Coinbase Follows Tesla, Reincorporates in Texas

Coinbase is the latest corporation to signal a shift in its legal domicile, following Tesla’s lead out of Delaware and into Texas. This move highlights a growing unease among some corporate leaders regarding the predictability of Delaware’s legal environment.

Paul Grewal, Coinbase’s chief legal officer, articulated the rationale behind the decision in a Wall Street Journal op-ed, citing “unpredictable outcomes” in the Delaware Chancery Court as a primary driver. This sentiment echoes Elon Musk’s earlier departure from Delaware with both Tesla and SpaceX.

The exodus from Delaware isn’t limited to Coinbase and Tesla. Dropbox, TripAdvisor, and venture capital firm Andreessen Horowitz have also announced similar moves. This trend gained momentum after a Delaware Chancery Court ruling that challenged Tesla CEO Elon Musk’s 2018 compensation package, valued at approximately $56 billion in options.

Musk himself has been a vocal advocate for such relocations, stating in a post on X in February 2024, “If your company is still incorporated in Delaware, I recommend moving to another state as soon as possible.” His remarks underscore a growing perception that Delaware’s legal framework may no longer offer the consistency it once did.

While Delaware has historically been the dominant state for U.S. corporate incorporation, owing to its flexible corporate code and specialized judiciary that is perceived to balance the rights of executives and shareholders, alternative jurisdictions are gaining appeal. Texas state law, for example, presents an attractive proposition to some corporations by enabling limitations on shareholder lawsuits against insiders for alleged breaches of fiduciary duty. This offers a potentially greater degree of protection for corporate management.

Coinbase and Andreessen Horowitz are currently embroiled in a lawsuit in Delaware related to share sales during Coinbase’s 2021 public listing, introducing another layer of complexity to this trend, as firms may see strategic advantages to reincorporating elsewhere when facing protracted legal challenges in Delaware.

The decision to reincorporate outside of Delaware is not simply about legal costs and rulings. It also reflects how companies are positioning themselves for the future political and regulatory landscape. Coinbase CEO Brian Armstrong’s political engagement, mirroring Musk’s activities, points towards how companies are increasingly considering the broader political environment when making decisions.