The Big Picture on A Small State: The Charter Competition Debate

The debate over state competition for corporate charters was a lively topic in academic and policy circles in the 1970s but then settled into relative dormancy, punctuated only by occasional flareups over federal interventions. In recent years, however, the issue has returned to center stage. This renewed attention originated with a small number of influential critics of the field’s longtime leader, Delaware, largely in reaction to a handful of judicial opinions. The critique has widened as rival states ramped up their campaigns to attract new incorporations.

Professional observers—from the private bar to academic law—have weighed in with increasing frequency. Much of the discussion reflects the wide range of factors that influence the choice of incorporation and rightly resists one-size-fits-all conclusions. Yet some influential voices fall prey to reductionism and cherry picking—oversimplifying the issue by spotlighting narrow grievances without engaging the broader institutional context. This is the corporate-policy equivalent of choosing where to live based on a single difficult interaction with city hall, ignoring the school system, safety, infrastructure, and long-term value. It may be cathartic, but it is not a sound strategy.

A good example of this problem is the recent, public declaration by Andreessen Horowitz (AH) that it is moving its corporate domicile from Delaware to Nevada. While dozens of notable companies switch jurisdictions every month for a range of reasons, AH widely publicized its decision and justified it with specific concerns that highlight a particular perspective in a multifaceted decision. AH declares its goal to be to influence others. As such, it warrants assessing.

The Memo: A Narrow Case for a Broad Recommendation

AH attributes its move primarily to the oft-repeated but unprovable assertion that Delaware courts have become “subjective” and “biased against startup founders.” It points to two recent opinions from the Delaware Court of Chancery—one second-guessing another company’s move to Nevada (which the Delaware Supreme Court reversed) and one invalidating an executive compensation package (which is currently on appeal). From these two cases, AH raises broader concerns about an entire jurisdiction—ignoring tens of thousands of Delaware court opinions over nearly a century that form the core of corporate law in virtually every U.S. jurisdiction, including Nevada.

AH also expresses confidence that Nevada will evolve into a superior alternative, paradoxically praising it for having adopted statutes that largely preclude its judges from developing any similar body of law. And while Delaware’s case law is certainly a major strength, this preoccupation with a few big cases misses all the other important elements that make a state a reliable provider of corporate legal infrastructure.

Delaware’s Advantages: Beyond Case Law

In urging companies to reconsider incorporating in Delaware, AH does not mention the foundational reasons Delaware has long been the forum of choice:

• An efficient and sophisticated Division of Corporations that facilitates rapid filings and support;
• A responsive legislature that updates statutes with unusual speed and clarity;
• A robust ecosystem of corporate services built over generations;
• An expansive alternative dispute resolution mechanism presided over by retired judges;
• A constitutional system that requires bipartisan judicial appointments;
• A corporate bar of unmatched depth and specialization;
• And, yes, a judiciary more fluent in business law than any other, producing swift, nuanced, and commercially sophisticated rulings.

True, some rival states have one or two of these assets or are trying to develop them. But it is difficult to think of any other jurisdiction that offers all seven.

Delaware also pioneered many of the very doctrines Nevada and others have since codified—from director and officer liability waivers in 1986 to advance renunciation of corporate opportunities. Companies looking for long-term legal predictability and capital formation tools would do well to remember that these features emerged from Delaware’s case law and continue to be refined through its institutional dialogue. Other states may catch up, but doing so requires substantial investment of resources sustained over many generations.

Up-Front Bright Lines vs. Contextual Judgment

AH criticizes Delaware’s business judgment rule (BJR) as being eroded by judge-made exceptions like the “entire fairness” standard. But Delaware pioneered and steadfastly maintains a robust BJR and its “entire fairness” standard has existed for decades, applies only in narrow circumstances, and is structured to ensure due process. AH’s claim that Delaware’s BJR is “swallowed” by exceptions is overstated, and the case law doesn’t support it.

Oddly, Nevada’s approach is praised for its rigidity, having put its BJR in the statute books where judges cannot adapt it. But while statutory bright lines have their place and appeal, they can collapse under commercial pressure. Delaware’s model provides durable flexibility: high predictability for most transactions and meaningful review in exceptional cases. Nevada is engaging in an interesting experiment and it will be valuable to see how it turns out.

On Books and Records

Another novelty from Nevada that AH extols is a bright-line rule limiting rights to inspect corporate books and records to 15% shareholders. AH presents this as a safeguard against frivolous suits, which it may well be. But in public companies with dispersed ownership, that threshold may sift out many meritorious suits a well. Delaware permits limited inspection under safeguards refined through case law and recently codified to narrow the scope and enhance certainty without undermining shareholder rights. It is difficult to determine the optimal approach to shareholder inspection of books and records; Nevada’s bright line rule is an interesting contrast to Delaware and the alternatives offer a laboratory experiment worth watching.

On Judicial Tone and Perception

It’s true that some Delaware decisions in recent years have surprised observers—not only on substance, but also in tone and framing, as AH’s discussion suggests. Such perceptions, particularly among newer market entrants, underscore the importance of judicial tone in maintaining confidence in legal forums.

On the other hand, recent legislative action codifying traditional approaches to conflict transactions, along with corrective rulings by the Delaware Supreme Court, addresses many of the practical concerns corporations raised. And navigating divergent views within the judiciary is not a new challenge for Delaware. As with earlier inflection points, Delaware should continue to proceed with humility and care.

The recent legislation affirms this commitment. Reinvigorating certain Chancery traditions—including random assignment of corporate cases as a legislator recently proposed and continued reluctance to rule on hypothetical questions or questions that would be moot if a pending motion to dismiss were granted—would complement the new legislation’s role in reinforcing confidence in Delaware’s system.

Promising Steps, Long Journey

AH heralds Nevada’s efforts to create a specialized business court—through jury trial waivers and a constitutional amendment to appoint rather than elect judges—as promising reforms. These are indeed sensible ideas. But for now, they are just that: proposals. While Nevada has a business law court, the state’s leadership recognizes that it is wholly inadequate to provide a broad basis for handling big-time corporate litigation. Such specialized courts exist in only a few states—the distinguished examples being New York for commercial law and Delaware for corporate law—and it takes decades of engagement to develop them.

Statutory codes alone do not govern corporations. They require interpretation, application, and evolution—functions performed by courts with commercial fluency. No statute is fully self-executing. And no jurisdiction becomes a serious contender to Delaware without cultivating a culture of jurisprudential stability, responsiveness, and business judgment.
Delaware’s Court of Chancery embodies those qualities. Built case by case over generations, it has become the forum of choice for resolving high-stakes disputes, including merger breakups during the financial crisis and pandemic. It is valued not just for speed but for quality. Companies that leave Delaware risk losing access to this critical infrastructure at the very moments when judicial excellence matters most.

Even Broader Frame

Finally, there’s a broader risk. If state competition is reduced to narrow public critiques and reactions, federal chartering could gain traction. Long advanced by Democratic reformers, the topic has of late attracted support from the unlikely bedfellows of Elizabeth Warren to Elon Musk. Federal corporate law would be appealing to political leaders but costly to virtually all other constituents. Corporate law production would be determined by lobbying and political winds in Washington rather than by the historically apolitical formulation in Delaware and other states.

Conclusion

The substantive questions surrounding incorporation and charter competition are rich, complex, and deserving of serious debate. But participants in that debate owe it to themselves—and to the business community—not to substitute anecdote for evidence or grievance for governance. When critiquing Delaware, which is a valuable public service, heeding the big picture is important.