*

Musk urged against incorporating in Delaware after his

Tesla pay

was struck down

*

Five large public companies have left and nine more may

follow

*

Companies said Delaware's courts are becoming

unpredictable

By Tom Hals

WILMINGTON, DEL., May 14 (Reuters) - In the coming

weeks, investors in nine public companies worth at least $1

billion each will vote on proposals to ditch Delaware as their

place of incorporation, potentially denting the state's longtime

reputation as Corporate America's capital, Reuters has found.

Five companies with a stock market value of at least $1 billion

have moved their legal home out of Delaware since last year, in

what some have nicknamed "Dexit." Tesla made a

high-profile move to Texas last year and in April, President

Donald Trump's social media company Trump Media & Technology ( DJT )

, which owns the Truth Social platform, decamped to

Florida.

Most of the companies are dominated by a significant shareholder

or founder. Delaware judges have expanded the court's most

stringent legal standard to a growing range of situations

involving controllers, increasing the risk of shareholder

lawsuits. The decisions culminated with the blockbuster ruling

last year that rescinded Musk's $56 billion pay package from

Tesla.

Less than an hour after the ruling, Musk said on X: "Never

incorporate your company in the state of Delaware."

Musk's SpaceX and Tesla soon reincorporated in Texas. Musk

did not respond to a request for comment.

Trump Media ( DJT ), which is controlled by a trust that owns shares

on behalf of President Trump and is overseen by his oldest son,

said in its March proxy statement that Delaware's "increasingly

litigious environment facing corporations with controlling

stockholders has created unpredictability in decision-making."

The company cited the Musk pay ruling as an example. It is now

incorporated in Florida. Dropbox ( DBX ) and The Trade Desk ( TTD )

, which each has a large shareholder, and Cannae Holdings ( CNNE )

have moved their charter to Nevada from Delaware. They

did not respond to a request for comment.

Among the companies set to vote on proposals to leave are

Simon Property Group ( SPG ), which is seeking shareholder

approval on Wednesday to reincorporate in Indiana, and gaming

platform Roblox ( RBLX ), which wants to move to Nevada.

Unlike many of the other companies that have proposed a

"Dexit," Simon does not have a controlling shareholder. It

declined to comment on its reasons for proposing a move,

referring to its latest proxy statement. Roblox ( RBLX ) said that Nevada

law provides greater predictability.

To be sure, the share of Delaware-based companies in the Russell

3000 index, which covers nearly all public companies, continues

to grow, rising to 62% last year from 56% in 2020, according to

ISS-Corporate. However, 2024 was the first year that more

companies in the Russell Index left Delaware than moved their

incorporation to the state.

"On the Richter scale, it's not that high," said Benjamin

Edwards, a professor at the UNLV School of Law, of the changes.

"But it's still shaking the ground."

FEARING AN EXODUS

Delaware, which has no sales tax, gets around a third of its

general budget revenue from fees and taxes related to chartering

businesses. Fearing an exodus of companies leaving after the

judicial rulings, the state enacted legislation in March that

limits the role of the state's judges in reviewing certain

corporate deals.

It also limited the scope of so-called "books and records"

requests, a legal tool often used by shareholder attorneys to

try to obtain directors' emails and texts.

Despite the recent changes, corporate law in Delaware

remains relatively strict when it comes to insiders making deals

that would likely benefit them directly, such as a deal to buy

assets from a controlling shareholder or Musk and his Tesla pay

arrangement, legal experts said.

"That's one area where Delaware has consistently said,

'Look, we're going to kick the tires of those decisions with a

little bit extra force'," said Eric Talley, a professor at

Columbia Law School.

Delaware law typically requires a company that strikes a

deal with a controlling shareholder to prove the arrangement met

a strict standard showing the price and process were fair,

unless it was negotiated by independent directors or approved by

shareholders.

In Nevada, the same controlling shareholder deal would

likely be protected by a legal standard known as the business

judgment rule, which shields against lawsuits, regardless of how

it was negotiated and approved, legal experts said.

Talley said Nevada directors are protected unless they engage in

fraud. "It's actually okay to engage in self-dealing, as long as

you don't lie about it," he said.

A state's corporate law governs a company's relationship with

shareholders and typically does not affect legal rights of

employees or consumers.

In Texas, where Tesla and SpaceX are now incorporated,

lawmakers last week approved amendments to its corporate law

that are aimed at reducing the threat of shareholder litigation,

in part by allowing companies to set stock ownership thresholds

for lawsuits. The plaintiff in the Musk pay case owned just nine

shares when he filed suit in 2018.

Governor Greg Abbott has not signed the bill and his office

did not respond to a request for comment.

Eric Lentell, the general counsel at Delaware-chartered

Archer Aviation, said the aircraft developer is

considering reincorporating in Texas and believes directors of

other public companies should reconsider Delaware.

After a Delaware judge refused last year to recognize a vote by

Tesla investors to reinstate Musk's pay, Lentell said it

signaled that Delaware judges "have become kind of activist in

nature" by appearing to rewrite settled law.

"I think that's where people get nervous," he said.

(Reporting by Tom Hals in Wilmington, Delaware; editing by Amy

Stevens, Noeleen Walder and Anna Driver )