In This Story
Delaware lawmakers on Tuesday night passed a bill restructuring its corporate code, as the state tries to prevent companies like Meta (META) from exiting the state.
The bill was designed with the hopes of preventing a so-called “DExit,” where companies hypothetically rush to reincorporate out of Delaware and into another state, such as Texas or Nevada. Some 2.2 million entities are incorporated in Delaware, and the state was home to 81% of all U.S. initial public offerings last year.
“Delaware is the best place in the world to incorporate your business, and Senate Bill 21 will help keep it that way, ensuring clarity and predictability, balancing the interests of stockholders and corporate boards,” Gov. Matt Meyer said in a statement after signing the bill.
The law most directly benefits companies that have a controlling shareholder, such as Meta, when there is a conflict of interest. It amends how a controlling shareholder is defined and makes it easier for them to work through a deal where there is a potential conflict. It also makes it more difficult for minority shareholders to inspect company records through “books and records” requests.
It was introduced on Feb. 17 and has received several amendments since then. It’s been slammed by critics as rushed and as a “billionaire’s bill” designed to benefit wealthy company executives. They argue that the changes would limit Delaware’s Chancery Court’s ability to call out conflicts of interest, among other things.
The bill could have “potentially significant negative implications for long-term returns for investors, including people saving for their retirements, current retirees” and others, the International Corporate Governance Network warned in a letter to legislators.
Concerns regarding a potential DExit began in January 2024, when Tesla (TSLA) CEO Elon Musk’s $56 billion compensation package was scrapped by the Chancery Court. His appeal has been filed with the state’s supreme court.
About a month after the Chancery Court’s decision, Musk moved his SpaceX to Texas, while Tesla followed suit following a shareholder vote later in the year.
“If your company is still incorporated in Delaware, I recommend moving to another state as soon as possible,” Musk said in February 2024.
Since then, several companies have said they are either considering or plan to leave Delaware, including Dropbox (DBX), and Bill Ackman’s Pershing Square Management. President Donald Trump’s media group, Trump Media & Technology Group, has also sought shareholder approval to leave Delaware.
Meta has reportedly discussed reincorporation in Texas, which has billed itself as friendly to companies with controlling shareholders like CEO and co-founder Mark Zuckerberg. As part of a wider shakeup geared to win over Trump, Meta moved its trust and safety team to Texas.
One day after the news broke that Meta may follow Musk out the door, Meyer reportedly met with lawyers who have represented Musk, Meta, Tesla, and others in shareholder disputes in Delaware. The day after that, CNBC (CMCSA) reports, he had meetings with a group of attorneys and state officials to discuss “corporate franchise.”
Meta has been the subject of “books and records” investigations in Delaware in recent months, CNBC reported. Under current state law, shareholders could file cases alleging that Zuckerberg or other Meta directors caused billions of dollars in damages.
However, the passage of SB 21 means that any cases brought after the day it was proposed to the assembly would be considered under that law. Those shareholders would then lack the benefits of current state laws.