Delaware legislators have introduced a bill aimed at curbing shareholder lawsuits, a move spurred by corporate giants considering an exodus from the state. The proposed changes would grant company boards greater protection from litigation and restrict shareholders’ access to internal records, a critical tool in building legal cases.
For decades, Delaware’s corporate-friendly laws and well-regarded Court of Chancery have made it the preferred legal home for major companies, with nearly two-thirds of the S&P 500 incorporated there. The fees collected from these businesses account for a significant portion of the state’s revenue.
However, the legal landscape is shifting. High-profile firms, including Meta, Dropbox, and Bill Ackman’s management company, have signaled plans to relocate their corporate charters, citing concerns over the state’s evolving legal climate. Texas, in particular, has positioned itself as a rival, creating a specialized business court to attract corporations.
One of the most notable departures came from Elon Musk’s Tesla and SpaceX, which moved their incorporation to Texas after a Delaware judge struck down Musk’s $56 billion Tesla pay package. While lawmakers insist that the proposed bill is unrelated to Musk’s legal battle, the broader pushback from corporate leaders has put Delaware’s legal framework under scrutiny.
Recent rulings have held controlling shareholders accountable in ways that corporate attorneys hadn’t anticipated, sparking criticism that Delaware is leaning too heavily in favor of shareholder litigation. Some argue that such lawsuits help keep corporate boards in check, while others see them as an unnecessary financial burden that rarely benefits investors.
The bill, drafted with input from Delaware’s newly elected governor, is moving swiftly through the legislature. If passed, it could significantly weaken shareholder litigation in the state—potentially altering the balance of power between investors and corporate leadership for years to come.
