Beginning of the End of Delaware’s Corporate Hegemony?
The Economist has an article about how North Dakota is trying to woo corporations away from Delaware with their new shareholder-friendly incorporation laws. There are some interesting stats in the article, specifically the one that says that each household is subsidized $3000/year by the tax gain on incorporation services. If you think the NCC tax hike is unpopular, wait for the $3000 increase if companies move en masse to N.D.
Tags: Delaware
When Delaware enacted its general corporation law in 1899, the American Law Review savaged not only the code but also the state that passed it, calling Delaware a “little community of truck-farmers and clam-diggers…determined to get her little, tiny, sweet, round, baby hand into the grab bag.”
They sure knew how to call a State out back in 1899.
Oh my, that has to be the most hilarious quote of the year, Jason, you clam-digger you.
It’s an interesting story; thanks for highlighting it. I don’t think it will make much of a dent into Delaware’s status as the state of choice for incorporation.
First, as the article noted, Delaware’s Chancery Court has moved with the times and in recent years issued rulings in favor of shareholders at the expense of management.
Second, forcing management to incorporate in ND would not be any less difficult than forcing management to adopt some of the specific reforms that the state would allow.
Often shareholder activists manage to get through to management even without achieving a majority vote; a dissident proxy measure or vote against a slate of directors that manages 35 to 40 percent usually results in management adopting some of the dissident shareholders’ demands. Forcing a corporation to reincorporate in North Dakota may be used as a threat by dissidents, but I don’t see it happening very often.
Another big plus Delaware has that North Dakota lacks is a century of court decisions. Big corporations will not “hire” North Dakota as their domicile until the court resume interpreting these new laws is seen. As most lawyers know, the judges can do any damn thing regardless of plain facts and statutes (althouth the latter aren’t usually very plain).
One of the prime examples of Delaware’s Chancery competence happened a few years ago when an idiot Justice applied personal liability on a Board of Directors. The Board had sold the company for a price higher than was publically traded. Some of the shareholders, and the Justice, thought the Board might have been able to hold out for more. They then invented a higher price, and personally charged the Directors with the difference. The corporate world freaked out. The decisions was revisited, reversed, and the idiot Chancellor was “promoted” to another court.
Don’t think North Dakota has a chance.