Tesla, TripAdvisor, Meta, Dropbox — Delaware is facing a potential exodus of tech companies that had incorporated there.
“Dexit,” as some are calling it, follows backlash against Delaware Judge Kathaleen McCormick’s decision to side with a shareholder for a second time against Tesla CEO Elon Musk’s $56 billion compensation package.
That has some in Wyoming wondering if the tech exodus could be a boon for the Cowboy State, which recently surpassed Delaware as the No. 1 spot in the U.S. for business incorporations by state, per capita.
The shareholder lawsuit that led to “Dexit” had claimed Musk’s package was “beyond the bounds of reasonable judgment” and that Tesla had provided misleading information about the package to investors.
McCormick first rejected Musk’s compensation package in January, saying it was not only “deeply flawed,” but that Musk had undue control of the company’s board and that investors weren’t being fully informed about all of the pay package’s terms.
Following that, Tesla shareholders again voted to ratify Musk’s compensation deal in a bid to reverse the Delaware decision, but McCormick said the decision couldn’t be reversed by simply creating new evidence after trial.
Musk then branded McCormick an “activist judge” and wrote several posts on his platform X, formerly Twitter, among them a retweet of a single-item to-do list: “Things to do in Delaware: 1) Leave.”
“Never incorporate your company in the state of Delaware,” he also wrote on X. “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.”
Following Musk’s Lead
At first, it seemed that the Musk fallout wasn’t widespread, but some prominent companies lately appear to be following Musk’s lead.
TripAdvisor and Dropbox have moved their corporations to Nevada, while billionaire Bill Ackman announced plans Saturday to do the same with his hedge fund, Pershing Square Capital Management.
Meta, meanwhile, is mulling a move to incorporate in Texas — a month after the company had announced it was moving content moderators to Texas.
But so far, all the national talk about moving from Delaware to Texas or Nevada has some in the Cowboy State wondering what about Wyoming?
Wyoming has long touted its business friendly environment and regularly makes the top of national lists for best business tax climate, given that it has no income tax. Wyoming is also where the ever-popular LLC was invented.
Secretary of State Chuck Gray told Cowboy State Daily that Wyoming has actually seen a surge in interest recently from businesses looking to incorporate here, even if it’s being overlooked as a potential destination by national figures like Musk.
“Wyoming has seen a marked, exponential increase in business filings,” he said, attributing that to liberal activists pushing things like ESG policies in states like Delaware, or taking other steps to create a hostile, uncertain environment for businesses.
“Wyoming’s commitment to common sense conservative policy that promotes small business, and the fast and friendly customer service we provide at the Wyoming Secretary of State’s Office has made us a national leader in growth of business,” Gray said. “We are seeing an exponential increase in businesses seeking to incorporate here.”
Usurping Delaware
Delaware has long been the favorite for business incorporations in the nation, taking the No. 1 spot on a per capita basis for decades.
Part of the reason for that has been its legal certainty, thanks to the specialized Court of Chancery dating back to 1792, which employs expert judges whose focus is corporate case law.
The presence of such a specialized court has also created a corresponding army of lawyers, licensed to practice in Delaware, who are very familiar with Delaware laws and processes.
That gives businesses a perceived, if not actual, edge in lawsuits filed against them, and contributes to the perception among many venture capitalists that Delaware is the place for up and coming businesses to incorporate.
Delaware is also considered a tax friendly state, not charging corporate income taxes on income generated out of state. They do, however, charge an annual franchise tax that is a flat, $300 for LLCs, and a sliding fee capped at $250,000 for corporations, along with various other fees.
Lately, however, the balance has been changing. Delaware is no longer the No. 1 for business incorporations on a per capita basis. Wyoming, which invented the LLC, has surpassed it.
Comparisons of incorporation rates are typically done per capita, to allow meaningful comparison between states that have widely differing populations. Over the past five years, Wyoming incorporations have tripled, according to figures from OpenCorporates, which tracks a wide range of business statistics and trends.
Wyoming LLCs A No-Brainer
Gray suggested part of the reason Wyoming has taken that No. 1 spot away from Delaware is the value the Cowboy State provides for services, particularly for new small businesses.
Wyoming has also set up one of the nation’s most comprehensive frameworks for digital assets in the nation to date, which has attracted several hundred firms interested in setting up companies that offer cutting-edge financial services. Gray has told Cowboy State Daily it’s impossible to track how many digital asset companies are here, given that not all of them have any obvious words like “crypto” or “DAO” in their names.
What those who tout Wyoming LLCs to out-of-state businesses promote are Wyoming’s low fees, lack of income taxes, its privacy standards, and best-in-class asset protection, which together make it just a “no-brainer.”
Feewise, it costs $100 to form an LLC in Wyoming and just $60 to renew. In Nevada, by comparison, the cost to form an LLC is $425, and the cost to renew is $300. For Delaware, the cost is $110 to form an LLC, but there is an annual franchise tax of $300, as well as other fees to consider. Renewals are $205 plus state fees.
“Wyoming has a lot of things going for it, and I may be a bit biased, but I think that Wyoming just crushes the competition,” Jonathan Feniak Esq. says in a video at Wyoming LLC Attorney’s website, where he explains why he thinks Wyoming is the best state to incorporate an LLC. “The thing that Wyoming has going for it are private filings. Your information is not provided to the Secretary of State. You have to provide it to us, and we have a legal requirement to maintain your information, but it’s not in a public database.”
Other states may claim that this information is private, Feniak added, but it often turns out that it’s still subject to a Freedom of Information Act request, and the state may also share the information with third parties without the business even being aware that has happened.
The other thing Feniak touted is Wyoming’s class-leading asset protection.
“Wyoming has class-leading veil piercing protection and charging order protection,” he said. “Many states do have one or the other of these things. Wyoming has both, and they’ve taken the veil piercing to a whole other level.”
Wyoming’s charging order protection means that companies with one or more owners who have a liability that flows to the company are protected. Creditors can’t break into the LLC’s assets to obtain compensation. They can wait for a distribution to be made from the company and snatch that up, but they can’t go in and disrupt the business itself.
“When you take all of these things together,” Feniak said. “Private filing, where your information is not in the hands of the Secretary of State, low fees, enhanced asset protection through charging orders and veil piercing, and then no taxes, choosing Wyoming for your company is really just a no brainer.”
Renée Jean can be reached at renee@cowboystatedaily.com.
