business license fees apply).
Director and Officer Protections: Known for management-friendly standards of care and favorable limited liability protection for directors and officers.
Privacy: Historically offered greater privacy, with less public disclosure of owner information.
Business Courts: Nevada is developing specialized business courts aimed at efficient dispute resolution.
Shareholder Litigation: Generally perceived as making shareholder lawsuits harder to file and win.

Wyoming:

Tax Advantages: No corporate or personal income tax, and no franchise tax (though an annual license tax applies).
Low Administrative Costs: Often boasts lower initial filing fees and annual fees compared to Delaware and Nevada.
Privacy: Offers a high degree of privacy, not requiring the disclosure of owner names.
Simplicity: Often favored by small businesses and startups for its straightforward compliance requirements.

Texas:

Tax Advantages: No state income tax for both individuals and corporations (though an annual franchise tax applies, varying by entity).
Robust Economy and Infrastructure: Appealing to businesses requiring significant logistical support.
Business-Friendly Environment: Actively promotes itself as a pro-business state with a large and growing economy.
Similar Protections: While lacking Delaware’s extensive case law, Texas offers similar protections for corporate governance, appealing to those seeking an established legal environment without the perceived drawbacks of Delaware.

Maryland:

Some companies, particularly those in certain industries, have found Maryland to be a suitable alternative, though it may not offer the same broad appeal as Nevada, Wyoming, or Texas for general corporate incorporation.

It’s important to note that while these states offer compelling advantages, they also present different legal landscapes and judicial precedents. Companies considering a move must carefully weigh these factors against their specific business needs and risk tolerance. The “race to the bottom” argument suggests that states might compete by offering increasingly lax corporate governance, which could eventually undermine shareholder confidence.

Chart for Business Decision-Making: Choosing a State of Incorporation

Factor

Delaware (Traditional Strengths)

Alternative States (e.g., NV, WY, TX – Claimed Advantages)

Key Considerations for Your Business

Legal Framework & Predictability

– Mature, flexible DGCL with extensive case law.

– Highly predictable outcomes due to deep precedent.

– Developing legal frameworks, less extensive case law.

– May offer statutory provisions perceived as more favorable (e.g., statutory business judgment rule).

How critical is legal certainty for your business model and future transactions (e.g., IPO, M&A)?

– Delaware: Ideal for complex corporate structures, frequent M&A, or if you anticipate significant litigation where established precedent is crucial.

– Alternatives: May be sufficient for simpler structures or if you prioritize statutory clarity over extensive case law.

Judicial Expertise & Efficiency

– Specialized Court of Chancery with expert judges.

– No juries, often faster and more informed decisions.

– General jurisdiction courts (some developing business courts).

– Expertise may vary, potentially slower resolution of complex corporate disputes.

How likely are you to face complex corporate litigation? How important is specialized judicial expertise?

– Delaware: Best if you foresee intricate shareholder disputes, breach of fiduciary duty claims, or complex corporate governance challenges.

– Alternatives: May be adequate if your business is less prone to such disputes, or if you prefer the local court system for other reasons.

Cost of Incorporation & Compliance

– Generally higher franchise taxes and annual fees.

– Potentially higher legal fees due to complex corporate law.

– Often lower initial filing fees and annual fees.

– May offer simpler compliance requirements.

What is your budget for legal and administrative costs, especially in early stages?

– Delaware: The “cost of doing business” here is higher but often justified by the benefits for larger or complex entities.

– Alternatives: More attractive for startups and small businesses seeking to minimize overhead.

Director & Officer Protections

– Strong common law protections (business judgment rule), but subject to judicial interpretation.

– Recent amendments aim to clarify safe harbors.

– May offer statutory provisions for director/officer liability protection.

– Perceived as offering stronger defenses against certain types of shareholder litigation.

How concerned are your directors and officers about personal liability and litigation risk?

– Delaware: While strong, recent rulings have prompted some concerns among tech founders and VCs.

– Alternatives: May provide a higher comfort level for board members seeking more explicit statutory protections against shareholder suits.

Privacy & Disclosure

– Increasing transparency requirements (beneficial ownership).

– Shareholder inspection rights can be broad.

– Some states offer greater privacy and less public disclosure of owner information.

– Potentially more restrictive shareholder inspection rights.

How important is maintaining the privacy of your business owners and internal communications?

– Delaware: Moving towards greater transparency, which may not suit all businesses.

– Alternatives: Consider states known for stronger privacy provisions if this is a high priority.

Investor/VC Preference

– Historically the “gold standard” and often a prerequisite for VC funding.

– Some VCs are now more open to alternatives, or even recommending them.

– Growing acceptance, especially among VCs advocating for “founder-friendly” jurisdictions.

– Some VCs may still prefer Delaware due to familiarity.

What are the preferences of your current and prospective investors?

– Delaware: Still widely accepted, but be prepared to address questions about recent concerns.

– Alternatives: If your VCs are open to or recommending alternatives, it can significantly ease the decision. Ensure any move aligns with their expectations.

Geographic/Industry Alignment

– Broadly applicable across all industries.

– Some states may align better with specific industries (e.g., tech in TX/WA, natural resources in WY).

Does your business benefit from being incorporated in a state with a strong industry presence or specific regulatory environment?

– Delaware: General corporate law applies to all.

– Alternatives: Consider if a state’s local economy, talent pool, or regulatory framework provides a strategic advantage beyond corporate law (e.g., being in the same state as key operations or a major market).

Rethinking the Default

As Delaware’s long-standing corporate dominance faces growing skepticism — from high-profile companies to influential venture capitalists — business leaders are right to reassess whether it remains the best choice for their legal home. The incorporation decision, once a formality, now demands a nuanced evaluation of legal risk, compliance costs, investor expectations, and governance priorities.

For some, Delaware’s rich case law and judicial expertise will continue to outweigh its evolving challenges. For others, especially fast-moving startups and founder-led ventures, states like Nevada, Wyoming, and Texas may offer a better strategic fit. There’s no one-size-fits-all answer, but there is a clear call to evaluate this decision through a modern lens.

If your company is evaluating whether Delaware is still the right fit, now is the time to seek counsel. Navigating incorporation choices in today’s climate requires more than just precedent — it requires perspective. At Avisen Legal, we help businesses think strategically about governance, compliance, and risk. If incorporation questions are on your horizon, we’re ready to talk. Contact me today for assistance.