Thursday, April 27, 2023
As Joan already flagged, Delaware litigation has broken out over whether TripAdviser can reincorporate to Nevada. The Complaint in that action argues that Delaware courts should enjoin the move and prevent the corporation from moving to Nevada. The New York Post has also picked up on the reincorporation trend. In my view, the conditions under which a corporation may exit a jurisdiction and reincorporate elsewhere is a valid question of its current state's corporate law. While Delaware may want to impose appropriate conditions on some departures, I doubt it wants to become the Hotel California of corporate law--where you can check in any time you want, but you can never leave.
There are undoubtedly material differences between Delaware and Nevada law. As I covered here at the time, Nevada's statutory business judgment rule imposes more limits on liability that Delaware law. Nevada's Supreme Court has explained that establishing liability under Nevada law "plainly requires the plaintiff to both rebut the business judgment rule’s presumption of good faith and show a breach of fiduciary duty involving intentional misconduct, fraud, or a knowing violation of the law."
Nevada's law may be better for some corporations than Delaware's law. Duke's Ofer Eldar found that "Nevada corporate law does not harm shareholder value for firms that self-select into Nevada, particularly small firms with low levels of institutional shareholding and high levels of insider ownership, and it may in fact enhance the value of these firms."
Ultimately, as a stakeholder in Nevada corporate law, the last thing I want is for our state to become a cesspool for fraud and misconduct. Nevada's protective business judgment rule strikes a different balance than Delaware, but it's not going to let people get away with rank misconduct.