Since the last post on this topic, there are two public companies moving west–one to Nevada and one To Texas. This time it’s Mercado Libre going to Texas. Affirm is coming to Nevada. As it stands, my count is now 12 firms moving. Ten going to Nevada and two to Texas. As I had this post up before I realized Affirm had picked Nevada, I’m going to do Texas first and then Nevada. (As always, if you see one that I’ve missed, send it my way!)
Notably, Mercado Libre’s rationale for moving to Texas hinges in part on legislation the Texas legislature has yet to pass.
Mercado Libre also offered some similar reasons to other firms. This week I’ve decided to break the rationales into more and less material rationales.
More Material Concerns
Statutory vs. Judicial Environment
Mercado Libre laid this one out as “Corporate Flexibility,” but I’m going to categorize it as a statutory vs. judicially dominant environment. This is how Mercado Libre framed it:
The Board considered that Texas, unlike Delaware, has statutory provisions that would allow (though not require) MercadoLibre’s directors and officers to broadly consider the Company’s short-term and long-term interests in exercising their fiduciary duties, which will enable greater flexibility for strategic corporate actions. The DNA of MercadoLibre, embedded in our culture, is best exemplified by a proactive attitude: a relentless commitment to creating value for our users through risk-taking and innovation, all while delivering excellence as a collective. Being a pioneer is part of MercadoLibre’s DNA, and how it has become one of the top three most valuable companies in Latin America.
I’m not sure what you can consider under Texas law that you wouldn’t be allowed to consider under Delaware law.
Mercado Libre also makes the argument differently a bit later in the proxy:
In making this determination, the Board considered that while more developed, Delaware law can be indeterminate because of its use of broad, flexible standards that are applied to individual cases in a highly fact specific way. This focus on precise facts and circumstances means Delaware decisions may be less predictable for an innovative company like MercadoLibre. Although Texas has less corporate case law, Texas has a more code-based corporate governance regime, and so does not depend on cases to set out the law as much as Delaware. The Board considered that recently-enacted amendments to the Delaware General Corporation Law (“DGCL”) adopt a code-based safe harbor for transactions with directors, officers and controlling shareholders, and a more code-based books and records statute, and that these amendments were designed to improve Delaware law’s predictability in these areas. On balance, even with these amendments, however, the Board believes the Texas code-based approach is a better fit for the Company.
Mercado Libre didn’t see the recent amendments as enough to keep them in Delaware.
Existing Texas Business Courts
Mercado Libre thought the court systems were a wash now that Texas has a business court:
The Board considered the likely relative predictability of Delaware and Texas law based on differences in their judicial systems. Delaware has historically had the most respected corporate judicial system in the country and has an extensive body of corporate case law. Texas has a specialized business court system that opened in 2024 and has a smaller body of corporate case law. This factor did not alter the balance in the Board’s evaluation of Delaware and Texas.
I’ve put this in the more material camp because the Delaware court system has always been a huge advantage for Delaware. If the Texas business courts are competitive enough, that’s fairly significant.
Pending Texas Legislation
Mercado Libre explicitly announced that it was watching the Texas legislature and was hopeful that it would pass the pending legislation. This is how they put it:
In particular, the Board considered the effect of proposed legislation in the State of Texas (the “Texas Law Amendments”) in codifying the business judgment rule – the rule that the Board should be allowed to exercise its business judgment in the absence of fraud, intentional misconduct, an ultra vires act or a knowing violation of law – which the Board believes will provide greater certainty to the Board in its decision-making than will Delaware’s approach by limiting the ability of courts to revise the standard of review after a decision has been made by the Board. Codifying the Business Judgement Rule would ensure a clearer and more consistent legal framework for reviewing corporate decisions than relying on case law, as is done in Delaware, which will enable the Board to make crucial strategic decisions for shareholder value under a knowable standard which still protects shareholders from intentional misconduct, fraud and other improper acts. In the future, the Company may decide to engage in corporate actions, including but not limited to mergers, acquisitions, consolidations, dissolutions or dispositions. Moreover, the Texas Law Amendments clarifying that the Company may establish the Texas Business Court as its exclusive venue for certain claims concerning the governance of the Company and the rights of shareholders, and waive jury trials for such claims, gave the Company comfort that cases concerning the Company’s governance would be heard in an appropriate manner.
The Potential 3% Threshold
Mercado Libre also highlighted the possibility that it would be able to limit stockholder litigation by requiring plaintiffs to meet a 3% ownership threshold in the future. This is how they put it:
In addition, the Texas Law Amendments provide that the Company may establish in its bylaws an ownership threshold, not to exceed 3% of its outstanding stock, that must be held for a plaintiff to initiate a derivative claim. The Company believes that such a threshold could reduce its annual costs of litigation by limiting the ability of persons without a material economic interest in the Company to bring claims that, in the view of the Board, do not materially benefit shareholders as a whole. Upon the passage of the Texas Law Amendments, the Company may determine to adopt such a threshold. However, such threshold is not reflected in the Texas Bylaws and the Company has not yet determined whether to adopt such a threshold in the future (subject to effectiveness of the Texas Law Amendments) or, if adopted, what level to adopt it at. The Company intends to continue to evaluate this matter following the passage of the Texas Law Amendments.
Less Material Concerns
Local Connections
It has a large presence in Texas as it’s the home of its U.S. operations and the situs for occasional board meetings. Although I often see this, I tend to see this factor as less material because of the internal affairs doctrine. That you’ve got facilities and operations in a state doesn’t strike me as the most significant reason to pick Texas.
Cost Savings on Franchise Fees
Mercado Libre highlighted the lower cost to a Texas move:
For the most recent franchise tax period, the Company paid approximately $250,000 in franchise taxes to the state of Delaware, which will no longer be required to be paid if the Texas Redomestication is completed. Texas does not have a comparable annual tax based on outstanding equity. Rather, Texas’s franchise tax is based on receipts and is not expected to increase or decrease based on the Company’s state of incorporation.
Mercado Libre has a market capitalization of well over $100 billion. I don’t think the $250,000 to Delaware really matters.
Bigger Picture
There is a lot we still don’t know for this proxy season. How many firms will ultimately move? Will Texas pass these amendments? It’s possible that some firms are waiting on state legislatures to see what happens.
Affirm to Nevada.
Affirm also announced for Nevada today.
It brought in Professor Solomon like the The Trade Desk to discuss the options. Wilson Sonsini was counsel to the company:
At a special meeting of our Board on February 4, 2025, our Board, our Chief Legal Officer and representatives of Wilson Sonsini Goodrich & Rosati PC (“Wilson Sonsini”), counsel to the Company, met to discuss the Company’s state of incorporation. . . .
Shortly after the special meeting. . . our Board elected to engage a corporate law and governance expert, Professor Steven Davidoff Solomon of the University of California, Berkeley School of Law.
This is the rationale Affirm provided:
We have observed that the legal environment in Delaware has changed, with a greater frequency of litigation activity brought by well-funded firms who frequently have a significant financial interest in the outcome of the litigation. This has resulted in a less predictable and less stable landscape and body of case law in Delaware, particularly for companies, like ours, with an executive who is also a significant stockholder. Like many companies, we exist in a competitive environment and remain focused on positioning the Company to make business decisions in an agile and nimble manner. The ongoing threat of unmeritorious, but expensive and protracted, litigation over business decisions is inconsistent with that focus. That type of litigation also reallocates value and resources from the Company and its stockholders to litigation and those involved in litigation.
We have considered the amendments to the DGCL that took effect on March 25, 2025 concerning transactions involving a conflict of interest on the part of directors, officers or controlling stockholders and stockholders’ inspection rights. We have also considered the related Senate Concurrent Resolution requesting evaluation of the approach to plaintiffs’ attorneys fee awards in Delaware, the outcome of which is not yet known. Delaware law could continue to evolve and adapt in a way that addresses some of the concerns we have identified, but the effect of these developments is not yet known and the amendments will be subject to judicial interpretation.
By comparison, we believe that based on the law as it exists today Nevada can offer more predictability and certainty in decision-making because of its statutory regime. As we look to our historic growth and strategic decisions and plan for the years to come, removing judicial ambiguity can offer our Board and management clearer guideposts for action that will benefit the Company and our stockholders. Chapter 78 of the NRS is generally recognized as a comprehensive and thoughtfully maintained state corporate statute. Unlike in Delaware, where corporate law regarding fiduciary duties is significantly driven by the Delaware common law as developed by the courts based upon broad, enabling principles, Nevada codifies the fiduciary duties of directors and officers in the NRS. In turn, Nevada courts follow a more statute-based approach to director and officer duties that is less dependent on judicial interpretation.
At this time we anticipate that the Nevada Reincorporation will provide the Company with additional flexibility and stability when the Board is considering certain corporate transactions. However, the Nevada Reincorporation is not being effected to prevent an ultimate sale of the Company, nor is it in response to any present attempt known to our Board to acquire control of the Company or obtain representation on our Board. In connection with the Nevada Reincorporation, the Nevada Corporation will opt out of certain Nevada statutes that may discourage unsolicited takeovers. Nevertheless, certain effects of the proposed Nevada Reincorporation may be considered to have anti-takeover implications by virtue of being subject to Nevada law. . .
As it’s time for me to cook dinner over here, I may come back to the Affirm proxy next week!