Reincorporation: The Trojan Horse of Self-Dealing

Document Type

Article

Publication Title

Baylor Law Review

Journal Abbreviation

Baylor L. Rev.

Abstract

This Article examines the emerging trend of Delaware corporations reincorporating in Texas and Nevada. In an effort to compete with Delaware, these states have expanded the already robust liability protections available to officers and directors. Following the Delaware Chancery Court’s TripAdvisor opinion in February 2024, corporations now have the green light and a roadmap for securing the expansive protections of the business judgment rule when deciding to leave Delaware. This Article explains how reincorporation is a tactic designed to entrench greater power for directors and controlling shareholders, often concealed as granting shareholders greater decision-making authority. By opting to reincorporate in Texas or Nevada, directors are deliberately choosing to diminish the rights of shareholders, ultimately ensuring their own increase in power. Given directors’ inherent self-serving interests in reincorporating, this Article asserts that the presumptive standard of review should be the entire fairness standard. This Article further contends that TripAdvisor’s proposed route in securing the business judgment deference is unattainable for corporations with a controlling shareholder. While advocating for adopting a broader

legal standard for identifying the existence of a controlling shareholder, this Article asserts that whenever a corporation with a controlling shareholder moves to reincorporate, the entire fairness standard must apply. Requiring directors and controlling shareholders to demonstrate that the decision is both procedurally and substantively fair preserves Delaware’s long commitment to balancing the rights and interests of both directors and shareholders.

First Page

67

Last Page

130

Publication Date

2025

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