Your First Rodeo: Implications of Moving a Company out of Delaware

11 minute read | March 3, 2025

Delaware has long served as the most popular state of incorporation for both public companies^[i] and VC-backed, private^[ii] companies. Recent news^[iii] that some high-profile companies are moving their corporate domicile out of Delaware to states like Texas and Nevada has prompted others, including startups, to ask whether they should follow suit. A decision to reincorporate should be weighed carefully, as it implicates multiple aspects of a company’s business, including stockholder rights, the potential challenge of courting new investors, the review and translation of existing documents, and the adjustment to another state’s newer and less developed legal framework. For a startup considering a move, it is critical to understand the process, effects, risks and costs.

Key Considerations – What You Need to Know

Here are some of the key issues for companies considering a reincorporation outside of Delaware^[iv]. Some of these considerations are explored in greater detail in the sections that follow. Although this summary does not cover the pros and cons of Delaware corporate law vs. the corporate law of other states in depth, some legal context is provided where relevant.

• The most notable companies that have moved out of Delaware recently (SpaceX, Tesla, Dropbox, Pershing Square) have a controlling stockholder and/or are public companies. As of the date of this publication, there has not yet been a pattern of migration among traditional startup companies.
• The decision to move out of Delaware is a business decision with non-trivial expenses, risks and tradeoffs. Like any business decision, it should be made with a thorough understanding of the costs and benefits.
• The market has not yet established a standard process for reincorporating to a new state and putting in place new organizational and financing documents appropriate for a Texas or Nevada corporation. First movers will incur additional costs and will have to make judgment calls.
• Texas and Nevada both have a less well-developed body of corporate case law than Delaware. Delaware has a specialized business court that has operated for over 100 years. The Delaware courts and legislature have also been responsive to concerns of the business community and attorneys, often promptly correcting what are viewed as problematic decisions by lower courts, including legislation introduced by the Delaware General Assembly as recently as February 2025^[v].
• In an effort to streamline business disputes, Texas established a specialized business court in September 2024. Corporate law disputes were previously handled in standard state court, sometimes with juries^[vi]. Given the infancy of the Texas business court, it is difficult to predict how the court will operate and how its decisions will shape the law in the future. There is no comparable business court in Nevada^[vii].
• If a key consideration is the amount of work, cost and risk involved, it makes sense to wait and see how things play out in other states before deciding whether to reincorporate. For companies that are continuing to grow, reincorporation can be an option for the future, if the process becomes more standardized, and if the market (including the VC community) becomes more comfortable with jurisdictions outside of Delaware.
• Despite these considerations, companies that want to leave Delaware should be prepared to engage with their lawyers, key stakeholders and advisors to optimize the process. These companies should also weigh the perceived benefits of being early adopters against the uncertainty and additional expenses of taking the path less traveled.

High-Level Process

• Consents: The conversion and related steps require consent of the company’s board and stockholders. The specific threshold of stockholder consent depends on the provisions of the company’s Delaware charter and stockholder agreements and likely requires the separate consent of the preferred stock and the common stock^[viii]. Commercial agreements are unlikely to include any notice or consent rights, but the company should review its key agreements to confirm that no third-party notice or consent is required.
• Mechanics: A Delaware corporation can reincorporate in states like Texas and Nevada via a statutory conversion whereby the existing Delaware corporation converts into, and continues as, a corporation domiciled in the new state.
• Amendments: As part of the conversion, the company will amend or replace financing agreements and organizational documents, such as its charter, bylaws, organizational consents, and indemnification agreements, for their counterparts in the new state. The provisions of these documents are built on Delaware corporate law and would therefore need to be modified to conform to the corporate law of the new state. Any form documents that refer to Delaware incorporation or law would also need to be revised.
• HR/Finance/Ops: The company should check with its payroll, benefits, tax and accounting advisors in advance to ensure a smooth transition for the team and for the company’s finance and tax operations.
• Post-Reincorporation Housekeeping: The company will need to make new filings in other states where it is qualified to do business, and the company may need to redo other securities or regulatory filings that were made by the Delaware corporation. Holders of stock that is subject to vesting are advised to file new 83(b) elections resulting from the reincorporation. In addition, a new directors & officers liability insurance policy, perhaps with a revised scope of coverage, may need to be obtained. The company and its advisors will need to carefully consider the aspects of the company’s business and operations that need to be adapted to the regime of the new state.

Implementation: Short-Term and Medium-Term Considerations

Short-Term Considerations:

• Drafting – The NVCA^[ix] forms are built for Delaware corporations only. In the absence of standardization, there is a range of approaches to updating the company’s key corporate documents. At the rigorous end of the spectrum, a company would evaluate virtually every paragraph of every document for its underpinnings in the corporate law of the new state. At the other extreme, a company could find and replace Delaware with the new state in the documents and update references to Delaware statutes. To be clear, this “Ctrl+F” approach is not recommended and could result in worse consequences for the founders and the business generally than the status quo in Delaware. Startup companies that go down the reincorporation path should work closely with their legal counsel to strike a balance that gives founders and investors confidence that their corporate documents work as intended under the corporate law of the new state^[x].
• Stakeholder Involvement – Institutional investors and other key stakeholders will want to be involved in this process, and their expectations will have to be considered. VC firms with multiple reincorporating companies in their portfolio will favor harmonization of the documents and process across companies. If a company has several VC firms on its cap table, their respective preferences may not always align. A decision to pull up stakes from Delaware requires a willingness to be a pioneer on certain terms and provisions that have not been settled in the new state, and doing so will likely require additional time, risk and expense.
• Moving on a Clear Day – A company’s decision to reincorporate outside of Delaware may itself be subject to legal challenge by the company’s stockholders. A recent Delaware Supreme Court decision^[xi] provides guidance on when to time a move. The court emphasized that a company’s board of directors should make the decision to reincorporate when doing so will not impair pending litigation or advantage a contemplated transaction – in other words, on a “clear day”. A board decision to reincorporate that is not made on a “clear day” could be subject to a stricter legal standard and be more vulnerable to challenge by the company’s stockholders.
• Cost – Between filing fees, Delaware franchise taxes, the process of adapting corporate documents and the likelihood of an iterative and possibly contentious process with company stakeholders, a company that decides to reincorporate is likely to incur transaction costs on par with its most recent venture capital financing.

Medium-Term Considerations:

• Investor Appetite – A startup company contemplating reincorporation should consider whether the move out of Delaware will limit its options in future capital raises. Only a few VCs have voiced that they are in favor of reincorporation, and most investors and firms have not yet weighed in publicly on whether a company’s domicile outside of Delaware would affect its chances of being funded. For most companies, any decision that increases complexity could reduce the chances of getting a term sheet. Historically, most investors have favored Delaware over other jurisdictions.
• Handling Complexity – A Delaware corporation that needs to structure a complex, non-standard transaction can follow parameters that have been established over decades of Delaware case law and statutory interpretation. The same level of precedent doesn’t exist in Texas or Nevada. Companies will likely replicate the structures blessed by Delaware with the expectation that Texas business court judges and Nevada judges will look to Delaware for guidance, but a lack of certainty will prevail until a body of legal precedent is built up organically over time. Potential examples of this dynamic include the drafting and structuring of transfer restrictions, voting agreements and board election/removal mechanics, and preferred director approval rights.
• Ordinary Course Process – Much of the corporate law that applies to Delaware startups in the ordinary course of business is routine to the point of being invisible. Board meeting procedure, stockholder approvals, amendments to the charter and bylaws – there are well-settled procedures to all of this and much more. Texas and Nevada ought to take a similar approach to Delaware on most of these matters if these states want to attract companies, but until a critical mass of companies has lived through the life cycle as a corporation in one of these states, companies will take more risk that these procedures will not develop as expected and should be prepared to consult with their lawyers more often on routine matters.

Conclusions and Other Considerations

• Characterizing reincorporation as mere “paperwork” may be oversimplifying things. Reincorporation involves unknowns that can result in distracting negotiations between a company and its current and future investors.
• No standard playbook exists for how to adapt corporate documents for a new state of incorporation. Complex financing and governance structures that are well settled in Delaware may be issues of first impression in other states.
• Disputes that arise may be harder to settle and more prone to litigation given the lack of a track record^[xii] of courts and judges outside of Delaware addressing these disputes.
• Companies may not need to reinvent the corporate wheel if they move out of Delaware, but they could end up replacing some of the spokes.