Courts

Can Texas Replace Delaware As The Incorporation Hub?

They've already managed to get a huge name to defect locales.

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Texas bonus money cashAs hard as it can be to prepare for law school exams, some tests will usually have easy gimmie points on them. Expect your Con Law class to have a dormant commerce clause question. If a Crim Law question has you on the fence about if a 4th Amendment violation is excusable, side with the cops. But above all else, if you need to determine where a business can be sued, ASSUME DELAWARE.

That last one may change over time. While Delaware has long been the de facto incorporation site because of its generous tax benefits and privacy, Texas’ investments in to its business courts could shape up to snatch some big names from the Delaware Court of Chancery — thanks in part to Elon Musk.

Bloomberg Law has coverage:

[Elon Musk], with a net worth of more than $230 billion, abruptly initiated a shift of Tesla’s incorporation to Texas from Delaware earlier this year. Although Musk didn’t explicitly signal he would take advantage of the new business courts, the move came shortly after a Delaware Chancery judge tossed out his record-breaking $56 billion Tesla pay package, calling the sum “unfathomable.”

“Musk makes this a bigger deal than it probably would have been,” said Carliss Chatman, a corporate law professor at Southern Methodist University law school in Dallas. “There’s pressure on Texas to show itself and prove itself via Musk, because he is so litigious and he never settles.”

Texas’ reputation for being good for business will only be strengthened by its 5 freshly minted business court divisions in Austin, Dallas, Fort Worth, Houston and San Antonio that open on September 1st.

Even if Texas is laying the framework to challenge or usurp Delaware’s status as the default incorporation hub, there are still a few kinks that need ironing out. Musk’s decision to move Tesla to the Lone Star state shows that a big player is willing to make the change, but there doesn’t seem to be enough capacity for many more to do the same. They are still hiring staff for the Houston division despite the big open being less than a week away —  it will be a while before they can handle the sheer amount of business that Delaware can. But the biggest problem will be inertia. Delaware has been the place for such a long time that the shift to Texas won’t happen overnight. Even so, pulling Tesla is one hell of a start.

Musk’s Legal Fights Boost Longshot Texas Bid to Become Court Hub [Bloomberg Law]

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Chris Williams became a social media manager and assistant editor for Above the Law in June 2021. Prior to joining the staff, he moonlighted as a minor Memelord™ in the Facebook group Law School Memes for Edgy T14s.  He endured Missouri long enough to graduate from Washington University in St. Louis School of Law. He is a former boatbuilder who cannot swim, a published author on critical race theory, philosophy, and humor, and has a love for cycling that occasionally annoys his peers. You can reach him by email at [email protected] and by tweet at @WritesForRent.

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