Will plan to revamp incorporation law protect or damage Delaware’s $2B kingdom?

From Philly and the Pa. suburbs to South Jersey and Delaware, what would you like WHYY News to cover? Let us know!

In the parlance of Delaware political and legal insiders, “the franchise” is king.

Without the franchise, the state couldn’t pay for public schools, police, prisons, social and health programs, beach replenishment, farm preservation or so much more.

Without the franchise, taxes would be significantly higher, or the state would need to slash services.

The franchise is Delaware’s system, which currently has 2.2 million businesses — and two-thirds of the Fortune 500 — incorporated in the nation’s second-smallest state. Amazon, JPMorgan Chase, Nvidia and the corporate parents of Google and Facebook and Instagram are among about 1,350 Large Corporate Filers who fork over $250,000 apiece in franchise taxes.

All told, those “incorporation revenues” are projected to directly generate $2 billion for the state treasury this year. That accounts for 29% of the state’s general fund revenue.

But today, fear is rampant in Delaware that the business-friendly franchise that some also call the “golden goose” is in serious danger of being cooked — that a mass corporate exodus or “DExit” is imminent.

Trepidation has grown over the last year since Elon Musk pulled Tesla and SpaceX out of Delaware and castigated the Delaware Chancery Court, which has long been considered the franchise’s crown jewel for its deft and reliable resolution of complicated business disputes.

“Absolute corruption,” Musk tweeted in December after the court’s chief judge rejected his $56 billion pay package from Tesla for the second time. The file-sharing platform Dropbox has announced it’s divorcing from Delaware, and other major companies such as Meta Platforms, the parent of social media giants Facebook and Instagram, say they might do the same.

So this month, new Gov. Matt Meyer, legislative leaders and a cadre of legal luminaries decided to neutralize the perceived threat before it gains ground.

Together, they crafted a complex proposal to revamp Delaware corporate law by essentially making it tougher for shareholders to sue founders and top executives for perceived conflicts.

They did so, Meyer and others involved in the process say, to alleviate concerns they are hearing from the nation’s corporate community that Chancery Court has grown increasingly unfriendly to top execs like Musk in mega-dollar cases.

Meyer, a Democrat and lawyer who took office Jan. 21, echoed other supporters when the bill was introduced Feb. 17. “We will protect our reputation and continue Delaware’s tradition of a balanced and measured approach, and we will do so relentlessly,” Meyer said.

Meyer’s concern is magnified by the impact a DExit would have on balancing the $6.8 billion state budget and maintaining public services during his four-year term, especially at a time when President Donald Trump is trying to cut critical federal funding to states.

Delaware needs and wants those $2 billion in incorporation revenues every year, plus a related $420 million the state gets from abandoned financial accounts at banks and other companies registered in the state, Meyer said.

“When one-third of your state’s budget is on the line and you’re eyeing down untold federal budget cuts, you have to make a choice: protect your residents or not. And I choose Delawareans every day,” Meyer said in an interview last week. “Any bill that helps improve our financial stability needs to be considered fully.”

Lawrence Hamermesh, professor emeritus at Widener University’s Delaware Law School and one of the bill’s drafters, said it will restore eroding confidence in corporate circles and prevent “catastrophic” cuts to the state budget.

“Unlike as long as I’ve been practicing and teaching corporate law, there is no longer the inclination to tell clients and to conclude that Delaware is the place to set up your corporation,” Hamermesh said. “That is potentially the source of a tipping point that would be devastating for the state and its taxpayers and workers and everybody here.”

The bill, which has bipartisan support that includes the Senate and House leadership, could become law within a month, said Delaware Senate Majority Leader Bryan Townsend, the chief sponsor.

While the bill currently has no effective date — spurring speculation that it could be retroactive and change the result of cases involving Musk and other executives — state Sen. Townsend said it’s being modified so the effective date would be after it’s signed into law.