Delaware's General Assembly is currently embroiled in a heated debate over a proposed bill, SB 21, which aims to significantly reform the state's corporate law. Introduced on February 17 by Senate Majority Leader Bryan Townsend, the bill has sparked a fierce battle between corporate defense firms and shareholder advocates. At the heart of this legislative clash is the potential impact on how claims are filed against companies in Delaware, a state known for its favorable corporate laws.
SB 21 seeks to overhaul the existing corporate legal framework, particularly affecting the way shareholders can file claims against companies. Currently, shareholders who conduct "books and records" investigations are able to file cases alleging damages. However, the proposed legislation would remove this provision, making it more difficult for shareholders to file such claims. This aspect of the bill has drawn criticism from shareholder attorneys and investment groups who argue that it disproportionately favors controlling shareholders over the broader investor base.
Corporate defense firms and attorneys have rallied in support of SB 21, highlighting its potential to streamline corporate litigation processes and create a more business-friendly environment. Notably, firms that have previously represented high-profile figures such as Elon Musk and Tesla in shareholder disputes have endorsed the measure. They argue that the bill would alleviate what they describe as an overhang for controlling shareholders of large companies.
The opposition, however, is formidable. Organizations like the California Public Employees' Retirement System (CalPERS) and the International Corporate Governance Network (ICGN) have voiced strong objections. They contend that SB 21 could lead to self-interested deals by controlling shareholders at the expense of minority investors. These groups emphasize the importance of maintaining a balance between protecting shareholder rights and fostering a conducive business environment.
The introduction of SB 21 comes at a time when Delaware lawmakers are grappling with the implications of high-profile corporate relocations. The bill has been debated in response to Elon Musk's decision to reincorporate Tesla in Texas, a move that raised concerns about Delaware's ability to retain major corporations. The proposed legislation aims to make it easier for companies to reincorporate in Delaware, potentially reversing such decisions in the future.
Myles, from the governor's communications office, expressed optimism about Delaware's ability to attract corporations back to the state.
"Whenever an entity — regardless of size — exits Delaware for one of our sister jurisdictions, our goal is to earn their business back," Myles stated.
He further noted that Delaware has a track record of reclaiming companies that initially chose to reincorporate elsewhere.
"In many cases, companies that reincorporate out of Delaware return to Delaware."
The stakes are high as SB 21 moves through the legislative process. If passed by the General Assembly, the bill would proceed to the governor's desk for signature into law. This development could have far-reaching implications for Delaware's standing as a premier destination for corporate incorporation and litigation.
Elon Musk, a prominent figure in the corporate world, has previously expressed his stance on Delaware's corporate environment.
"Never incorporate your company in the state of Delaware," Musk once remarked.
Such statements underscore the challenges faced by Delaware in maintaining its competitive edge in attracting and retaining major corporations.