Corporate Law: Dexit

Written by Hayden Martz, Luke Fiur, Valeria Trejo-Brandt, and Anna Ramesh

Edited by Anna Ramesh

Background

The "Dexit" phenomenon, an abbreviation for Delaware Exit, refers to a recent trend of major corporations relocating their state of initial incorporation from Delaware, a state previously known for its business-friendly and predictable corporate jurisdiction, to states like Texas or Nevada. The significance behind this trend is derived from two main changes: the first being the transition away from Delaware being a prime location for corporate consolidation, a common practice adapted by Delaware that highlights and prioritizes corporations, and the increasing number of states transitioning toward specialized court systems that are adapted for the size and profit of large corporations. Considering these recent state-law alterations toward corporate incorporations, any deviation from the existing Delaware standard can have heavy implications for regulatory oversight, governance standards, and litigation exposure.

To propel economic influence and local economies, states such as Nevada and Texas have been amending their state laws of incorporation to be more amenable to corporate welfare, proposing more competitive legislation to attract the substantial revenue and economic prestige that often accompanies the state chosen for an enterprise's incorporation. For both growing and well-established companies, the process of selecting a primary state for operations is a decision that leverages different strategic advantages, potentially influencing critical outcomes in processes like court efficiency and statutory flexibility. Each state has been emphasizing alternative advantages for corporations, with Delaware influencing a standard of a predictable legal environment, leaving legal outcomes to little speculation, providing corporate boards and shareholders with significant legal security. Alternatively, Texas has been emphasizing an enterprise-friendly approach through implementing exclusive venue provisions and

jury-trial waivers, whereas Nevada touts privacy protections and preemptively addresses fiduciary duties by controlling stockholders.

In response to considerable legal changes in the corporate landscape, the state of Delaware heavily guarded the passage of Senate Bill 21 (SB21) and articulated resolutions aimed at revising the Delaware General Corporation Law (DGCL). Between February and March of 2025, the state (through DGCL § 144) extended the safe harbor business judgment rule to include controlling stockholders and established more transparent definitions for material interest and disinterested directors and or stockholders. Previously, the SHBJ judgement rule was limited to a rudimentary set of disclosure exclusions, whereas the transition through provision 144 provides a significantly-larger safety net. Another significant alteration to Delaware's legal landscape was the adaptation of DGCL § 220, which clarified and restricted the inspection rights of shareholders, limiting and enumerating precisely which corporate records may be demanded. These contemporary measures were purposefully intended by the state of Delaware to attract and provide competitive advantages for corporations against the newly established enterprise-friendly laws enacted by Texas and Nevada as an attempt to regain their prior position as a dominant state for high-profile corporations to base themselves in. These corporate policy reforms are strategically designed to counteract the pressure caused by the Dexit trend, which is at risk of increasing with every new policy or law enacted by other states. Despite recent changes to the corporate legal environment, Delaware has successfully retained several corporate incentives, prompting alternative policies with urgency to continue competing and maintaining its position in the corporate landscape. More specifically, Delaware's sophisticated legal infrastructure, such as its long-time fundamental corporate court dubbed the Court of Chancery, which has over a century's worth of specialization in corporate disputes and has a robust composition of both case law and judicial expertise. Through these distinctive corporate practices, Delaware has firmly established its dominance as an efficient and inimitable legal power, a feat difficult to replicate in competing states.

Senate Bill 29 and 1057

In 2025, Texas passed two new laws, Senate Bill 29 and Senate Bill 1057, that reshape the rules for how companies operate when they choose to incorporate in the state.These updates are part of a broader effort to make Texas a more appealing place for businesses by offering clearer legal protections, reducing litigation risk, and giving companies more control over internal governance , especially when compared to long-standing corporate hubs like Delaware. The slogan attached to this effort says it all: "Texas: Open for Business."

At the heart of S.B. 29 is the official adoption of a business judgment rule. This means that if company leaders (such as directors and officers) make decisions for the business, courts will generally trust that those decisions were made honestly and with the company's best interests in mind. Unless someone can prove otherwise with solid evidence, judges will assume the people in charge did the right thing.

The law also makes it harder for shareholders to bring derivative lawsuits. A derivative lawsuit is where a shareholder sues on behalf of the company. Prior to the enactment of S.B. 29, any shareholder, regardless of how much stock they held, could bring a derivative lawsuit on behalf of the company. Under the new law, however, only shareholders who meet a minimum ownership threshold have that right, effectively reserving this legal tool for those with a more substantial stake in the business.

The idea is to prevent people with tiny stakes from filing lawsuits that could slow down or distract a business, especially if their goal is just to pressure a company into settling.

Another major change is that companies in Texas can now waive jury trials in their organizing documents. Now, if someone sues the company, the case might be decided by a judge alone, not a jury. Businesses often prefer this because judges are more predictable, and the process can be quicker and less expensive.

S.B. 29 also tightens the rules around what shareholders can look at when they request corporate documents. Emails and other electronic messages no longer count as official company records that shareholders can automatically inspect. This reduces the amount of internal communication that companies are required to hand over and protects more of what happens behind the scenes.

Senate Bill 1057, passed just a few days later, gives additional control to large, publicly traded companies based in Texas. It lets them require shareholders to own a certain amount of stock before they are allowed to submit proposals for a shareholder vote, such as changes to policies or leadership. This change is meant to discourage people who own just a few shares from flooding the company with proposals that may not reflect the interests of most investors.

Taken together, these new laws show a clear effort by Texas lawmakers to make the state more business-friendly. Companies might be more likely to incorporate in Texas now that they have extra protections against lawsuits, shareholder demands, and unpredictable court outcomes.

Though not without its drawbacks. Some legal experts point out that incorporating in Texas might also make companies more vulnerable to lawsuits over intellectual property because of how court jurisdictions work in the state. So while Texas might seem like a good deal for business, it could come with legal risks that companies will have to consider carefully.

In the bigger picture, these laws show that Texas wants to compete directly with Delaware, long seen as the go-to state for incorporation. Whether these changes will be enough to shift that balance remains to be seen, but what is clear is that the rules of the game are changing, and Texas is making a move toward the head of the table.

Comparison of other states

n recent years, Nevada has made a deliberate effort to position itself as a competitive alternative to Delaware in the field of corporate governance by enacting a series of substantial statutory reforms. These changes, which were introduced during the 2023 and 2024 legislative sessions, were designed to attract more companies to incorporate in Nevada by offering a legal framework that is more favorable to corporate directors, officers, and controlling shareholders. The reforms are part of a broader initiative by Nevada lawmakers to create what has been described as a more predictable and practical environment for corporate operations and governance. Supporters of the legislation argued that Nevada could distinguish itself by providing greater legal certainty and by minimizing the risk of shareholder litigation, particularly in cases involving fiduciary duties and conflicted transactions.

Unlike Delaware, which relies heavily on judicial interpretation and case law to define the contours of corporate duties and liabilities, Nevada has chosen to focus on codified statutes that provide clearer rules for corporate actors. This statutory approach is intended to reduce ambiguity and to give corporate decision makers more confidence in the legal protections available to them. 

The changes to Nevada corporate law also reflect an economic development strategy focused on increasing the number of businesses that choose to incorporate in the state. By offering a legal system that places fewer burdens on corporate insiders and limits the avenues available for shareholder lawsuits, Nevada aims to generate additional revenue through incorporation fees and to build its reputation as a business-friendly jurisdiction. While critics have raised concerns that these reforms could weaken shareholder protections, lawmakers in Nevada have emphasized the importance of providing legal clarity and reducing what they view as excessive litigation risks. This perspective has guided the development of reforms that include the waiver of jury trials in shareholder disputes, the narrowing of fiduciary obligations for controlling shareholders, and broader protections under the business judgment rule.

Next steps

While it may take some time to see the impact of new legislation being passed in Delaware, Texas, and Nevada, it is likely that companies will see a reduction in derivative suits from shareholders. Starting in Delaware, where about 68% of US-traded public companies, a company that any individual can purchase and trade share of, are incorporated and 80% of US-based IPOs are launched, shareholders will encounter more barriers when trying to access internal records. Amendments from S.B. 21 will modify both sections Sections 144 and 220 under Delaware General Corporation Law, greatly reducing the scope of what was previously considered a part of books and records. The amendments are likely to effectively eliminating rights to obtain emails, texts, and other documents whenever requested. Thus, shareholders, anyone holding a share of the company will have a more difficult time compiling evidence, leading to fewer suits and also, potentially, less effective ones.

As Texas aims to attract more companies to incorporate, especially those that were previously incorporated in Delaware, their state legislature, too, targeted derivative suits. Under S.B. 29, the minimum requirement of ownership of outstanding shares to file a suit was raised to 3%. For example, if an individual wanted to file a suit with Apple, they would need to own about $75 billion worth of shares to even qualify.

Nevada, like Delaware and Texas, also restructured some of its laws to limit the potential for derivative suits by allowing cases to be heard in front of a bench trial. Bench trials make it more predictable for defendants (the company) to shape their arguments while also eliminating the concern and preparation that comes with arguing before a jury. Decisions like this are one of the many ways that Nevada has attracted new companies, aiming to facilitate an advantage as the state with stable and predictable corporate law.

While each state is aiming to attract businesses in different ways, there still remain costs that may be untouched by the new bills. Although the number of derivative suits may decrease as a result of these state-to-state changes, other company expenses such as the premiums, the fee for Directors and Officers' liability insurance, could remain unchanged. It will take time for D&O insurance providers to gauge the direction corporate litigation is headed but it certainly seems to be shifting away from any situation where the plaintiff could have the advantage. If companies do save a significant amount from the potential decrease in derivative suits, D&O insurance costs may become cheaper in response to the lower demand. However, securities-associated suits are still a major risk for owners and officers so requisite prices may remain unchanged. So far legislation in Delaware, Texas, and Nevada seems more likely to hinder extraneous suits filed for a quick settlement; but companies are still at risk for other suits. While there may be a decrease in suits in all three states, Delaware still remains the top choice for companies to incorporate in.

Despite the rapidly changing landscape for corporate law, Delaware still remains the most dominant. The state has a predictable and lengthy history of precedent and case law which is not only attractive to companies seeking incorporation but to those in the legal profession. While having a highly specialized court that understands business allows for collaboration and efficiency, it also encourages companies to remain due to the familiar environment. Nevada and Texas are catching up fast, however. Recognizing the importance of having a business court has made it more of a necessity than a luxury for attracting new business.

Some individuals are alarmed by the ever-changing legal developments with the looming threat of a race to the bottom overhead. Because of the state-to-state freedom to attract companies in different ways, many believe that the most successful state will be the one with the least amount of limitations on companies. The emerging competition could also be beneficial as state legislators seek innovative ways to attract companies. A decrease in restrictions is not the only avenue, after all. Maryland still remains the Real Estate Investment Trust (REIT) capital of the country because it was the first state to begin creating a legal framework for companies to follow. The introduction of new legislation could open the door for new states to start building their own history.