TheCorporateCounsel.net

This Delaware question seems to be part of the current corporate zeitgeist — not just because of Musk. This Wilson Sonsini alert notes that a conversation has emerged recently about Delaware as the favored state of incorporation and that many clients have inquired about this. Clients cited the number of recent cases with unexpected results, a perception that Delaware judges have an increasingly suspicious attitude toward corporate players, that Delaware case law can pose particular challenges for companies with influential founders or stockholders and the active plaintiff’s bar.

The alert concludes with the expectation that Delaware is likely to remain popular after listing numerous reasons Delaware has been “a favored state of incorporation for over a century.” Those include:

– A talented, responsive, and knowledgeable judiciary.
– An up-to-date and carefully considered statute.
– Developed case law.
– A nimble and user-friendly Secretary of State’s Office.
– Delaware law’s flexibility.
– Delaware’s sophisticated bar and Delaware law as a known currency.

For us corporate folks, here’s more on the Delaware judiciary, some of which you probably know and some of which you may not:

The Court of Chancery […] consists of seven judges, increased from five judges in 2018 to handle the court’s ever-growing workload. There are no juries or punitive damages. The Delaware Superior Court is the other trial court in Delaware, with jurisdiction over business disputes that do not come within the ambit of the Court of Chancery—for example, many types of contract disputes involving claims for money damages. The five judges who serve on the Complex Commercial Litigation Division of the Delaware Superior Court are experienced and routinely decide business disputes quickly, and parties can elect to proceed without a jury trial.

The judges come from Delaware’s generally respected and sophisticated bar—and often its corporate bar. As a result, the judges are generally well versed or expert in corporate law from the moment they take the bench. In contrast to the approach of many other jurisdictions, Delaware judges are not elected and are instead appointed and vetted through a careful process: candidates apply to become judges; candidates are screened by Delaware’s Judicial Nominating Commission, which consists of Delaware lawyers and officials and makes recommendations to the Delaware governor; Delaware’s governors are known for carefully evaluating and selecting judges; and any judicial nominee selected by the governor must be confirmed by the Delaware Senate.  Delaware’s judges serve 12-year terms.

The Delaware courts also act quickly. […] There is a direct right of appeal from the trial courts to the Delaware Supreme Court and, in certain circumstances, appeals can be heard on an expedited basis in a matter of weeks or even days. Even in less exigent cases, the Delaware courts often hear cases in months rather than years.

The alert suggests that companies considering other states of incorporation carefully consider relevant counterpoints to their concerns about Delaware and, for other states, to understand the “substance of the corporate law” and the “landscape of their courts.” To that end, the alert discusses a non-exhaustive list of considerations for Texas, Nevada and California. Delaware corporations considering a reincorporation should also consider the Chancery Court’s decision in TripAdvisor (although that’s been granted interlocutory review).

– Meredith Ervine