Despite Coinbase Exit, Delaware Saw Limited Company Departures This Year

Elon Musk has been a vocal advocate for companies to reconsider their Delaware incorporation, a stance mirroring moves made by his own ventures, Tesla and SpaceX. Coinbase, the prominent cryptocurrency exchange, recently joined the ranks of companies shifting their legal domicile, announcing a move to Texas from Delaware.

While Musk has characterized the departures as signaling a decline for Delaware’s corporate dominance, the reality is more nuanced. Despite the high-profile exits, companies de-incorporating from Delaware remain a minority.

Data from the Delaware Secretary of State’s office indicates that only 28 companies have de-incorporated this year. In contrast, the state has witnessed the formation of 249,214 new entities through September, representing a 14% increase over the same period.

Musk’s push to relocate Tesla stemmed from a Delaware Chancery Court ruling that invalidated his 2018 compensation package, valued at approximately $56 billion in stock options. He has appealed the decision to the Delaware State Supreme Court.

Venture capital firm Andreessen Horowitz, a backer of both Musk’s acquisition of Twitter (now X) and Coinbase, publicly criticized Delaware this past summer, citing “legal uncertainty” arising from recent court rulings. The firm has since reincorporated in Nevada.

Interestingly, Coinbase CEO Brian Armstrong and Marc Andreessen are currently facing a shareholder lawsuit in Delaware related to a stock sale coinciding with Coinbase’s 2021 public listing. This legal entanglement adds another layer to the company’s decision to leave Delaware.

Other notable companies that have announced their departure from Delaware this year include retailers like Dillard’s and tech firms such as Dropbox, Roblox, and Affirm, the fintech company founded by PayPal co-founder Max Levchin. The concentration in tech and retail suggests that specific regulatory landscapes or litigation risks within those sectors may be influencing the decisions.

Nevada has emerged as a popular alternative, attracting a majority of the outbound companies. Coinbase and Dillard’s have chosen Texas, while Simon Property Group opted for Indiana. Donald Trump’s media company, Trump Media & Technology, is moving to Florida.

Benjamin Edwards, associate dean at the University of Nevada Las Vegas Boyd School of Law, points to Nevada’s clear articulation of executive and board member liability as a key draw. This legal clarity contrasts with perceptions of increasing uncertainty within Delaware’s jurisprudence.

However, Delaware remains the dominant player in the incorporation market. Last year, it was home to over 2.1 million legal entities and saw the creation of 289,810 new businesses. Critically, Delaware continues to attract a significant portion of U.S. IPOs, controlling over 80% of the market. Edwards anticipates Delaware’s overall market share to remain strong, hovering around 75%.

Delaware’s enduring appeal stems from its well-established corporate code, experienced judiciary, and perceived balance between the rights of executives and shareholders. The state is lauded for providing a predictable and efficient legal framework for businesses operating in a rapidly evolving environment.

“Our business-friendly environment has been built over decades, grounded in laws and courts that respect the good faith judgments of directors and officers, allowing efficient decision-making that accommodates the needs of modern businesses operating in a dynamic environment, while providing appropriate safeguards to investors against fraud and fiduciary overreach,” said Delaware Secretary of State Charuni Patibanda-Sanchez.

Meta, which reportedly considered leaving Delaware earlier this year, ultimately remained after the state legislature, with the support of Governor Matt Meyer, swiftly amended its corporate laws. This proactive response, driven by concerns over losing a major corporate presence, underscores Delaware’s commitment to remaining competitive. The legislative changes were drafted by legal experts who have previously represented both Meta and Musk, highlighting the complex web of influence within the corporate legal ecosystem.