At the beginning of the 20th century, the first state to register companies in the United States was New Jersey, home to the largest American corporations, such as Standard Oil. Other states, including its tiny next-door neighbor, coveted the tap of easy money that came from business incorporation. “Little Delaware, gangrenous with envy at the spectacle of New Jersey truckers, clam-pickers, and mosquitoes stuffing all the country’s money into their coffers, is determined to get her sweet, round little baby in the bag. sweet things,” the American Law Review wrote at the time.
At the beginning of the 20th century, the first state to register companies in the United States was New Jersey, home to the largest American corporations, such as Standard Oil. Other states, including its tiny next-door neighbor, coveted the tap of easy money that came from business incorporation. “Little Delaware, gangrenous with envy at the spectacle of New Jersey truckers, clam-pickers, and mosquitoes stuffing all the country’s money into their coffers, is determined to get her sweet, round little baby in the bag. sweet things,” the American Law Review wrote at the time.
It was successful. As New Jersey tightened its laws in response to the antitrust fervor of the 1910s, businesses realized the grass was greener across the Delaware River. The resulting corporate migration has made Delaware the charter capital of the United States. In 2022, 1.9 million companies were established in the state, almost two for each of its citizens. More than two-thirds of the Fortune 500 list of America’s largest companies by revenue are registered there (as are some entities linked to The Economist). In Wilmington, its largest city, the office towers are its anonymous business addresses. Business taxes and fees generated about $2 billion for the state in 2022, a large portion of its annual budget.
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It was successful. As New Jersey tightened its laws in response to the antitrust fervor of the 1910s, businesses realized the grass was greener across the Delaware River. The resulting corporate migration has made Delaware the charter capital of the United States. In 2022, 1.9 million companies were established in the state, almost two for each of its citizens. More than two-thirds of the Fortune 500 list of America’s largest companies by revenue are registered there (as are some entities linked to The Economist). In Wilmington, its largest city, the office towers are its anonymous business addresses. Business taxes and fees generated about $2 billion for the state in 2022, a large portion of its annual budget.
It’s no surprise, then, that other states are now eager to put their own gloves on the spigot by offering companies even richer incentives. Some aggrieved moguls, like X’s chief troll Elon Musk, are helping to make their anti-Delaware arguments. To assess his chances, his columnist visited Nevada, which has long wanted to be as conducive to business registration as it is to nuptials. As Benjamin Edwards, a law professor at the University of Nevada, Las Vegas, says: “There’s dreary Wilmington and the Texas wastelands. Or there’s fabulous Vegas.”
Las Vegas business courts are a long way from Wilmington Chancery Court. They are in the general courthouse, so they search you for weapons before entering. Its location on the 16th floor provides a feeling of being far above the commotion. However, the first case Schumpeter heard was down to earth: it involved mold in a rental property. A document on the desk of Mark Denton, the judge in that case, is a reminder of the state’s long battle to be taken seriously. “Transforming Nevada into the Judicial Delaware of the West: How to Fix Nevada’s Business Courts,” from 2016, pointed out three problems. Business judges did not publish their opinions, making the system unpredictable. They were forced to work on business and non-commercial cases, which made it slow, and Nevada had two commercial court districts, Las Vegas and Reno, which meant some laws were interpreted differently, the newspaper concluded, still has a lot to clean up before facing Delaware. .
You don’t find that kind of soul-searching in Wilmington. The last time his columnist visited, the sense of having the right to set the country’s de facto corporate law was palpable. He dined, tie obligatory, at the Wilmington Club, a place where corporate lawyers ate, drank and discussed the day’s business decisions over brandy and cigars. Read some of the erudite rulings that have recently emerged from the Court of Chancery, interspersed with discussions of the “Soritic paradox” and Shakespeare, and they leave little doubt that business law is as prized in the blue-blooded areas of Wilmington as they are the slot machines. In exciting Vegas, Delaware’s preeminence is rarely questioned.
Now is one of those rare moments. An avalanche of rulings has been a cause for concern. The most prominent critic has been Musk, who attacked Delaware in January after the Court of Chancery struck down his $56 billion pay package as Tesla boss. In response, he reincorporated Neuralink, his brain implant company, in Nevada, and filed to move SpaceX, his rocket business, to Texas. TripAdvisor, an online travel company chaired by Greg Maffei, a media mogul, is moving to Nevada to save money and spare the board “undeserved litigation,” he says. A Chancery Court judge recently ruled that Delaware could not stop the move, although it allowed shareholders to sue for compensation.
Delaware advocates instinctively dismiss their critics. At a meeting this month at the Tulane Corporate Law Institute in New Orleans, panelists noted that in the past some of Delaware’s most vocal antagonists, such as Conrad Black, a publisher, were later convicted of fraud (Lord Black was pardoned by Donald Trump when he was president). However, law professors say recent rulings — not just the Musk case but also Delaware’s efforts to reject agreements by which controlling shareholders, such as private equity firms, govern their publicly traded subsidiaries — have raised concerns about the unpredictability of Delaware’s rulings. Some buying companies are said to be thinking about moving to Nevada.
Francisco Aguilar, Secretary of State of Nevada, highlights its selling points. Nevada leans in favor of majority shareholders in its “constant tension” with minority investors, he says. He points to the “approachability” of state legislators to business owners who want to influence corporate charters, behavior very much at odds with Delaware. But Aguilar also recognizes local deficiencies. Nevada’s low rates partly reflect poor service. Its business registration system has been “taped together” for too long, he says, and it is in the midst of a $15 million upgrade. Faced with such limitations, companies seeking an alternative to Delaware have often preferred Wyoming or North Dakota. , he admits.
If Nevada offers lax shareholder protections to attract companies, the danger is that investors will value companies that move there less. This means Delaware has little to fear from Nevada (or any other state) for the time being. But competition could still prove healthy, even if it involves rivals offering laxer corporate standards, keeping Delaware on its toes. It may even make the First Estate less unbearably smug.
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