We're Leaving Delaware, and We Think You Should Consider Leaving Too

1. They moved out of Delaware “due to recent actions by the Court of Chancery, which have injected an unprecedented level of subjectivity into judicial decisions, undermining the court’s reputation for unbiased expertise. This has introduced legal uncertainty into what was widely considered the gold standard of U.S. corporate law.”

“The foundation of Delaware’s historical reputation has been non-ideological, specialized business courts that have developed a robust body of case law around the so-called “business judgment rule”, legal shorthand for a (rebuttable) presumption borrowed from English common law that boards of directors act in good faith and with informed judgment when making business decisions. Over the years, the Delaware courts developed a limited number of objective, common sense exceptions to this general rule; however, recently, those exceptions have begun to swallow the rule. Director independence has been questioned in cases where the board has granted “moonshot” grants to exceptional founders, and in one notable case the court reprised the chorus from Hotel California by rejecting a board’s decision to move its place of incorporation out of Delaware (although it was later reversed by the Delaware Supreme Court). This has rightly caused tech startup founders to question the primacy of Delaware.

Although the Delaware Legislature has taken some exception to these developments, its actions fail to take full measure of the problem. In particular, Delaware courts can at times appear biased against technology startup founders and their boards. Litigation – even where successfully defeated – is costly and time consuming, particularly for the tech startups that need every penny they raise to build innovative companies. The resulting legal uncertainty is a real cause for concern for entrepreneurs and their professional investors who often sit on their boards. As a result, many of the companies we fund and the entrepreneurs that we talk to are taking a second look at whether they should incorporate in other jurisdictions, prompted by the departure from Delaware of significant technology companies like Dropbox, Tripadvisor and Tesla.”

2. They chose NV, because “In contrast, Nevada has taken significant steps in establishing a technical, non-ideological forum for resolving business disputes,” and “has historically been a business friendly state with fair and balanced regulatory policies.“

“Nevada has taken a different path, choosing instead to codify the business judgement rule in statute, eliminating the ability of judges to modify or change the rule. In addition, the Nevada legislature recently passed two measures that take significant steps toward upgrading its existing business courts into specialized venues to resolve complex commercial disputes. AB 239 provides for a waiver of jury trials in civil cases, while AJR 8 calls for the adoption of a constitutional amendment to permit the direct appointment of business court judges by the Governor, rather than through the current system of elections. Both measures passed with overwhelming bipartisan majorities in the state Assembly and Senate, receiving the support of Nevada’s Republican Governor and Democratic Secretary of State, Speaker of the Assembly, and Senate Majority leader. While more work remains to be done on reforming Nevada’s business courts, we think that these measures represent a critical step in making Nevada a destination of choice for entrepreneurs.”

Taxation is mentioned nowhere.

What are the bases for your distrust in the stated reasoning?