Today, Elon Musk has made his position on Delaware perfectly clear on X, formerly known as Twitter. He stated “Never incorporate your company in the state of Delaware.” Elon Musk has expressed several concerns about the Delaware corporate court system in specific contexts. Here are some points he has raised based on his past comments and actions:
1. Lack of focus on long-term vision: Musk has criticized the Delaware Chancery Court for focusing excessively on short-term shareholder interests, potentially hindering innovative, long-term initiatives. He believes some decisions prioritize stock price gains over technological advancements and societal impact.
2. Potential for lawsuits to become “shakedowns”: Musk has expressed concerns that the court system might be susceptible to frivolous lawsuits targeting high-profile companies (including his). He fears these lawsuits, even if ultimately dismissed, can drain resources and distract from core business.
3. Power dynamics favoring established interests: He has hinted at a perception that the court system might favor established corporations and institutional investors over newer, disruptive companies like his. This could potentially lead to rulings that impede innovation and competition.
4. Limited geographic diversity: While acknowledging Delaware’s expertise in corporate law, Musk has advocated for incorporating in other states with different legal frameworks, potentially to introduce fresh perspectives and avoid perceived biases.
As in all areas subject to debates, not everyone agrees with his perspective, and Delaware remains a popular choice for corporate incorporation due to its established legal framework, efficient courts, and predictable legal environment. That tradition has gone on for generations and it will likely require a dramatic shift in thinking for that tradition to end. In the end, the decision of where to incorporate depends on various factors specific to each company and its goals.
Before you incorporate in Delaware — or any state as far as that goes — do your homework. The environments vary wildly in every state.
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