In a surprising turn of events, a year after Elon Musk advocated for U.S. companies to leave Delaware and move to Texas, the two states are now engaged in a legal battle over corporate law. Delaware has long been the preferred legal home for many large corporations due to its favorable corporate laws, but recent events, including Musk’s pay package being rescinded, have caused companies to consider relocating. In response, Delaware lawmakers have proposed a bill that creates safe harbors for transactions involving controlling shareholders and makes it harder to challenge director independence.
On the other hand, Texas is considering a bill that enshrines the business judgment rule and limits derivative lawsuits unless brought by investors with a significant stake in the company. Governor Greg Abbott has expressed support for the bill, which could make Texas a more attractive state for incorporation. This competition between states over corporate law is unprecedented, with experts noting that Delaware has historically been the winner in attracting corporations. The future of corporate law in the U.S. may be shaped by this battle between Delaware and Texas.
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