Why some companies like Mercado Libre are ditching Delaware— and why you probably shouldn’t

Despite a few high-profile companies like Tesla and Dropbox leaving Delaware, the state remains the dominant choice for startups seeking U.S. venture capital due to its speed of incorporation, established corporate legal framework, privacy for founders and investors, and tax planning opportunities; in 2024, Delaware gained 85 new public companies, and over 275,000 new entities registered in the state, underscoring its continued appeal to both public and private companies as VCs overwhelmingly prefer Delaware incorporation.

Analysis

Recent headline-grabbing decisions by prominent companies such as Tesla (TSLA) and Dropbox (DBX) to re-incorporate outside Delaware, citing reasons like judicial rulings on executive compensation and lower franchise taxes respectively, along with Mercado Libre's (MELI) shareholder proposal to move to Texas for tax savings and strategic flexibility, have raised questions about Delaware's status as the premier jurisdiction for corporate formation. However, empirical data strongly refutes the notion of a "Delaware Exodus." In 2024, only eight publicly traded companies proposed leaving, while Delaware attracted 85 new public companies, with 80% of all newly public U.S. companies choosing to incorporate there. Furthermore, the state registered over 275,000 new private entities in the same year, underscoring its persistent dominance, particularly among startups and VC-backed businesses. This enduring preference is primarily driven by U.S. venture capitalists who often mandate Delaware incorporation due to its unparalleled speed in processing filings, a highly established and specialized corporate legal framework with expert judges in its Court of Chancery, enhanced privacy for founders and investors as shareholder information is not publicly disclosed, and advantageous tax planning opportunities, including no state income tax on out-of-state revenue. While states like Texas, Nevada, and Wyoming are attempting to attract businesses, they currently do not offer the comprehensive package of speed, legal predictability, and investor familiarity that Delaware provides, making its higher franchise taxes a generally accepted cost for these benefits, especially for early-stage companies focused on scalability and attracting capital.

Key Decisions for Investors

• Investors in venture capital funds should maintain Delaware incorporation as a key positive indicator for portfolio companies, reflecting alignment with VC preferences and a robust legal environment.
• Scrutinize re-incorporation decisions by individual companies like TSLA, DBX, or MELI for their unique strategic drivers, such as specific legal disputes or tax optimization goals, rather than interpreting them as a broad erosion of Delaware's appeal for the majority of startups.
• Continue to monitor the competitive landscape of corporate domiciles, but recognize that current data overwhelmingly supports Delaware's sustained leadership, making deviations a point of specific due diligence rather than an assumed norm.