This week, Delaware legislators rushed to implement controversial changes in corporate regulations to prevent more businesses from leaving the state, particularly after Elon Musk's significant departure.
Governor Matthew Meyer signed the SB 21 bill on Tuesday, stating that the modifications aimed to uphold Delaware's reputation as a top destination for business incorporation by ensuring clarity and predictability while balancing the needs of shareholders and corporate boards.
The adjustments were prompted by complaints from notable CEOs, including Elon Musk, who either relocated their companies out of Delaware or threatened to do so, leading to the term "Dexits” to describe these exits.
Elon Musk has shifted the incorporations of Tesla and SpaceX to Texas, while his other companies, Neuralink, Boring, and X, have moved to Nevada. Several other companies, such as Meta, Dropbox, Pershing Square Capital Management, Trade Desk, Fidelity National Financial, and Sonoma Pharmaceuticals, are also considering relocating their incorporations.
The news of these high-profile departures has caused concern in the state, which has been a preferred incorporation location for many due to its favorable laws, specialized business courts, and streamlined filing processes. Delaware is proud to host over two-thirds of Fortune 500 companies but saw a drop in the percentage of these companies incorporating there from 68.2% in 2022 to 67.6% in 2023.
To address the situation, Governor Meyer formed a committee to investigate the rising complaints, leading lawmakers to pass a bill quickly to limit investor lawsuits by allowing corporate boards to provide more protection for directors, officers, and major shareholders.
Elon Musk's decision to leave Delaware was influenced by a controversial ruling by a Delaware judge that annulled his $56 billion performance-based compensation package, a decision he is currently appealing.
In a recent appeal to the Delaware Supreme Court, Elon Musk and Tesla directors argued against Judge Kathaleen McCormick's refusal to reinstate Musk's compensation, pointing out multiple errors that may potentially reverse the ruling.
The newly passed law in Delaware provides additional flexibility to board members in situations where their interests or relationships could present conflicts of interest.