Jody Serrano
Editor in chiefEditor in Chief at Xataka On. Before joining Webedia, I was a tech reporter at Gizmodo and The Messenger. While I've covered all sorts of things related to technology, I'm specialized in writing about social media, Internet culture, Twitch, and streamers.
Eager to prevent what some are calling “DExit,” Delaware passed a law this week that strengthened protections for cooperations and weakened them for smaller shareholders.
Here’s what you need to know.
SB 21. Originally written by the law firm Richards, Layton & Finger, which counts Elon Musk as one of its clients, SB 21 is a controversial update of Delaware corporate law. One of its biggest changes gives corporate officers and controlling shareholders—such as Mark Zuckerberg, who controls Meta—the ability to carry out certain deals without being challenged in court by other investors.
Furthermore, the law also makes it more difficult for shareholders to obtain internal company documents and communication when investigating a potential conflict of interest. SB 21 was referred to as the “billionaire’s bill” by its critics, who claimed that it mainly benefitted controlling shareholders and drastically limited the ability of investors.
The Musk factor. SB 21 is seen as a response to the drama between Musk and the Delaware Chancery Court, which rescinded his $56 billion Tesla pay package. In response, Musk. In response, Musk reincorporated his companies in Texas and Nevada. He urged other companies to do the same.
“Never incorporate your company in the state of Delaware,” Musk said on X.
Since Musk’s departure, other companies have said they’re also considering leaving Delaware, including Dropbox and Pershing Square Management. Famous for its corporate law courts, which are considered a go-to place to settle business disputes, Delaware is the legal home of more than 2.2 million companies.
Who cares if companies leave Delaware? Unsurprisingly: Delaware. There’s a good reason for it, too. One-third of the state’s operating budget, or roughly $2.2 billion, comes from corporate license fees and associated tax revenues.
Delaware is also one of four states with a 0% state sales tax rate. This is made possible, at least in part, by the billions in revenues it receives from the companies incorporated there, according to the Associated Press.
Pros and cons. Musk’s decision to leave the state, as well as his calls for other companies to follow suit, spooked lawmakers. State Rep. Krista Griffith encouraged her colleagues to vote for the bill to protect the state.
“Protect Delaware’s economy, protect future opportunities for the people in our state. We have the best business court in the nation,” she said.
However, SB 21’s opponents warned that the law could cripple Delaware’s courts, arguing that it could “cripple the golden goose.”
Ensuring “clarity.” In a statement after he signed the bill into law, Delaware Gov. Matt Meyer said that SB 21 would help “ensure clarity and predictability.” Proponents of the law argued that it would provide “predictability”to companies that were analyzing their options when it came to incorporation and deal-making
“Delaware is the best place in the world to incorporate your business, and Senate Bill 21 will help keep it that way,” Meyer said.
Image | Xataka On
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