Texas is Disrupting Delaware’s Dominance through Innovation

Disruptive innovation has come to the jurisdictional competition for corporate charters.

For decades, the biggest obstacle facing states seeking to challenge Delaware’s dominance in the jurisdictional competition for corporate charters was their inability to replace Delaware’s massive inventory of highly developed case law precedent. This body of law, coupled with the promise that an elite cadre of sophisticated judges would interpret new legal disputes against the background of these precedents, allowed Delaware to offer what its competitor-states could not: certainty and predictability. Until now that is.

Delaware’s position seemed insurmountable because competing with Delaware required other states to match Delaware’s certainty and predictability. This certainty and predictability was possible because of Delaware’s large body of precedential case law and its specialized and exclusive trial court. While a state could alleviate an absence of controlling precedents by incorporating Delaware decisions into its case law, as Delaware did when it superseded New Jersey as the leading domicile state in the early Twentieth Century, that does not resolve the problem going forward of having judges with expertise deciding new issues as the business environment changes. Companies that wanted to do complex deals like public offerings of debt or equity, the pursuit of an active mergers and acquisitions program, the implementation of antitakeover devices and major restructurings relocated to Delaware because their advisors told them that the law in rival jurisdictions was too undeveloped and uncertain. Companies, and their officers and directors have a high demand for legal certainty when facing litigation risk and are willing to pay for it. And pay for it they did, by opting in to the high-fee, litigation world of Delaware corporate law.

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