Faculty Journal Articles and Book Chapters
ORCID (Links to author’s additional scholarship at ORCID.org)
Abstract
In January 2024, Elon Musk, CEO of Tesla, Inc., initiated the process of moving Tesla’s state of incorporation from Delaware to Texas, citing concerns over Delaware corporate law. The move sparked discussions about the dominance of Delaware corporate law and its recent rulings, with critics accusing Court of Chancery judges of favoring shareholder interests over controller innovation and managerial discretion.
The shift away from Delaware is set against a backdrop of increasing judicial scrutiny in the Delaware Court of Chancery, where plaintiffs have recently seen successes in litigation against controlling shareholders, corporate directors, and officers. Concerns over Delaware’s evolving legal landscape have prompted other corporations led by controlling shareholders, including TripAdvisor, Inc., The Trade Desk, Inc., Meta Platforms, Inc., and Trump Media & Technology Group, to consider reincorporation elsewhere. Despite Delaware’s long-standing status as the preferred state for corporate governance due to its well-established case law and judicial expertise, recent legislative battles and judicial decisions have introduced the possibility of more scrutiny for controller transactions.
Texas, while historically not a hub for corporate incorporations, has emerged as a potential alternative due to its business-friendly environment and the recent establishment of specialized business courts. However, Texas lacks the robust body of corporate case law that Delaware offers. The move by Tesla and the broader conversation around Texas corporate law suggest an emerging shift where businesses may seek to shape corporate governance frameworks more favorable to managerial control, potentially establishing a new “controller primacy” model. Legislative developments in early 2025 in both Texas and Delaware signal an ongoing competition between the two states to attract corporate incorporations, raising questions about whether they are racing to the top or the bottom in corporate governance. However, the Texas legislature’s move in May 2025 to allow listed corporations to bar derivative suits from almost all shareholders, an opportunity that the Tesla board immediately seized upon, seems to set a new bar in defending against shareholder suits.
Publication Title
Arizona Law Review
Document Type
Article
Keywords
Corporate law, Delaware, Texas, Controlling shareholders, Controller primacy, Fiduciary duty, Corporate governance, Derivative suits, Business courts
Recommended Citation
Christine Hurt, Texas, Delaware, and the New Controller Primacy, 67 Ariz. L. Rev. 693 (2025)
Included in
Business Organizations Law Commons, Commercial Law Commons, Courts Commons, Law and Economics Commons
