Pierluigi Matera discusses challenges to Delaware's dominance of the market for corporate charters.
This dominance has been regularly criticised by scholars but hardly put in serious jeopardy by challengers. Nevada is known as Delaware’s most important competitor, with an aggressive strategy that overrode the effort of any other jurisdiction. In order to attract incorporators, in 2001 Nevada broadened directors’ and officers’ protection from liability and became a truly liability-free jurisdiction. Yet, its success has been limited to a specific market segment: small firms with low institutional shareholding and high insider ownership. ...
In a recent paper I contend that a mounting challenge to Delaware’s dominance is mostly going off the radar. Wyoming is targeting a new segment of the market for corporate charters: cryptocurrency businesses. This jurisdiction is attempting to attract these incorporators by enacting liberal legislation and providing their companies with a safe harbour.
I've pondered challenges to Delaware in various places. In my article, "Why the North Dakota Publicly Traded Corporations Act Will Fail," 84 North Dakota Law Review 1043 (2008), I discussed North Dakota's adoption of "the Publicly Traded Corporations Act, which 'is designed to strengthen corporate democracy and improve the performance of publicly traded corporations.' ... The idea [was] that North Dakota will attract incorporations away from Delaware by being more shareholder-friendly than Delaware."' As I subsequently noted, the North Dakota effort proved to be a massive flop.
On major reason is that Delaware's legislature acts quickly to adopt developments in other states that prove successful. "The Delaware legislature pays close attention to keeping the GCL up-to-date and efficient. It has a longstanding relationship with the Corporate Law Section of the Delaware Bar Association, which frequently recommends, reviews, and drafts revisions to the GCL. William F. Griffin, THE DELAWARE ALTERNATIVE, CLHBU MA-CLE 10-1 (2015).
As Wilmington attorney Black noted, however, Delaware's system is not easily emulated. “There are elements unique to Delaware that would be very hard to replicate, particularly in big states,” he says. Delaware benefits from having a unique combination of an enabling corporation statute, a legislature that keeps the statute up to date and that has developed a long and trusting relationship with the corporate bar, and judges who come from among the best and brightest attorneys in the state, he says. “
Donald F. Parsons Jr. & Joseph R. Slights III, The History of Delaware's Business Courts: Their Rise to Preeminence, 17 Bus. L. Today 21, 25 (March/April 2008).
In sum, if Wyoming starts to make gains, the Delaware legislature will just copy the Wyoming approach--probably with improvements--and remain dominant by adding to the statute the other advantages identified by Parsons and Slights.
As for Nevada's success, Delaware has opted not to emulate Nevada's approach of drafting a corporate law designed to appeal mainly to crooks seeking immunity from accountability.
