The recent amendments to Delaware law through SB21 may not stop many reincorporations from happening. Of course, if firms decide that SB21 gives them enough comfort to stay in Delaware, they probably won’t announce that to the market.
As Proxy season starts heating up, we’ve got other reincorporations to Nevada happening. I wanted to track the reincorporations that have happened since SB21 passed on March 25, 2025. So far, I’ve got three Nevada reincorporations on my card:
- Tempus AI (3/28/2025)
- Roblox (4/2/2025)
- Sphere Entertainment (4/3/2025)
There is also one to Texas:
- Zion Oil & Gas (3/28/2025)
Notably, these all came after Delaware passed SB21. It’s worth considering the rationales these companies give for making the change. Here are select portions from each.
Tempus AI
Tempus picked Nevada for its statutory focus and to remove “ambiguity resulting from the prioritization of judicial interpretation.” It found that Nevada offered a “more stable and predictable legal environment.”
The Board considered Nevada’s statute-focused approach to corporate law and other merits of Nevada law and determined that Nevada’s approach to corporate law is likely to foster more predictability than Delaware’s approach at the current time. The Board believes that Nevada can offer more predictability and certainty in decision-making because of its statute-focused legal environment. NRS Chapter 78, which governs Nevada corporations. is generally recognized as a comprehensive and thoughtfully maintained state corporate statute. Among other things, the Nevada statutes codify the fiduciary duties of directors and officers, which decreases reliance on judicial interpretation and promotes stability and certainty for corporate decision-making. As we look to our planned growth, strategic decisions and plan for the years to come, removing ambiguity resulting from the prioritization of judicial interpretation can offer our Board and management clearer guideposts for action that will benefit our stockholders.
The Board also considered the increasingly litigious environment in Delaware, which has engendered less meritorious and costly litigation and has the potential to cause unnecessary distraction to the Company’s directors and management team and potential delay in the Company’s response to the evolving business environment. The Board believes that a more stable and predictable legal environment will better permit the Company to respond to emerging business trends and conditions as needed.
Roblox
Roblox also identified Nevada as “stable and predictable.”
Our Board believes that there are several reasons the Nevada Reincorporation is in the best interests of the Company and its stockholders. Our Board and the NCGC determined that to support the mission of innovation of the Company it would be advantageous for the Company to have a predictable, statute-focused legal environment. The Board and the NCGC considered Nevada’s statute-focused approach to corporate law and other merits of Nevada law and determined that Nevada’s approach to corporate law is likely to foster more predictability in governance and litigation than Delaware’s approach. Among other things, the Nevada statutes codify the fiduciary duties of directors and officers, which decreases reliance on judicial interpretation and promotes stability and certainty for corporate decision-making. The Board and the NCGC also considered the increasingly litigious environment in Delaware, which has engendered costly and less meritorious litigation and has the potential to cause unnecessary distraction to the Company’s directors and management team. The Board and the NCGC believe that a more predictable legal environment will better allow the Company to pursue its culture of innovation as it pursues its mission.
Notably, Roblox also specifically discussed the DGCL amendments from SB21. It found that they were not enough to stay because they were “new, untested and subject to judicial interpretation and may not fully mitigate a variety of litigation and business planning concerns for the Company. This is the full paragraph:
On February 17, 2025, the Delaware governor and legislative leaders announced legislative initiatives that would amend the DGCL in order to address recent concerns with transactional certainty and the litigation atmosphere in Delaware, including as a result of some of the high-profile cases that are considered reasons for why companies may choose to move out of Delaware and reincorporate into another state. These amendments to the DGCL, as modified and adopted (the “DGCL Amendments”), were recently approved by the Delaware legislature and the Governor of Delaware and have been enacted into law as of March 25, 2025. As noted above, our Board and the NCGC considered the DGCL Amendments in their deliberations regarding the Nevada Reincorporation and the course and process of debate over such provisions before the Delaware General Assembly. While Delaware law continues to evolve and address concerns including through the DGCL Amendments, the DGCL Amendments are new, untested and subject to judicial interpretation and may not fully mitigate a variety of litigation and business planning concerns for the Company. For the purposes of the discussion below, we have included summaries of certain of the key DGCL Amendments in the analysis of the DGCL for comparison to NRS provisions.
Roblox also highlighted the cost differences:
The Company’s current status as a Delaware corporation physically located in California requires the Company to comply with franchise tax obligations in both Delaware and California. Typically, annual franchise taxes paid to the State of Delaware are approximately $250,000 for a company of our size, which will no longer be required to be paid if the Nevada Reincorporation is completed. If the Nevada Reincorporation is completed, our current annual fees in Nevada will consist of an annual state business license fee and a fee for filing the Company’s annual list of directors and officers based on the number of authorized shares and their par value which are de minimis amounts. The Company will continue to pay de minimis annual filing fees to qualify as a foreign jurisdiction in California, and there are certain immaterial fees associated with effecting the Nevada Reincorporation via conversion that the Company will be required to pay.
Sphere
Sphere also mentioned the Delaware amendments in its preliminary proxy:
Like many corporations, Sphere Entertainment Co. was originally incorporated in Delaware. A large portion of U.S. corporations have historically chosen Delaware as their state of incorporation due to its reputation for having a well-defined legal environment. Because of the extensive experience of the Delaware courts and considerable body of judicial decisions, Delaware has garnered the reputation of offering corporations greater guidance on matters of corporate governance and transaction liability issues.
However, the increasingly litigious environment facing corporations, especially ones with controlling stockholders, has created unpredictability in decision-making. For example, in 2024, the Delaware Supreme Court determined in In re Match Group, Inc. Derivative Litigation, 315 A.3d 446 (Del. 2024) that all transactions involving a controlling stockholder receiving a non-ratable benefit are presumptively subject to entire fairness review (i.e., Delaware’s most stringent standard) unless the transaction complies with the strictures set out in Kahn v. M&F Worldwide Corporation, 88 A.3d 635 (Del. 2014) (“MFW”). The Match Group decision confirmed what corporate and legal communities had viewed in recent years as an expansion in Delaware of the application of MFW, a case originally establishing the requirements that must be followed to lower the standard of review for freeze-out merger transactions between a controlled corporation and its controlling stockholder from entire fairness to the deferential business judgment standard. In March 2025, Delaware lawmakers amended the DGCL to provide that a controlling stockholder transaction that does not constitute a “going private transaction” is entitled to statutory safe harbor protection if it is approved in good faith by a committee consisting of a majority of disinterested directors or approved or ratified by a majority of the votes cast by the disinterested stockholders and the material facts regarding the transaction have been disclosed to the committee approving, or the disinterested stockholders voting on, the transaction. Although these amendments are intended to enable boards of directors and controlling stockholders to negotiate and structure transactions with more legal certainty, interpretative questions will remain as prior doctrines are reconciled with the new statutory mandates.
Sphere specifically discusses its past experiences with Delaware litigation:
Sphere Entertainment Co. has experienced this trend in Delaware courts. Most recently, despite having the transaction negotiated, approved and recommended by committees of independent directors for both transaction parties, the merger of a subsidiary of the Company with MSGN (the “Networks Merger”) in 2021 was subject to lengthy and costly litigation from our stockholders as well as stockholders of MSGN. The complaints alleged, among other matters, that the Company and MSGN board members and majority stockholders violated their fiduciary duties in agreeing to the Networks Merger and that the disclosures relating to the merger were misleading or incomplete. After two years, during which the lack of ability to pursue summary judgment led to extensive and costly discovery, (i) the derivative litigation brought by Company stockholders was settled for a payment to the Company of approximately $85 million, which was fully funded by the defendants’ insurers, and (ii) the litigation against members of the MSGN board and majority stockholders for breaches of their fiduciary duties in negotiating and approving the Networks Merger was settled for approximately $48.5 million.
Sphere also highlights costs and local connections:
Since Sphere Entertainment Co. was initially incorporated, the Company has developed a significant presence in the State of Nevada with the construction and opening of Sphere in Las Vegas. As a result, approximately 90% of the Company’s property, plant and equipment is comprised of the Sphere in Las Vegas, and the majority of the Company’s revenues for the six-month period ended December 31, 2024 were generated by the Company’s Sphere segment. By contrast, the Company does not have any meaningful nexus to Delaware, other than Delaware being its state of incorporation. In addition, the Company’s franchise tax obligations to Delaware have become significant, amounting to $250,000 in the most recent year, whereas annual business license and filing fees in Nevada are approximately $1,500.
By redomesticating the Company from Delaware to Nevada, we believe we will be better suited to take advantage of business opportunities and that Nevada law can better provide for our ever-changing business needs and lowers our ongoing administrative expenses. Accordingly, our Board believes that it is in our and our stockholders’ best interests that our state of incorporation be changed from Delaware to Nevada and has recommended the approval of the Nevada Redomestication to our stockholders.
Zion
Zion is headquartered in Texas. This is part of its stated rationale. I bolded what I thought significant, a view that Delaware’s judicial discretion introduced more uncertainty:
There is Value in Local Decision-Making. Another advantage of home-state incorporation is that the legislators and judges making corporate law and the juries deciding fact disputes in corporate cases are drawn from the community in which the company operates. Corporate law and litigation often overlap with and impact business, employment, and operational matters. The Board believes that local decision-makers have a deeper understanding of our oil and gas business and therefore are best situated to make decisions about our corporate governance. The Board considered the likely relative predictability of Delaware and Texas law based on differences in their judicial systems. Delaware has the most respected corporate judicial system in the country and has an extensive body of corporate case law. In contrast, Texas has a new business court system 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. In making this determination, the Board was persuaded by the broadly held academic view echoed by at least three former Delaware Supreme Court Justices and one former Chancellor on the Delaware Court of Chancery that 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. 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.
Ultimately, SB21 may introduce a host of new worries for companies. I understand that there may already be a lawsuit challenging SB21’s constitutionality under Delaware law. How it will be interpreted remains to be seen. The way Delaware passed SB21 also raises big questions. Like many other law professors, I used to always teach that the Delaware legislature took its guidance from the Delaware Bar and passed the amendments given to it by the bar. Delaware abandoned that approach with SB21. Functionally, this means that any Delaware-incorporated firm is going to need to watch Delaware politics because it may pass more changes in the future. You can no longer rely on an expectation that Delaware will continue to use a technocratic process to develop amendments.