If you need to be in court in the morning but lost your suit on the Amtrak train to Wilmington, Del., Leonard Simon is your guy. Simon owns a men’s wear shop where out-of-state attorneys account for a significant number of his patrons. His clientele underscores how, for more than a century, the First State has been the mecca of U.S. corporate law—roughly two-thirds of the Fortune 500 is incorporated in Delaware—which generates billions in revenue for the state and helps sustain local businesses like Wright & Simon, which Simon’s father cofounded in 1935.
These days, though, Simon is feeling uneasy as a growing number of prominent business leaders like Elon Musk and Bill Ackman, who are critical of Delaware’s courts, are pulling up stakes and registering their companies elsewhere. In June, Tesla shareholders voted to reincorporate in Texas after a Delaware judge rejected a pay package for Musk recently valued at $100 billion. Meanwhile, Ackman recently said his activist hedge fund, Pershing Square, will follow suit and reincorporate in Texas or Nevada, while Mark Zuckerberg’s Meta is reportedly also mulling a move to the Lone Star State.
It’s long been a no-brainer for firms to incorporate in Delaware. No other state can compete with the decades of case law that provide precedent on nearly every business issue, as well as the expertise and efficiency of its specialized courts. That helps companies identify and manage risk, giving Delaware a massive edge when firms need to find a legal home.
“It’s important to our future that we maintain it,” Simon said.
Simon has talked to local legislators and urged them to do what it takes to ensure Delaware keeps its place as corporate America’s go-to legal forum—even as states like Texas and Nevada try to entice companies to relocate.
Delaware Gov. Matt Meyer said he is talking with C-suite leaders and attorneys to hear their feedback. In an interview with Fortune, he emphasized changes should be rolled out in the coming weeks and months, not years.
“We need to be forward thinking,” he said, “and maybe do things a little differently to make sure we retain that status as the preeminent jurisdiction of choice for corporations around the world for many years to come.”
As a former attorney who worked on mergers and acquisitions for clients like private equity giant Carlyle, Meyer is well aware of the stakes. Incorporation fees accounted for more than $2 billion in revenue for the state during the 2023 fiscal year, or about a fourth of its annual budget at the time. Today, state officials say that number is closer to one-third, which means Delaware residents are among the lucky few in the nation to pay no sales tax.
Then there’s the impact on the broader economy. Most of the nation’s largest law firms have offices in Wilmington, home to the state’s Court of Chancery, where most corporate disputes are tried, as well as the Delaware Supreme Court. A 2019 report commissioned by the state bar association found that the legal industry contributed $1.74 billion directly to Delaware’s gross domestic product, along with an additional $731 million from employee and firm spending. One real estate executive said in the report that 85% of his tenants were law firms.
“If it were all to disappear, it would be catastrophic,” said Lawrence Hamermesh, professor emeritus at Delaware Law School.
Scott Stein, wearing a black shirt with “Bardea Steak” spelled out in white letters, poses for a headshot.
A growing chorus of executives and controlling stockholders, including Musk, have accused Delaware’s courts of becoming too friendly to shareholder plaintiffs. The resulting debate has rattled the state’s legal community, said Michael Houghton, a retired partner from Delaware firm Morris Nichols Arsht & Tunnell and former president of the state bar association, though he believes the issue has been overstated.
“I don’t think it’s doom and gloom as much as people think,” said Houghton, who chairs a council that advises the governor on Delaware’s finances.
Hamermesh, who formerly led the Institute for Law and Economics at the University of Pennsylvania Carey Law School, agreed that the chances of a mass exodus are remote. He also pointed to recent legislative changes—a response to a decision against Ken Moelis, the founder and CEO of investment bank Moelis & Co.—as an example of good “course corrections” that help balance the rights of management and stockholders.
Nonetheless, Adam Chodorow, a law professor at Arizona State University, says he thinks the charge led by Musk is the biggest threat to Delaware’s dominance that he’s witnessed over his more than 30-year career. As new corporate leaders emerge, particularly in tech, they could be swayed by leaders who enjoy near-mythical status—like Musk. When more companies make the jump to other states and slowly test the law in those jurisdictions, other firms may feel more comfortable about moving.
“I don’t know that every corporation is going to suddenly reincorporate in Texas or Nevada,” Chodorow said, “but I think companies will feel less constrained to go to Delaware.”
For example, Dropbox recently announced it would reincorporate in Nevada because of an “increasingly litigious environment” in Delaware, the company said in a securities filing. Tripadvisor can do the same as of last Tuesday, when the Delaware Supreme Court overturned a Court of Chancery decision that initially blocked the move. Still, over 80% of all U.S.-based IPOs in 2023 chose to incorporate in Delaware, according to the state.
Scott Stein co-owns three restaurants about a block from Wilmington’s Court of Chancery, as well as a food hall at the Hotel Du Pont, a popular five-star hotel. Lawyers are a crucial driver of traffic, he said, especially on weeknights. He’s confident most corporate business will stick around.
“I have faith they are going to figure it out,” he said of Delaware officials.
Before picking up the phone for an interview, Stein had taken a dinner reservation. Seventeen attorneys were looking for a place to celebrate.
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