Major cryptocurrency exchange company, Coinbase, announced plans to reincorporate in Texas. Coinbase is relocating to the state of Wyoming, a move that has become so common that it has been termed a “Dexit.”
“For decades, Delaware was known for predictable court outcomes, respect for the judgment of corporate boards and speedy resolutions,” Coinbase chief legal officer Paul Grewal said in a Wall Street Journal op-ed. Grewal explained that Delaware’s Chancery Court has been “rife with unpredictable outcomes” and unpredictability, leading to the company’s decision to relocate.
The Delaware Court of Chancery recently increased liability for corporate officers and directors, heightening legal risks. Shareholders have increasingly succeeded in Section 220 litigation, gaining access to corporate books and records if the shareholders demonstrate a “proper purpose.” Senate Bill 21 was later introduced to even the playing field between corporate protections and shareholders, but companies simply do not want the risk.
The court has reviewed disputes about the fairness of corporate mergers, acquisitions, and reincorporation decisions, including the major Tesla case that may have ignited the Dexit trend. The court rejected Elon Musk’s $56 billion compensation package in January 2024. Tesla shareholders then voted to ratify Musk’s package and reincorporate the company in Texas. Musk pulled SpaceX and Neuralink out of Delaware as well.
Meta Platforms is reportedly considering exiting Delaware. DropBox left and reincorporated in Nevada, as did Andreessen Horowitz, Roblox, Pershing Square Capital, the Trade Desk, and TripAdvisor.
Volatility is bad for business. Delaware’s reputation as a business hotspot was tarnished after the January 2024 Tesla ruling. Delaware remains the national hub for incorporations, but that could easily change if the courts continue changing the rules and increasing regulations.