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Bill aims to stop firms leaving Delaware for other states

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Critics label it a "billionaire's bill" benefiting

controlling

shareholders

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Opposition includes shareholder attorneys, pension fund

managers

(Updates with result of vote)

By Tom Hals

DOVER, Delaware, March 25 (Reuters) -

Delaware lawmakers approved on Tuesday an overhaul of the

state's corporate law in a bid to keep powerful business leaders

like Mark Zuckerberg from moving their companies' legal home to

another state, although opponents call it a giveaway to

billionaires.

The law, known as SB 21, was approved by a vote by

Delaware's House and now goes to Governor Matt Meyer, who has

said he will sign it.

The bill mostly impacts companies with a controlling

shareholder, like Meta Platforms ( META ), which is controlled

by Zuckerberg. The proposal provides steps that allow for a

company and its controlling shareholder to arrange deals, such

as selling corporate assets to the controller, that cannot be

challenged in court by the company's other investors.

Supporters and opponents of the bill both agreed during

Tuesday's debate that the state must prevent "DExit" -- or a

stampede of companies moving their legal home out of one of the

country's smallest and least populated states -- although they

disagreed on the strategy. While other states are trying to

attract corporations, Delaware remains home to most large public

companies in part because its corporate law protects board

directors from being sued if they are independent and act in the

company's best interest.

The state's corporate legal system, which locals refer to as

"the franchise," generates more than 20% of Delaware's budget

revenue.

"We have a million Delawareans who rely on the $2.2 billion

that the corporation franchise brings in to the state,"

Representative Krista Griffith, a Democrat, told lawmakers on

Tuesday. "What seems permanent can easily vanish."

Several companies, mostly with controlling shareholders, have

said they might or will leave Delaware, including Dropbox ( DBX )

, Meta, Tripadvisor ( TRIP ) and President Donald

Trump's media company. On Friday, Simon Property Group ( SPG ),

which is not a controlled company, asked its shareholders to

approve moving the real estate investment trust's legal home to

Indiana, where it has its headquarters, from Delaware. REITs

like Simon tend to be chartered outside of Delaware.

The proposed legislation has been labeled "the billionaire's

bill" by critics, which include attorneys for shareholders and

managers of pension funds. High-profile opposition ads included

a billboard truck featuring an image of Elon Musk waving a

chainsaw that circled Legislative Hall in Dover before lawmakers

voted.

Witnesses who testified for opponents said the bill might

prompt shareholders to encourage companies to leave Delaware for

states with corporate law that better protected their

investments. "I've got to tell you, investors' reactions to SB

21 have been surprisingly negative," Robert Jackson, a law

professor and former commissioner on the Securities and Exchange

Commission, told lawmakers.

The bill prevents shareholders from challenging deals that

are approved by a board committee that has a majority of

independent directors or by a vote by public shareholders. The

bill also limits records available to shareholders who want to

investigate a deal for conflicts.

Numerous amendments were rejected, including one that would

have eliminated the law's retroactive effective date. The law

will be effective back to February 17, which one lawmaker said

would eliminate potential legal liability for unspecified claims

that he said shareholders were investigating against the board

of Meta Platforms ( META ).

Corporate leaders have expressed frustration in recent years

over court rulings that upset certain expectations about the

state's law. Musk fueled the debate last year by urging

companies to follow Tesla and leave the state after a

Delaware judge rescinded his $56 billion pay package as CEO of

the electric car maker.