The Challenge to Delaware’s Preeminence in Business Formation and Domicile
Much was written in 2024 and early 2025 about an ongoing exodus of companies leaving Delaware as their corporate domicile for other states. Statistics show this much-discussed trend is dramatically exaggerated, but states such as Texas, Wyoming, and Nevada are seeing growth in their business formations. Delaware remains the undisputed preeminent jurisdiction for corporate and other business entity formation and domicile, and, while its dominance appears unchallenged, the State has taken steps to address criticism of certain aspects of its corporate and its dominance has only increased. Delaware adopted amendments to its corporate and other business entity laws in August 2025 to address directors’, officers’, and controlling shareholders’ criticisms of certain aspects of Delaware law and specific recent Court of Chancery rulings, further diminishing the likelihood of any appreciable decline in the State’s position in business formation.
Delaware has been the dominant jurisdiction for business formation and domicile for over 100 years. Delaware’s specialized Court of Chancery and its jurists (which hear business entity law cases and disputes), its developed caselaw, and its carefully crafted business entity laws, among other factors, have kept the State in this top position. This prominence is carefully guarded, as business entity formation and domicile fees account for a large portion of the State’s revenue (26.9% in 2024).
Certain companies have left Delaware and reincorporated or shifted their domicile elsewhere, although not a large number. Since 2020, only two S&P 500 companies have left Delaware to redomicile in other states – Tesla and Travelocity. Over the same period, three S&P 500 companies have moved to Delaware, including Cisco and Caesars Entertainment. More broadly, as the chart below indicates, Delaware has continued to show strong numbers in its business formation and domicile sector, particularly among public companies as well as those just undertaking their initial public offering (IPO). Further, the State’s overall formation numbers remain strong, down 2.8% in 2024, where formations nationwide were down over 5%. Despite the cyclical nature of business formations, the total number of Delaware entities continues to grow apace.
|
|
2021 |
2022 |
2023 |
2024 |
|
% Fortune 500 |
66.8% |
68.2% |
67.6% |
66.7% |
|
% IPO Companies |
93% |
79% |
80% |
81.4% |
|
Formations |
336,407 |
313,650 |
298,165 |
289,810 |
|
Total Entities |
1,825,050 |
1,966,110 |
2,070,347 |
2,157,482 |
Other states, such as Wyoming, have experienced a surge in formations generally. This is largely the result of certain short-term tax incentives and fee rebates adopted to draw business formation and business domicile. For example, business formations in Wyoming have tripled in the past 5 years, with a 42% jump in formations in 2023. Wyoming, Texas, and Nevada, among other states, have also sought to mimic Delaware’s Court of Chancery, setting up dedicated business courts of their own. They have also adopted very broad and office-friendly provisions, which favor insiders and the corporation while curtailing the rights of stockholders. Delaware’s recent amendments to its business entity laws were very management and corporation-friendly, circumscribing certain stockholder rights such as the right to request information and limiting their ability to sue for violations of fiduciary duty. Some commentators feel that this will lead to a “race to the bottom,” with states offering increasingly pro-management and pro-corporation amendments to draw companies to their state to the detriment of stockholders.
In the end, Delaware will not be usurped as the business domicile of choice quickly or easily. It has advantages over other states that only time and experience can bring, such as a developed caselaw and a very seasoned judiciary and attorneys’ bar in business entity matters. We can only wait to see whether competition will lead to a healthier market for business formation and domicile or a race to erode stockholder rights and protections for state revenues.
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