A number of business titans are challenging the state’s power over companies, foremost among them Elon Musk. Last year, he moved the incorporation of two of the six companies he controls —  X Corp. and the Boring Company — from Delaware to Nevada, where his xAI was situated to start with.

Now, he’s moved two more out of Delaware, taking the incorporation of Neuralink Corp. to Nevada and that of SpaceX to Texas, where he also hopes to move Tesla Inc. 

1. Why is Delaware the popular choice for incorporation?

The First State has long been the destination of choice for companies seeking to incorporate, due to a well-developed set of corporate-governance laws and 125 years of case decisions out of state courts that provide robust protections for board directors and executives. Chancery Court judges in the state are recognized as business-law experts who can hear cases on a fast-track basis. Most high-profile merger-and-acquisition disputes are litigated in Delaware in non-jury cases. Even foreign companies come to the state to have corporate disputes decided.

2. What’s Musk’s beef with Delaware?

The billionaire has faced two legal setbacks in Delaware. In late January, a Delaware judge voided his $55.8 billion Tesla compensation package — the largest in US corporate history — after an investor claimed it was flawed by conflicts of interests and misleading disclosures by the electric car company. Afterward, Musk said he would summon shareholders to vote on moving Tesla’s incorporation to Texas. In 2022, the same Chancery Court judge repeatedly dealt Musk setbacks in pretrial rulings concerning his effort to back out of his $44 billion offer to buy Twitter Inc., which is now known as X. He eventually gave up the effort. After the setback on his pay package, Musk posted on X: “Never incorporate your company in the state of Delaware.” 

3. Why reincorporate in Nevada?

Nevada’s corporate laws offer more protections from investor suits against executives. Plus, the state does not have a corporate income tax or franchise tax for corporations. Other companies, including travel website TripAdvisor, want to follow X’s relocation to Nevada, but some TripAdvisor shareholders have sued to block the move, saying owner Greg Maffei wants to go to a state whose “race-to-the-bottom” corporate liability laws will harm investors.

4. Why Texas?

Texas has been luring chief executive officers and their companies for years by touting its light regulatory touch and low taxes — the state does not tax income or capital gains for individuals. Plus, Musk already has a massive footprint there. Tesla’s headquarters have been located in Austin since 2021 and SpaceX has testing, manufacturing and production facilities across the state. The politics of the Lone Star State could also be appealing for Musk. Texas lawmakers recently banned public universities from maintaining offices of diversity, equity and inclusion, taking on a subject that the billionaire has often criticized.

5. Are there risks to reincorporating in Texas?

Unlike Delaware, Texas does not have established business courts with judges well versed in business law. Leaders in the state are hoping to change that. Last year, they moved to establish such courts in major Texas cities in an effort to streamline proceedings for corporate disputes. The courts won’t open until September, and much about how they will operate has yet to be established. The state has struggled to recruit judges with 10 or more years of experience in complex civil business litigation due to its refusal to boost pay for judges. The starting salary for a judge on the business courts would be $140,000. By comparison, a Delaware chancery judge starts at almost $185,000.