More Musk-like ‘Dexits’ pose fresh threat to Delaware’s corporation crown

“Delaware may seriously lose its position as the main state of incorporation for American companies”, Coinbase (COIN) Legal director Paul Grewal posted on X earlier this month.

These recruitment efforts obtained a boost last year from the richest man in the world, Musk, when Tesla shareholders voted to integrate in Texas instead of Delaware – a decision made in reaction to The decision against Musk’s salary.

But even this reincorporation is retained before the Chancellery court, in a separate case before the same judge who canceled the compensation of Musk. The prosecution, filed by an investor who challenged the vote, allegedly alleged that the reincorporation had been designed to protect Musk from the Delaware law.

A similar reincorporation fight was born between Tripadvisor (JOURNEY) and two of its shareholders in 2023, before the attempted Musk dexits.

In MAFFEI c. Palkon,, The shareholders opposed a vote promoting reintegration into Nevada, alleging that the measure would have failed without votes by Gregory Maffei, the company’s control shareholder.

The conflict ended last week when the Supreme Court of Delaware canceled the vice-chancellor of the Chancellery Court, J. Travis LasterUnanimously judging that the lower court applied the poor standard to assess the recommended decision by the board of directors.

The High Court in disagreement With the Chancellery that the most rigorous “A whole equity“The standard should be applied and said the decision was subject to the most indulgent”commercial judgment” ruler.

The recent large -scale departures from Delaware draw the attention of the new state governor, Matt Meyer, a lawyer for business, who launched a working group to study the assembly complaints for the court.

“I hear something similar to a number of companies and lawyers in Delaware,” said Meyer in an interview with CNBC. “That they have the impression of obtaining the same judge every time they come to the Delaware company court, and they do not have the impression of having a fair hearing.”

Phil ShaweCEO and co-founder of the translation service company PierceAnother executive who has moved his business from the state and now said to Governor Meyer that he was unjustly treated by the Court.

Shawe spent years in dispute against his co-founder and Correfect co-director.

When the pair has set up on the management of the company, the court concluded that the impasse posed “irreparable damage” to the company. To respond to the prejudice received, the judge appointed a goalkeeper to organize a sale ordered by the court.

“They ran an auction and did not produce a higher price than what I had already offered [the co-founder] Years earlier, “said Shawe, alleging that the auction has exceeded the authority of the court.

“The way the judge has come to this conclusion to do this is very suspect, because the company still increased income and profits, so there has never been any imminent harm which forced a judge to take control of the company. “

Shawe finally outbid its challengers and bought half of the company from its co-founder, but after spending millions of lawyers and legal costs. He has since supported the advocacy group Citizens for judicial equity (formerly Citizens for a pro-business delaware) to push the court for more transparency and equity.

“There is something that is wrong with this system,” said Shawe.

The Israeli technological investor Itzik on is another manager who takes out his companies from the State and says that he is frustrated by the Chancellery court.

“I’m very afraid that the Delaware system is going against entrepreneurs. I think it is a systematic risk against the business world and the whole world,” said. “You are starting to consider: why should I invest in the United States? Now has become risky.”

Regarding the only director of Movado, says that the court authorized an investor and a shareholder in his now dissolved health care startup, Movado PT Technologies, which was also a framework for a competing health company, to maintain A derived complaint against him.

The Movado shareholder said that he does not fully inform shareholders of important questions, in particular the conditions for remuneration for managers and conflicts of interest between executives.

“You cannot have a derivative complaint when a shareholder is a rival,” said.

He also disagreed with the judge’s invalidation by two shareholders’ votes ratifying all the actions of the board of directors, including the remuneration of managers, on the grounds that the votes were the product of a “trustee violation”.

We are called himself a “small actor” as an investment manager for 24 American startups. However, he maintains that the Chancellery treated him a fate similar to that of Musk when the court judged that there was a fiduciary violation despite two shareholders’ votes.

“The second you have this [fiduciary breach] Tag, you lost, “on say.” Now everyone is at risk of fiduciary violation. “”

On and his sister attracts their file to the Supreme Court of Delaware. In the meantime, he said: “All our companies come out of Delaware.”

Alexis Keenan is a legal journalist for Yahoo Finance. Follow Alexis on x @alexiskweed.