Are Billionaires Leaving Delaware?

TESLA CEO Elon Musk made headlines early in February after he moved his brain-chip implant company, Neuralink, from Delaware to Nevada. The announcement comes after it was revealed that Delaware’s Chancery Court revoked his $56 billion pay package. 

Musk’s decision has since revived the long-standing debate of which state is better for incorporation: Delaware or Nevada? It would be only a matter of time before other entrepreneurs do their big moves as to whether or not follow in Musk’s footsteps regarding his recent business decision.

In this blog, we’ll discuss the emerging trend of billionaires moving their businesses out of the First State and explore the competition between states for corporate charters.

Are Billionaires Leaving Delaware?

Since Musk announced his plans to move his ventures out of Delaware, other billionaires have also expressed their interest in leaving the state. 

Greg Maffei, CEO of Liberty TripAdvisor, has been very vocal about rechartering TripAdvisor to the Silver State.

Last spring, the online travel company asked its shareholders to support its reincorporation plan in Nevada. Most investors voted in favor of the idea. However, the move was postponed when two minority shareholders decided to sue Maffei. 

The plaintiffs alleged that Maffei and the other directors of the companies were acting in their personal interests. They argued that Maffei wanted to move TripAdvisor to Nevada so that he could reduce his potential for liability claims. 

TripAdvisor has held off its reincorporation until the court reaches a decision. 

An Enduring Trend

Contrary to popular belief, Musk isn’t the first billionaire to question Delaware’s reputation as a corporate haven. Neuralink is also not the first major company to leave the state. 

For years, several notable businesses have moved out of the First State. One case that comes to mind is TransPerfect. 

TransPerfect, the world’s largest language service provider, left Delaware in 2018. The move to Nevada, now called the Dexit, happened after a lengthy litigation over the court-ordered sale of the company.

TransPerfect president and CEO Phil Shawe said in a statement, “Delaware was the default option for most companies, including TransPerfect.” But according to him, “times have changed and other states, Nevada being one of them, have presented themselves as a compelling alternative to the First State.”

Shawe added, “Nevada has a reputation for having a rational and predictable judiciary that protects the interests of officers, directors, managers, employees, and stockholders.” 

TransPerfect’s case shows that other states like Texas and Nevada are gaining ground in the competition despite Delaware’s best efforts to stay ahead.

A Lifelong Rivalry

There’s a reason why so many states are after Delaware’s corporation charters. The First State is home to more than 60% of Fortune 500 companies; each year, the state earns billions from them. 

States like Texas and Nevada have long tried to beat Delaware in its game. But out of all of them, Nevada was the only one who came closest.

Recent statistics highlight that Nevada attracts up to 10% of out-of-state corporations in the country, positioning itself as the second most popular choice after Delaware. But how did Nevada do this in the first place?

University of Virginia School of Law Professor Michal Barzuza said that the Silver State deliberately created a legal Wild West to attract companies incorporated in Delaware. 

She explained in her paper entitled “Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction” that in 2001, the state made “no liability” mandatory in its exculpation clause from 1987. 

Nevada raised its negligible annual incorporation tax to 10,000% a year after that. This rate was higher than most states, but it was still cheaper than Delaware’s taxes. The following year, it changed its “no liability” condition to be the default rule. 

Since then, more and more companies have moved to Nevada. 

What This Means For The Future

Despite all the negative press that Delaware has been getting, experts believe it will still be the number one destination for businesses looking to incorporate. 

Barzuza mentioned in a Q&A session that most established law firms will advise entrepreneurs to go to Delaware. After all, their courts are extremely proficient, and their judges are known experts in corporate law. 

However, she says we will likely see more businesses migrating to Nevada. Musk’s decision to leave Delaware has caught the attention of other billionaire entrepreneurs, causing them to reconsider their location. 

The Nevada Edge

Incorporating in Nevada comes with advantages. With low tax burdens, comprehensive privacy protections, and a strong corporate veil, the state was able to develop a robust legal infrastructure that could go head-to-head against Delaware. 

Moreover, the Silver State has several incentive programs to support aspiring entrepreneurs. 

The Governor’s Office of Economic Development has established Opportunity Zones and Emerging Small Business Programs to promote growth in local communities. 

Aside from this, they also have the Nevada Business Opportunity Fund and the Nevada Small Business Development Center, two government-backed resources that offer training and financial aid to new and growing ventures. 

Lastly, the State Small Business Credit Initiative (SSBCI)’s Battle Born Venture allows business owners to access loans and growth accelerator programs. 

Ultimately, the Silver State has created a community where small businesses can grow and thrive. 

Find The Perfect Home For Your Business Today

If you don’t know which to choose between Delaware and Nevada, NCH is here to help you. 

NCH is Nevada’s leading business formation service provider. Our team of business specialists will assist you in choosing the perfect home for your business.

At NCH, we understand how complicated the incorporation process could be. That’s why we’ve made it our mission to guide entrepreneurs like you through every step of the way.  We will make sure that your formation documents are filed and processed properly. 

To learn more about our incorporation services, visit our website here or call us at 1-800-508-1729 to schedule a consultation.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.