The deadline has passed to comment on the SEC’s proposal to permit semi-annual reporting (though the website seems to be still slowly updating with additional letters).

Professor Tzachi Zach at Ohio State has set up a useful, searchable tracker, and as of this posting, he clocks a total of over 80,000 submissions (of which 66,000 were form letters, identified by the SEC as templates A through K).  All of the form letters oppose; of the non-form letters, 99% oppose.

Some brief takeaways and highlights (I didn’t use LLMs or machine-reading or anything; I just used my actual web browser to click on actual links I thought were interesting and read the results, so this is a very rough overview; Professor Zach’s searchable database is more granular. Also, I only looked at what was posted through Friday morning.)

The comments overwhelmingly come from retail investors – not just the form letters, but even the individualized ones.  Which isn’t to say there isn’t industry interest; just that retail interest is big.  I’m sure we all saw the letter from r/wallstreetbets (still trying to figure out the governance structure that allows one person or persons to speak for WSB) but have you seen the one from Dave, the truck driver? Or Gilbert Rodriguez, the grocery store worker?

Also catching my attention: Many commenters highlighted that the proposal for semi-annual reporting is only one massive change on the SEC’s docket.  The SEC is also proposing to dramatically limit the number of companies subject to the full set of reporting requirements (which means, fewer companies that make compensation disclosures and risk disclosures, fewer with auditor attestation, say on pay, etc), and to make S-3 registration available to more issuers.  Also, Chair Atkins has made clear he plans to reduce the number of disclosure items, not to mention opening private markets up to more retail investors (including through 401(k)s).  Point being, this is a huge number of changes that will dramatically reshape (read: reduce) reporting obligations, and several commenters are concerned that the SEC has not adequately considered the effects individually, let alone collectively.  Here’s MFA, ICI, Ernst & Young, and also the “Shadow SEC,” John Coates, John C. Coffee, Jr., James D. Cox, Merritt B. Fox and Joel Seligman.

Apart from that, several commenters have noted this is an awful lot for them to weigh in on in a very short time, and could the SEC please extend the comment period? (SIFMA AMG, MFA, AIMA and SIFMA, SIFMA AMG and Better Markets and Wharton professors).

Beyond that, broadly speaking, commenters that come from the corporate side – corporations, corporate counsel, inhouse accountants, etc – favor the proposal, although Eli Lilly is the only corporation that I have seen explicitly announce they plan to go semi-annual. (In another letter, a group of pharma companies, including Lilly, supported the proposal and said some of their number would switch).  I point this out because these are blue chip names and I seem to recall some skepticism that anyone but the smallest issuers would opt-in to semi-annual.  It seems pretty clear that if the choice is given, it will be a popular one.

Meanwhile, broadly speaking, investors are opposed: here’s Vanguard, ICI, and SIFMA AMG, though there are outliers.

ICI’s letter in particular is interesting; its opinion was formed via discussions with members, including an anonymous survey.  Fourteen members responded to the survey (which isn’t, um, a lot), but the results are still worth looking at.  In particular, when it comes to 10-Qs, most respondents considered the earnings results and the MD&A to be most important, which matters because the SEC’s expectation – semi-annual reporters would still release earnings voluntarily on a quarterly basis – wouldn’t cover the loss of MD&A.

Sigma Two is especially angry at the proposal, pointing out, “Throughout the Proposal, the Commission refers to companies selecting the reporting cadence most appropriate for their investors, but leaves all the decision making with the management of publicly listed companies with no need to justify their decision.”

Compare Sullivan & Cromwell, which says “We agree with the Commission’s view that boards of directors and management are better positioned than a uniform federal rule to determine whether quarterly or annual reporting best serves a particular company and its investors.” (though to be fair, a few sentences later, S&C makes reference to a “company and its investors” determining that there is little incremental value to quarterly reporting).

Some letters – SIFMA is a good example – have warnings about how deeply embedded quarterly reporting is throughout the securities disclosure system, so at minimum, any changes must also account for ripple effects.

E&Y also had warnings on this and was – I believe – the only major accounting firm to squarely oppose the proposal, rather than say something wishy-washy like “whatever you do investors need assurances of reliable information.”

So, do with this what you will, but I will say one really important aspect to this is how much you think each company stands alone, versus the spillover effects – positive externalities – of having a uniform disclosure system with a rich pool of information available to everyone.  If you think of the benefits of that collective system of disclosure, which allows investors (and others) to monitor trends overall, that’s a very different calculus than if you think it’s every company (and its investors) for itself.

Edit: As I said, this post is based on letters publicly posted to the website through Friday morning, but the site is still being updated and, in what I think is a recent addition, Citadel is about as angry as Sigma Two. Like many other commenters on the investment side, Citadel highlights the need for comparability. It’s also scathing on the subject of the SEC’s (lack of) economic analysis.

And another thing.  New Shareholder Primacy podcast!  Me and Mike Levin join our sister pod, Proxy Countdown, for a discussion of 2026 so far and what to look forward to.  Here at Apple; here at Spotify; and here at YouTube.

We now have another five since the last update. One smaller company came to Nevada from Australia–Nova Minerals. Then four different Texas firms coordinated their defections from Delaware. All announced at the same time: Energy Transfer LP, Sunoco LP, SunocoCorp LLC, and USA Compression Partners. Collectively, these firms moved $89 billion in equity from Delaware to Texas. Notably, none of these four firms are organized as corporations.

As usual, here is a link to my underlying data for anyone that wants it. I’ve updated this chart as well. The stock tickers are in the data and I’m showing declared principal executive offices instead. As usual now, I’ve had Claude generate some infographics to help make this easier to digest.

Principal Executive Offices

Destination States

DExits vs. DEntries

Texas Ties

With the principal executive office field added, it’s easy to see a very strong relationship between a Texas principal executive office and a decision to shift to Texas. In contrast, Nevada seems to draw from a wider array of principal executive offices.

Failed Vote

We also have another failed vote. Archer Aviation was looking to shift from Delaware to Texas and “did not receive the requisite stockholder approval.” The company may have a very high retail base. It collected 234,119,344 votes in favor while only 44,503,590 votes were cast against, giving it about 81% of the votes cast. But there were also 201,849,581 broker-non-votes. This left it unable to secure a majority of the outstanding shares.

The company also filed additional proxy soliciting materials before the final vote. It included this:

Archer is also interesting because it lists a California principal executive office, but its proxy touted a strong tie to Texas, noting a “plan to have significant operations over the long-term.” The company does seem to have been heavily involved in Texas. Its proxy discloses that “the Company’s Chief Strategy & Legal Officer, Eric Lentell, testified before both the Texas Senate and House Judiciary & Civil Jurisprudence Committees at hearings to discuss certain proposed amendments to Texas law and discussed with Texas senators and representatives the state’s efforts to establish itself as a leading state for legal domestication and corporate decision making.”

I looked through Archer’s past filings and saw that it had another failed vote in the past when it attempted to add officer exculpation provisions. Under Texas or Nevada law, they would have this as a default. Archer isn’t the only company that has failed to secure this.

A Random Note

Thunder Power presents oddly as a double DExit. It has been given Delaware/China as its principal executive office because around the time it announced a reincorporation to Nevada, it listed what appears to be an apartment in Wilmington as its principal executive office. It more recently identified a place in Hong Kong. I have no idea whether Thunder Power got its security deposit back when it left Delaware.

Javier Milei recently wrote in the Financial Times that Argentina will soon create a new type of legal entity: the “nonhuman corporation,” operated entirely by AI entities.  These entities will have the limited liability protections of an ordinary corporation; “human shareholders may participate, but are not required.”

Delaware, it seems, is developing something similar:

The proposed legislation would create a testing ground for companies to use what are called AI agents to autonomously complete business tasks typically done by humans. The AI agents would oversee whole business operations under the umbrella of a new kind of entity, called an Artificial Intelligence Company, or AIC.

It’s not exactly clear why a new entity is required for this; perhaps to allow for nonhuman corporate directors?  AI members or managers?  Nonetheless, there’s this:

The principal drafter of the proposed legislation, John Mark Zeberkiewicz, said the measure could allow AI agents to engage in just about any business activity — from providing coding services to signing contracts, or even filing and defending lawsuits.

He also noted that it seeks to protect owners of new Artificial Intelligence Companies from facing legal liability from actions the AI might take….

The incentive for a company to enter into the Delaware’s proposed regulatory sandbox would be to test an autonomous entity with a liability shield, Zeberkiewicz said.

“It’s like any limited liability company – you form it for the purpose of making sure that the owners of the business are not automatically liable for the debts and obligations of the entity,” he said.   

Okay, here’s the thing.  Choice of law for veil-piercing is generally governed by the internal affairs doctrine, but there are a minority of jurisdictions who use ordinary choice-of-law principles, and certainly, that’s the position that’s advocated by some scholars.

So my question is, if Delaware gets a bit over its skis in terms of authorizing nonhuman entities and then purports to provide their human investors with a liability shield, how likely is it that other states will respect that shield when faced with tort claims by their own residents?

I mean, I’m sure artificial intelligence can and will accomplish amazing things, but right now, it’s making a lot of headlines as cheating assistant, plagiarism machine, fabulist, and suicide coach, so I’m not bullish on the idea of other states’ courts willy-nilly respecting Delaware’s right to set the liability rules for the entire country.

Lagniappe.  I’ve previously posted about the case of Cannon v. Romeo Systems, which is something of a tragicomedy of startup drafting errors.  Where we last left things, the CEO had paid a consultant using a warrant for company stock, and the consultant later got a personal loan from the CEO using the warrant as collateral.  When she defaulted on the loan, the CEO claimed the warrant, but – as the Court of Chancery subsequently concluded – the security pledge agreement did not sufficiently describe the warrant and therefore the CEO had improperly converted her property, resulting in a multi-million judgment. 

Well, the Delaware Supreme Court recently reversed, holding that, though the pledge agreement was not perfect, it did sufficiently describe the warrant such that a security interest attached and there was no conversion.  Remanded for consideration of any further implications.

I personally will collect the bets on which firm will be the first to argue that, because it only reports semi-annually, its stock price cannot be presumed to be efficient and therefore it cannot be the target of a fraud on the market Section 10(b) class action.

Headline quote from the SEC proposal:

The proposed amendments, however, could also lead to efficiency reductions. As discussed above, a switch to semiannual (or hybrid) reporting would likely increase information asymmetries, thereby reducing the informational efficiency of share prices and reducing stock market liquidity for the companies that move away from quarterly reporting.

Also worth noting, to determine if a market is efficient, courts look to whether the company qualifies for S-3 filing – but the SEC proposes to make that a lot easier, too.

Direct/derivative.  I’ve previously blogged about how the direct/derivative distinction comes out when blockholders increase their position into hard control via nontraditional means, such as stock buybacks, open market purchases, and stock giveaways.

The latest in the genre is the complaint filed in ZipRecruiter. The company went public with a dual class share structure, but no single insider had hard control; control was distributed among several officers and VC backers (which meant, I take it, the company was not “controlled” for NYSE purposes).   Over time, most of the insiders sold down their positions, which left one VC backer with hard control, and the founder with a substantial voting block.  After that, the Board caused the company to institute a share buyback program, run by the founder/CEO, and that buyback program included a lot of negotiated purchases from the VC backer, as well as on the open market.  Which meant, ultimately, the founder was left with hard control.

The plaintiff alleges that the board violated its fiduciary duties by enabling this transfer of control to the founder, without requiring a control premium.  And, the plaintiff is bringing the claims directly rather than derivatively.

As you can see from my prior posts on this (as well as my article, The Three Faces of Control) I am very sympathetic to the idea that this complaint is properly brought directly.  Substantively, well, we only have the complaint but you can already see the headache it creates.  Sure shareholders who bought in understood the risk of Class B holders selling and creating a hard control situation; on the other hand, the buybacks were the Board’s decision, and seem to have facilitated the transfer of control to the founder specifically. But one might argue over whether control was transferred from the public to the founder, or from the VC backer to the founder.

Bylaws vs Contracts.  Last week, Mike Levin and I talked about the Supreme Court’s FS Credit Opportunities v. Saba Capital Master Fund case on our podcast, and in particular how I objected to everyone’s easy assumption that bylaws are contracts.  (This, of course, is a longstanding concern of mine.)  Anyhoo, a podcast listener helpfully alerted me to the recent Second Circuit decision in Petersen Energía Inversora S.A.U. v. Argentine Republic, where the court rejected claims by shareholders of an Argentinian oil and gas company, in part on the ground that bylaws – though they may be interpreted like contracts – are not, in fact, actual contracts.  Though the court was addressing Argentinian law, it made several references to U.S. law at the same time.

Reiterating my modest proposal about proposals.  Way back in 2018, I argued that the SEC should require that when companies report the results of a shareholder vote, they break out the votes of high vote shares/insiders and report them separately from the votes of public shareholders, so that investors can get a clear sense of the extent which a particular proposal was essentially imposed or rejected by insiders.  Sure, you might be able to do the math and get a general sense of the likely breakdown, but it’s not easy to do and the headline totals may therefore be somewhat misleading.  At the time, I was inspired in part because I’d just seen news reports of a vote at Google requesting a collapse of the dual class share structure.  The news gave the headline vote totals but did not make clear that the proposal only failed because of the votes of Larry Page and Sergey Brin.

Since then, I learned that the Council of Institutional Investors has made this kind of reporting part of its good governance priorities, and such a proposal was recently offered at Facebook/Meta.  The board recommended shareholders vote against it, because, they argued, shareholders can always do their own math, and the shareholders voted it down. However, as Andrew Droste pointed out on his blog, if you in fact do the math, it appears that 64% of the non-insiders favored the proposal, so the outside shareholders themselves, at least, don’t seem think that the math is all that easy.

Anyhoo, I mention all of this because here’s an article by Bloomberg reporting the shareholder vote at Dell to reincorporate out of Delaware and into Texas.  As you can see, the article announces that the vote was 97% in favor, but leaves out the part where public shareholders only have 9% of the votes at Dell.

So, I once again renew my proposal: Companies should be required to break out the high vote/insider shares from everyone else’s. 

An additional benefit, apart from the transparency, is that it might actually cause minority shareholders to take the vote more seriously. Right now, it’s possible they either don’t vote, or vote with management, because they know it doesn’t matter (at least when the vote doesn’t have a cleansing effect on something).  But if they know that their votes are separately reported, they may wish to make their voices heard.

Update: Andrew Droste does the math and concludes that the Dell redomestication was rejected by the unaffiliated shareholders; it was the insider votes that forced it through.

And another thing.  New Shareholder Primacy podcast is up!  Me and Mike Levin talk about private ordering in corporate law.  Here at Apple; here at Spotify; and here at YouTube.  Also, programming note: Mike and I aren’t taking the summer off completely from podcasting, but we’ll be on a kind of intermittent schedule for the next little while, and get back to regular podcasting in August.

Delaware’s Division of Corporations released its Annual Report recently for 2025. As expected, Delaware’s overall number of business entities continues to grow, with “a more than fifteen percent increase over 2024” in terms of entity formations.

But one thing about this year’s report popped out at me because it differed from years past. Delaware reported that its percentage of the IPO market in 2025 came in at “Nearly 70% U.S. IPOs.” It provided that information in this graphic.

This is consistent with Houlihan Lokey data that had Delaware at 61.8% for U.S. Non-SPAC IPOs last year. I assume Delaware counts SPACs toward its total.

But this is also a notable change from how it presented this information the year before. In 2024, Delaware reported that “81.4 percent of U.S. based Initial Public Offerings in 2024 chose Delaware as their corporate home.” It also expanded on this statistic, stating that:

This is why Delaware is home to more than 2.1 million active business entities. Eighty one percent of companies that launched an initial public offering on a U.S. stock exchange chose Delaware as their state of incorporation in 2024, an increase from 2023. That such an overwhelming proportion of newly public companies chose Delaware as their jurisdiction of choice underscores the premium the public markets continue to place on Delaware’s approach to corporate law and governance, where clarity, predictability, balance and unrivaled customer service are long-standing hallmarks.

If the 2024 percentage was something that “underscore[d] the premium the public markets continue to place on Delaware’s approach to corporate law and governance,” what does the shift from 81.4% to “nearly 70%” mean?

This takes some math to work out. Delaware’s decision to depart from last year’s clear figure to instead announce “nearly 70%” obscures the true percentage. Delaware’s market share, by its calculation, likely stands somewhere between 65% and 69.9%. This is a bit speculative because Delaware didn’t give the actual number, but it’s defensible to round up to 70% in that range so we’re looking at a likely 11.5% to 16.4% drop from the year before for where the actual number is. How signifiant is that?

Professor Bainbridge ran the numbers on past IPO data in his DExit Driver paper. He used past reports to break out Delaware’s percentage of the IPO market from 2012 to 2022. This is the table he created:

The decision to shift away from a clear number will make it harder to do this in the future, but Professor Bainbridge took these numbers and calculated that over that 11 year period, the mean was 86.6% of IPOs for Delaware with a median of 89 and a standard deviation of 4.7.

To put the rough 65% to 70% range in perspective, splitting the difference for a 67.5% share of the IPO market is over four standard deviations from the mean. Statistically, this puts it at a roughly 1 in 40,000 event if we assume a normal distribution.

Notably, 2025 had a significant number of IPOs–347 according to the SEC. That’s a decent sample.

If you extend Professor Bainbridge’s data set to include 2023 (80%) and 2024 (81.4%), the picture gets a bit better for Delaware with the mean shifting to 85.72, the median to 86, and the standard deviation to 4.86. A 67.5% share of the IPO market then comes to about 3.75 standard deviations from the mean, or roughly a one in 9,000 event for a normal distribution.

As Delaware hasn’t told us what the actual figure is, this table shows the distance from the mean and rough probabilities for whatever the true figure is from 65-69%. (Disclosure — I had Claude prepare the table)

I’m hoping to pull together 2026 IPO statistics by state soon, but Delaware’s “nearly 70%” figure shows a remarkable downturn in Delaware’s market share for IPOs.

Of course, none of this means that Delaware isn’t going to continue to grow or that the trend will necessarily continue in future years, but it does provide a strong data point that many companies made different decisions in 2025 than in past years. If this continues, other jurisdictions may accumulate enough public companies to build broader corporate law ecosystems and turn into more stable competitors.

Notably, Delaware has also taken to comparing itself to other jurisdictions and is directing people to the Council of Institutional Investors’ comparison chart. I shared some notes on that chart here.