After Dropbox, Meta, and Tesla re-incorporated outside of Delaware, many business leaders are wondering whether they should incorporate their company in Delaware or choose Texas or Nevada instead.
For decades, Delaware has been the top choice for businesses looking to incorporate in the United States. Its business-friendly laws, well-developed legal system, and specialized chancery court are why both startups and major corporations have chosen Delaware to incorporate their businesses.
Yes, Dropbox recently left Delaware and incorporated in Nevada. But does that mean you should not incorporate your company in Delaware? Lots of my clients are wondering this exact thing given the handful of giant companies moving out.
80% of all US IPOS were incorporated in Delaware.
Companies aren’t leaving Delaware just because of the recent court decision to block Elon Musk’s $55.8 billion executive compensation package, despite some recent media commentary. The most recent statistics show that roughly 80% of all U.S. initial public offerings in 2023 were registered in Delaware. Despite the franchise tax, which frankly should not deter more companies from incorporating in Delaware.
68% of all Fortune 500 companies are incorporated in Delaware.
Let me throw another statistic at you. According to the latest statistics from Delaware’s Division of Corporations, 68.2% of all Fortune 500 companies are incorporated in Delaware.
One of my clients asked me a good question today. He asked whether the Delaware ruling against Musk will lead to institutional investors no longer preferring Delaware as the state of incorporation. The short answer is no. I don’t think the court decisions will change institutional investors’ mentality about requesting Texas or Nevada over Delaware.
These high-profile cases shine a spotlight on Delaware’s courts’ willingness to scrutinize high executive pay or certain corporate governance practices. Due to its well-developed and predictable corporate legal framework, incorporating in Delaware is better than Texas for privately held startups and private mid-market companies.
Let’s do a bit of legal analysis.
Is Elon Musk’s pick, Texas, better than incorporating in Delaware?
The key thing to understand is that Tesla’s move to Texas isn’t about a specific business-friendly policy but rather a response to Delaware’s chancery court blocking Elon Musk’s compensation package. That said, Texas has made some changes that could make it more attractive for corporate incorporation in the future.
Last year, Texas established its own specialized business court. While this is a step in the right direction, it faces the same challenge as Wyoming. In contrast, Delaware has had a business court since 1792! That long-standing legal expertise will continue to give it an advantage.
Another factor in Texas’s favor is its place within the Fifth Circuit Court of Appeals, known as the most conservative and pro-business federal circuit in the country.
Incorporating in Delaware Benefits
For most startups looking for investment capital, and yes, also for many enterprise companies, Delaware is still the leader. Here’s an example of why that benefits my clients often.
The example: Texas corporate law grants non-waivable inspection rights to minority shareholders with 5% or more in a privately held corporation. Delaware, however, requires a “proper purpose” for such access.
Unlike Texas, majority shareholders in a Delaware corporation can use their majority power to draft the company’s governing documents or negotiate stockholder agreements in their favor. These documents, drafted by creative and experienced corporate lawyers, set more detailed rules about what information is shared with stockholders and when, rather than simply leaving it to statutory rights in favor of minority shareholders. There are many more examples like this to support why incorporating in the state of Delaware is still the better choice for both institutional investors and founders, as well as corporate officers and board directors who want to have the best liability shield and retain control of company information.
Private Equity and Venture Capital Firms Still Favor Delaware Corporations, Especially for Tech Companies
For a later stage company, private equity aims for a controlling interest. And at early-stage investment, while institutional investors might not hold majority ownership, they secure protective provisions (board seats, veto rights, liquidation preferences) ensuring they can influence major decisions.
Delaware has been the corporate formation leader for decades. Which is why Delaware’s decision to block Musk’s $55 billion compensation package is not going to change institutional investors’ mentality to request Texas or Nevada versus Delaware for a host of legal reasons.
Incorporating in Nevada vs Delaware?
Nevada is a popular alternative to Delaware, mainly due to cost savings and legal protections. Unlike Delaware’s franchise tax, which ranges from $175 to $200,000 annually, Nevada has none, making it more affordable for startups.
Like Delaware, Nevada corporations have strong liability protections for corporate officers and the board of directors, shielding them from personal responsibility unless misconduct is intentional, fraudulent, or a clear legal violation. However, too much of this can also make it harder for shareholders to hold officers accountable.
One drawback to incorporating in Nevada is the lack of a specialized corporate court, which Delaware, Wyoming, and Texas have. While Nevada corporations may save on taxes and liability, they might face slower or less predictable legal rulings.
In Summary
Tech startups and large tech companies will continue to choose to incorporate in Delaware. Of course, as time passes, it’s worth continuing to ask whether Delaware is still the best option.
Keep in mind that incorporation decisions should factor in more than just state popularity. Some states may provide better legal protections in cases like IP infringement disputes. It’s always smart to consult with a corporate attorney before making a corporate formation decision.
Reach out if you want to chat about whether you should re-incorporate your company to a different state.
FAQ
1. Why do so many Companies Choose to incorporate in Delaware?
Delaware is famous for its business-friendly legal framework, particularly its Court of Chancery, which deals exclusively with corporate disputes. Its well-established precedents also provide comfort to venture capitalists and other investors.
2. Does Texas have a Franchise Tax Corporations and Startups than Delaware?
Texas imposes no personal or corporate state income tax, while Delaware charges a franchise tax on corporations. For early-stage startups, the franchise tax in Delaware should be minimal.
3. What’s the cost of incorporating in Texas compared to Delaware?
Overall, Texas tends to have lower ongoing expenses (e.g., real estate, labor, and utilities). Delaware’s franchise tax and fees can add up, but its strong legal framework may still offset those costs for high-growth companies.
4. Should I incorporate in Texas if I want to attract Investors?
It depends on your fundraising goals. Many investors feel most comfortable with Delaware’s well-trodden legal structure. While Texas is becoming more appealing, especially for local operations, Delaware is still the default for venture-backed startups.
5. How does Nevada compare for incorporation to Delaware and Texas?
Nevada offers no corporate or personal income tax and strong privacy protections, making it popular for some small businesses. However, both Texas and Nevada lack the extensive corporate legal precedents that make Delaware the gold-standard among large-scale investors and rapidly scaling startups.
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About the Author

Jana Gouchev isn’t just a lawyer. She’s a strategic partner for SaaS, AI, and tech-driven businesses looking to scale, secure enterprise deals, and stay ahead of evolving regulations. As Managing Partner of Gouchev Law in NYC, Jana brings top-tier expertise in Corporate Law, Data Privacy, AI Law, Complex Commercial Contracts, IP, and M&A, with a strong track record of negotiating high-stakes deals.
With experience at an AmLaw 50 firm, Jana advises executives at industry-leading brands like Estee Lauder, Hearst, Barclays, Nissan, and cutting-edge SaaS and consulting firms. Frequently quoted in Forbes, Bloomberg, and Business Insider, she’s recognized as a go-to legal mind for the tech world.
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