Despite Musk’s Rebuff, Delaware Must Remain Corporate Law Center

As a handful of major corporations consider following Elon Musk’s lead in moving their incorporation out of Delaware, the debate over Delaware’s dominance as the leading state for corporate chartering has intensified.

Some critics have argued that Delaware’s corporate law system is primarily driven by the state’s desire to maximize revenue, given the large number of corporations incorporated there. However, this linear perspective overlooks the core principle of Delaware’s approach: creating an environment that is fair, predictable, and adaptable for businesses.

The state’s impartial legal framework allows corporate leaders and shareholders to operate with confidence, knowing legal decisions are based on sound principles rather than financial pressures or external influences.

True, Delaware’s success contributes to funding schools, hospitals, and infrastructure and avoids the need for a sales tax—ultimately benefiting both businesses and the public. A thriving corporate sector generates substantial revenue that supports the well-being of Delaware residents who rely on these services.

Yet the state’s legal system creates a robust, mutually reinforcing relationship between the state’s corporate dominance and its public welfare. It also benefits citizens outside the state, offering a consistent and stable legal framework for companies nationwide, without the greater costs of federal regulation.

Delaware’s corporate law has been shaped by its desire to remain the top choice for corporate chartering. However, the state has realized that the best way to maintain that position isn’t by favoring one side of the corporate equation over the other, but by creating a legal system that balances certainty with flexibility and provides stability while adapting to a changing business world. Delaware’s long-term success stems from this principled, balanced approach, benefiting all parties involved.

The state’s corporate law is built on a strong foundation of precedents, offering companies a predictable legal environment where they can confidently plan their affairs. However, this predictability doesn’t come at the expense of flexibility. Delaware’s courts approach each case individually, considering its unique facts.

The state’s laws are regularly updated—sometimes in significant ways—to remain responsive to the evolving business landscape. Examples include reducing the risk of personal liability for directors and officers and permitting companies to reimburse shareholders who incur expenses in proxy contests.

Similarly, Delaware’s courts blend consistency with the ability to adapt, offering clear guidance but leaving room for nuanced decisions. Delaware’s corporate statute provides a menu of options—defining boundaries while allowing businesses to tailor their governance structures to fit their unique needs.

Delaware’s commitment to fairness and evolution ensures that its legal framework remains both stable and innovative. Its jurists—such as Chancellor William Allen in the 1990s and Chief Judge Myron Steele more recently—mirror great legal minds such as Oliver Wendell Holmes and Benjamin Cardozo, who both emphasized the need to balance certainty with flexibility in the law.

Despite these strengths, there is a risk that too much flexibility could lead to uncertainty or inconsistency in certain cases, particularly when businesses seek clearer, more predictable rules. Flexibility in Delaware’s system, while essential for growth, can occasionally create ambiguity, which may frustrate companies seeking clear answers to complex questions.

Striking the right balance remains a challenge, as the legal framework must remain responsive to innovation without sacrificing the stability businesses depend on.

To paraphrase Delaware’s Justice Andrew Moore during the 1980s takeover era, some critics have suggested that recent legal decisions in Delaware attempt to establish permanent principles. This view overlooks that Delaware’s corporate law is continuously evolving, with each decision reflecting a careful, case-specific analysis. Delaware’s leaders—judges, lawyers, legislators, and the executive branch—recognize that the system is dynamic and that trial and error are part of any legal evolution.

It’s important not to focus solely on specific cases or statutes but to recognize the broader, ongoing process that has kept Delaware at the forefront of corporate governance for over a century.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Lawrence A. Cunningham is director of the John L. Weinberg Center for Corporate Governance at University of Delaware.

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