For decades, Delaware has been the leading destination for out-of-state corporate formation. While there are many reasons for this, Delaware views its advantages as including its system of laws, which Delaware describes as “optimal” for “engaging in ethical and profitable business,” and which are predictable, stable, and kept up-to-date every year.[1]
Moreover, it has dedicated business law courts with expert corporate law judges who are impartial and resolve disputes efficiently. In addition, the Secretary of State’s office acts promptly and efficiently. As the Delaware secretary of state says on its website, “[w]e [Delaware] are far more like Bergdorf Goodman or Tiffany than we are like the Dollar Store. You pay for quality and service.”[2]
Nadelle Grossman, Tulane 1999, is the associate dean for academic affairs and professor of law at
Marquette University Law School in Milwaukee. She teaches and writes in the areas of corporate law, corporate governance, and contracts.
Despite these claimed advantages and Delaware’s long-standing dominance with out-of-state incorporations, there is a recent trend for some corporations to “DExit” – that is, exit from Delaware. According to Glass Lewis, in 2025, 18 public companies sought to leave Delaware, a number up 70.6% from 2024.[3] Of those, 13 corporations sought to reincorporate in Nevada, while two sought to reincorporate in Texas.
Reasons for DExit
A number of reasons have been given for DExit. One of the main reasons is the view that Delaware courts have become unfavorable toward shareholders, especially controlling shareholders.
Tornetta v. Musk (Tesla)[4] and
Maffei v. Palkon (TripAdvisor)[5] are often cited for this proposition.
In
Musk, the board of Tesla Inc. awarded Elon Musk a performance-based equity compensation plan.[6] The plan included options that would vest if Tesla met certain financial targets. If Tesla met those targets, Musk could receive $55.8 billion, which was several orders of magnitude larger than any other (publicly disclosed) compensation plan.
A Tesla stockholder sued the Tesla board, arguing awarding Musk this pay package violated the directors’ duty of loyalty. The chancery court held that the decision to award Musk this pay package was subject to review under the fairness test because it was a controlling party transaction – that is, a transaction between the corporation on the one hand and Musk as the controlling stockholder on the other – and there was not a proper cleansing vote of shareholders of this transaction, which would have avoided the fairness test.[7]
The court then found that the decision failed the fairness test because Musk had long-standing ties with the compensation committee members, and that there was no meaningful negotiation of his pay package.[8] Musk’s pay also was seen as substantively unfair due to its size and without a direct connection to Musk’s efforts.[9] Thus, the court found that the board breached their fiduciary duties and it rescinded Musk’s pay package.
Not long after this case was decided, the Tesla shareholders voted to reincorporate in Texas,[10] which is the state of Tesla’s headquarters.
In
Maffei, Maffei indirectly owned a controlling interest in Tripadvisor.[11] The board of Tripadvisor considered reincorporating from Delaware to Nevada. One of the reasons was to “enjoy a higher level of protection against personal liability.” Another was to avoid the increased risk of litigation in Delaware against controlling shareholders.
Ultimately, the board and shareholders of Tripadvisor approved the reincorporation to Nevada, with Maffei’s controlling ownership interest controlling the vote. A minority shareholder sued, seeking to enjoin the transaction. The chancery court declined to grant defendants’ motion to dismiss. It held that the fairness test
could apply if the decision to reincorporate conferred a non-ratable benefit on defendants – something that was arguable on the facts. It also held that plaintiffs had adequately alleged facts that could show that the transaction was not fair.
The Delaware Supreme Court overturned the chancery court decision, finding that there was no non-ratable benefit conferred on the defendants triggering fairness review. Thus, it held that the business judgment rule applied to the reincorporation decision.[12]
Both of the above cases were widely viewed as creating a hostile environment in Delaware to controlled corporations. That is likely why in 2025 over half of the companies that sought to reincorporate outside of Delaware had a controlling shareholder.[13]
More Reasons
Other reasons have also been given for corporations to reincorporate outside of Delaware. One is that Delaware courts are viewed as ordering high fee awards.[14] Another is the cost of being a Delaware corporation – indeed, that was one of the reasons the board of Tripadvisor approved the reincorporation in Nevada.[15]
On top of this, Texas and Nevada recently amended their laws to attract more out-of-state incorporations. For example, Nevada amended its corporate law to allow Nevada corporations to waive the right to jury trials in disputes involving internal affairs so that such disputes are heard by a judge, similar to Delaware. Nevada also limits who constitutes a controlling shareholder to shareholders who have voting power to elect at least a majority of the board, and creates a presumption of no breach of fiduciary duty in a transaction with a controlling shareholder where a disinterested board committee approves the transaction.[16] In addition, Nevada is currently piloting the creation of a specialty business court (also like Delaware), to increase the expertise and speed of the resolution of business law disputes.[17]
Texas also recently established specialty business courts and modified its corporate statute to, among other things, clearly enumerate (and limit) how shareholders can rebut the business judgment rule. It also allows a waiver of the right to a jury trial for internal affairs disputes.[18]
Is DExit Right for Your Clients?
You might be wondering if DExit is right for your clients. And if so, in which state your clients should reincorporate.
Initially, the data showing a trend toward reincorporations outside of Delaware has only been tracking public companies because it is much more difficult to gather that information for private companies. Relatedly, the companies reportedly DExiting are corporations, not entities formed as limited liability companies or others.
Also, the majority of corporations that are reincorporating outside of Delaware have a controlling shareholder. That is likely due to the cases discussed above, both of which involved controlling shareholders.
Finally, while there is much publicity about DExit, most corporations that were incorporated in Delaware are remaining as Delaware corporations.
So if you have a client who is incorporated in Delaware, if there is not a controlling shareholder, the calculus of where to incorporate has likely not changed much. In fact, recent changes to the Delaware General Corporation Law (DGCL) have attempted to address the concern that Delaware corporations face high costs due to litigation in Delaware. For instance, a recent change to the DGCL clearly defines what records shareholders can inspect on demand, and increases the procedural requirements for making a demand to inspect other books and records.[19]
Even when there is a controlling shareholder, the Delaware legislature’s recent amendments to the DGCL provide an easier-to-meet safe harbor to prevent a controlling shareholder transaction from being reviewed under the fairness test. Moreover, the DGCL provides that equitable relief is not available in these types of lawsuits.[20] These changes undoubtedly respond to
Musk and
Maffei and the risks they create for controlling shareholder transactions.
Where to Go
Even if a client were to DExit, if the client is headquartered in Wisconsin, it is not clear they would want to reincorporate in Nevada or Texas – because doing so would continue to expose them to an out-of-state corporate law as well as those states’ courts.
While Texas has a new business court system and Nevada has a business court pilot system, as we have seen in Wisconsin, it is not always easy to set business courts up for long-term success. In any event, those courts will not have the revered experience with corporate law that Delaware courts do, which means clients will not get the same level of confidence and predictability.
An Opportunity to Reflect
Still, lawyers might want to use DExit to reflect on whether a Wisconsin-based client should be organized in Delaware, Wisconsin, or elsewhere. For example, reincorporating in Wisconsin could save administrative fees, bring the client under the corporate law system with which the lawyer is most familiar, and, especially with an exclusive forum bylaw,[21] increase the chances that any litigation will be resolved in Wisconsin courts.
This article was originally published on the State Bar of Wisconsin’s
Business Law Blog. Visit the State Bar
sections or the
Business Law Section webpages to learn more about the benefits of section membership.
Endnotes
[1] “Why Businesses Choose Delaware,” Delaware.gov.
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[3] Glass Lewis,
The State of US Reincorporation in 2025: The Growing Threat and Reality of “DEXIT,” Oct. 9, 2025.
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[4] 310 A.3d 430 (Del. Ch. Jan. 30, 2024) [Musk], at available at
courts.delaware.gov.
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[5] 311 A.3d 255 (Del. Ch. 2024) [Maffei 1], overruled, 339 A.3d 705 (Del. 2025) [Maffei 2], at
courts.delaware.gov.
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[6]
Musk at 486-7.
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[7]
Id. at 497-520. (The court dedicated much space to analyzing whether Musk was a controlling shareholder. While that part of the case is intriguing, it is not the main point here. However, a lawyer with a client who owns a significant block of shares of stock in a Delaware corporation, but not over 50%, and who is involved in decision-making, might want to read the cited part of the case.)
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[8]
Id. at 520-33.
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[9]
Id. at 533-38.
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[10]
Tesla Inc. Current Report on Form 8-K, June 13, 2024.
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[11]
Maffei 1,
supra note 5, at 264-82.
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[12]
See Maffei 2, supra note 5, at 711.
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[13] “The State of US Reincorporation in 2025: The Growing Threat and Reality of ‘DEXIT’,” Glass Lewis, Oct. 9, 2025.
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[14]
See, e.g., Andrew Ross Sorkin, et. al, “Companies Rely on Delaware Courts. Lawyers Reap Huge Fees There,”
New York Times Dealbook, June 2, 2025. For a counterpoint, see Gilda Sophie Prestipino and Michael Klausner, “Attorneys’ Fee Awards in Delaware: A Normative and Empirical Analysis,” 2026 Columbia Business Law Review, p. 57.
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[15]
See Maffei 1, supra note 5, at 712.
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[16] Matthew A. Schwartz, et al., “Summary of Recent Changes to Delaware, Nevada, and Texas Corporate Law,”
Harvard Law School Forum on Corporate Governance, July 5, 2025.
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[17]
See April Cornus Girnus, “Nevada Takes Steps Toward Becoming Corporate Litigation Hub with Business Court Pilot Program,” Nevada Current, June 26, 2026.
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[18]
Id.
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[19]
See DGCL 220(g) (2026). While the Delaware legislature was contemplating capping attorneys’ fees, that initiative has not moved forward.
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[20]
See DGCL 144 (2026). There remains a heightened cleansing vote required for going-private transactions.
Id.
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[21] Such bylaws are valid if they are not unreasonable or unconscionable.
See
Leasefirst v. Hartford Rexall Drugs, Inc., 168 Wis. 2d 83, 88-89, Wi. Ct. App. 1992.
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