For more than a century, Delaware has been the top state for businesses to incorporate due to its business-friendly climate.

In fact, the state incorporated 81 percent of U.S. IPOs last year, according to a statement released on March 12 by Delaware Governor Meyer.

And while 2.2 million business entities have made Delaware their legal home, more than twice the state’s population, that could have changed if not for the quick action by state legislators.

Rising costs, regulatory hurdles and decisions in recent litigated cases have made the state seem less than welcoming, leading to several big-name firms, like META, threatening to leave.

With states like Texas and Nevada standing ready to accept the firms, state officials quickly drafted a bill in an effort to stem DExit, the term dubbed for Delaware’s Corporate Exodus.

Unlike in many other states, Delaware corporate law cases are tried exclusively by professional judges, and not by juries, the state’s website noted.

While the state had a reputation for being business friendly, recent court actions highlight growing concerns surrounding heightened litigation risks.

A recent decision by the Delaware Court of Chancery stresses the issues businesses, including insurers, face relating to corporate governance and fiduciary duties.

Specifically, cases involving shareholder disputes, which could be especially problematic for insurers.

A review of the state’s list of firms incorporated there as of March 4th showed 80 property/casualty insurers, 33 domestic surplus lines insurers and two multiline insurers.

In this month’s guest post on Kevin LaCroix’s online journal, The D&O Diary, John McCarrick, a partner at the Robinson & Cole law firm in New York explains the impact to Directors and Officers insurers.

One such issue is how corporate mergers should be treated.

“In a number of cases, the Chancery Court has allowed hybrid direct/derivative actions to proceed by way of a single complaint, often deferring until the conclusion of fact discovery whether the case should be considered a direct or derivative action,” McCarrick states.

The simultaneous representation of both shareholders(s) and the corporation would not be allowed in most cases, McCarrick added, with D&O insurers struggling to redefine whether there is any indemnity or coverage for a loss under their policies.

The Chancery Court has also been unwilling to assist D&O insurers in determining “if and how D&O insurance should apply to such a claim at the time of settlement,” he said.

Waiting until discovery has concluded leads to increased expenses for D&O insurers, who then must pass on some of that extra expense to their customers.

The decision to combine shareholders into one case could pose significant costs to the company incorporated there, should other lawsuits be interpreted in the same way.

Many companies expressed concern and a willingness to leave the state for greener pastures, pushing legislators to hurriedly draft a bill addressing their concerns by modifying the state’s corporate governance laws in order to retain them.

For example, the bill redefines what is meant by “controlling shareholders” and establishes safe harbor safety mechanisms, while restricting shareholder record inspection rights.

“The corporate franchise represents more than one-third of the Delaware state budget at roughly $2.2 billion,” the Governor said. “Senate Bill 21 addresses long-standing ambiguities in corporate decision-making by providing a clear safe harbor for independent directors, a key request from business leaders. It also refines shareholder governance structures to ensure a fair balance between management rights and shareholder protections.”

The legislation was assigned to the judiciary committee on March 13, 2025, for further review. Yesterday, the state’s House of Representatives passed the bill which quickly moved to the Governor’s desk where he signed off on it.

“Delaware remains the leading domicile of choice for incorporation by publicly traded companies. Delaware’s corporate franchise is an integral part of our state’s economy and prosperity,” said Senator Darius Brown, chair of the Senate Judiciary Committee and member of the Joint Finance Committee. “Senate Bill 21 preserves a balanced and fair approach to both the customer and constituent.”

A review of Delaware’s Department of State FY 2026 Joint Finance Committee Hearing report released last month explains the haste in pushing the legislation through. Revenue generated by corporations totaled more than $2 billion, equating to a third of the states’ revenue, Brown said.