In a significant move, cryptocurrency giant Coinbase has announced its decision to redomicile from Delaware to Texas. This shift comes as part of the company’s filing with the U.S. Securities and Exchange Commission, marking a noteworthy change in the landscape of corporate incorporation in the United States. While Delaware has long been the go-to state for companies to incorporate due to its well-established legal framework and business-friendly environment, Coinbase’s chief legal officer, Paul Grewal, emphasized that the company’s current situation in Delaware left them with limited options.
In recent years, Delaware has maintained its status as a favored destination for incorporation, with 81.4% of initial public offerings opting for the state in 2024, as highlighted by an annual report. The state boasts a total of 2.1 million entity incorporations, including two-thirds of the Fortune 500 companies. The prominence of Delaware can be attributed to its renowned Chancery Court, which specializes in business matters and is praised for its consistent and quick decision-making. However, the court made headlines last year by nullifying a historic compensation package for Elon Musk worth up to $56 billion, citing breaches in fiduciary duties approved by Musk and Tesla’s board.
Musk’s response included reincorporating Tesla and SpaceX in Texas, an action that sparked a trend of companies departing from Delaware—a movement referred to as “Dexit.” While “Dexit” remains a nascent trend, Texas has seen gradual growth in this area, although Nevada emerged as the state attracting the most reincorporations recently, welcoming companies like Roblox and Dropbox.
Despite not being the leading beneficiary this year, Texas has taken proactive measures over the past two legislative sessions to bolster its appeal as a corporate hub. The establishment of the Texas Business Court in 2023 has enabled the state to compete with Delaware’s Chancery Court. This new court recently handled a highly publicized legal battle between the Dallas Mavericks and Dallas Stars regarding the American Airlines Center, signaling its intent to establish a reputation in corporate litigation.
Additionally, Senate Bill 29 codifies the business judgment rule, offering corporate directors a level of protection against certain liabilities in legal cases handled by the Business Court. Grewal pointed out these legislative advancements in his op-ed, stating that they enhance corporate governance flexibility and foster legal predictability.
It’s important to note that the impact of these reincorporations on local economies may be limited, as they are not necessarily tied to job creation or corporate headquarters in the state. Grewal indicated that while Delaware generates over $1 billion in annual revenue from its incorporation model, Texas might take time to reach similar levels.
Coinbase has adopted a remote-first working model without an official headquarters until this year, when it secured a substantial office space in San Francisco. Nevertheless, relocating their incorporation to Texas can symbolize a strong commitment to the state, aligning with Governor Greg Abbott’s agenda to establish Texas as a foremost pro-business environment. Abbott has cultivated alliances with figures like former President Donald Trump, and Coinbase’s CEO Brian Armstrong notably supported Trump’s campaign last year.
As Texas continues to navigate its position on the corporate landscape, Coinbase’s move reflects broader trends in the evolving dynamics of business incorporation, potentially reshaping the future of corporate law and governance in the United States.
