Delaware's dominance of IPO incorporations
Delaware has long served as the dominant jurisdiction for corporate incorporation in the United States, a position that has made it among the most consequential legal and business environments in the world. Approximately 66.7% of Fortune 500 companies are incorporated in Delaware, a figure that reflects decades of deliberate policy-making, judicial expertise, and legislative responsiveness that together have made the state the preferred home for American business entities.[1] This dominance extends beyond established corporations to encompass companies preparing for initial public offerings (IPOs), where Delaware's legal infrastructure has historically provided the certainty and flexibility that underwriting institutions, institutional investors, and legal counsel expect. Despite emerging pressures and questions about the durability of its lead, Delaware continues to occupy a central place in the American corporate landscape.
Historical Background
Delaware's rise as the premier state for incorporation did not happen overnight. Throughout the late nineteenth and early twentieth centuries, states competed aggressively for corporate charter revenue, a phenomenon legal scholars have described as a "race" among jurisdictions to attract businesses. New Jersey initially held an early advantage, but Delaware gradually emerged as the dominant player, particularly after refining its Delaware General Corporation Law and investing in a dedicated court system for business disputes.
A critical institutional development was the creation of the Court of Chancery, a specialized equity court that handles corporate law disputes without juries. Unlike general civil courts in other states, the Court of Chancery developed a body of corporate case law over more than a century, giving practitioners and companies a predictable and sophisticated legal environment. This depth of precedent is especially significant for companies navigating the complex legal terrain surrounding an IPO, where shareholders, directors, underwriters, and regulators all have overlapping and sometimes competing legal interests.
Delaware's legislature also developed a practice of closely monitoring corporate law developments and updating statutes in response to emerging business needs. This ongoing responsiveness helped the state maintain relevance even as business structures, financing methods, and governance expectations evolved dramatically across the twentieth century.
Delaware and the IPO Market
When a private company decides to become publicly traded, one of the earliest and most consequential decisions its founders, boards, and legal advisers make is the state of incorporation. For the vast majority of companies that have pursued a U.S. IPO, that choice has been Delaware. The reasons are rooted in both legal substance and market convention.
Investment banks and institutional investors that participate in IPOs often have strong preferences for companies incorporated in Delaware, in part because their legal teams and the underwriters' counsel are deeply familiar with Delaware corporate law. This familiarity reduces transaction costs, accelerates due diligence, and provides a common legal language for deal documentation. A company incorporated in a less familiar state must often spend additional resources educating counterparties about the applicable law, a friction that Delaware incorporation largely eliminates.
Delaware's statutory framework also offers considerable flexibility in structuring the internal governance of a corporation. Companies preparing for an IPO can tailor their charters and bylaws to include provisions such as staggered boards, supermajority voting requirements, and limitations on shareholder action by written consent — tools that management teams often seek to retain control during and after the transition to public ownership. Delaware courts have developed a body of case law interpreting these provisions, providing predictability that is particularly valued when dealing with the heightened scrutiny that accompanies a public offering.
The Securities and Exchange Commission (SEC) and the broader regulatory framework governing public companies operate at the federal level, but state corporate law governs the internal affairs of a corporation — including director duties, shareholder rights, and merger procedures. Delaware's internal affairs doctrine jurisprudence is among the most developed in the nation, meaning that disputes arising after an IPO, such as shareholder derivative suits or challenges to board decisions, are resolved under a well-mapped body of law.
The Role of Legal Infrastructure
One of the persistent questions in corporate law scholarship is why Delaware continues to dominate the market for incorporations even as researchers have examined the quality of Delaware corporate governance and its effects on shareholders.[2] Part of the answer lies in what economists call network effects: because so many companies, lawyers, and investors are already operating within Delaware's corporate framework, the value of being part of that network reinforces itself. A lawyer trained in Delaware corporate law can advise clients across the country; a judge who has spent years on the Court of Chancery develops expertise that benefits all litigants; and an investor familiar with Delaware's shareholder rights calculus can make decisions more efficiently.
The density of corporate legal expertise in Delaware and in the national firms that practice Delaware law creates a self-reinforcing ecosystem. Attorneys who specialize in IPO transactions routinely recommend Delaware incorporation not merely out of habit, but because the legal infrastructure genuinely reduces uncertainty. Academic research has explored whether this dynamic serves the interests of shareholders as effectively as it serves corporate managers, and the debate continues in legal scholarship. Nevertheless, the market behavior of companies and their advisers has remained consistent: Delaware incorporation remains the default for IPO candidates.
Delaware also maintains a well-funded and responsive registered agent industry. Companies incorporated in Delaware are not required to maintain a physical presence in the state, but they must maintain a registered agent there. This industry has grown to support tens of thousands of corporations, providing administrative continuity that is particularly important during the post-IPO period when companies must manage ongoing compliance obligations across multiple states.
Challenges and the "DExit" Phenomenon
Despite its entrenched position, Delaware's dominance has faced increasing scrutiny in recent years. A movement informally described as "DExit" — a portmanteau of "Delaware" and "exit" — refers to the decisions by some high-profile companies to reincorporate away from Delaware and into other states, most notably Nevada and Texas.[3] Companies that have pursued this path have cited concerns about the unpredictability of Delaware court decisions, particularly in cases where courts have scrutinized executive compensation arrangements, merger transactions, and the governance practices of companies with controlling shareholders.
Legal scholars and practitioners have noted that Delaware retains the dominant position in the jurisdictional competition for corporate charters, but that its lead looks increasingly tenuous.[4] Some of the threats identified by scholars are structural in nature, arising from shifts in how companies are formed and financed, changes in the investor base that participates in IPOs, and the growing willingness of some prominent founders and executives to advocate publicly for alternative jurisdictions.
The rise of large technology companies controlled by founder-shareholders with dual-class or multi-class share structures has also introduced tension within Delaware's legal framework. Courts have occasionally issued rulings that surprised practitioners and prompted legislative responses, creating a cycle of judicial decision-making and statutory adjustment that some observers view as a sign of institutional health and others see as evidence of instability.
Competing states have actively sought to capitalize on any uncertainty about Delaware's trajectory. Nevada has long positioned itself as a more management-friendly alternative, with statutory provisions that offer greater protection to directors and officers from shareholder litigation. Texas has invested in developing its own specialized business court infrastructure, signaling an ambition to compete more directly for corporate charters and, by extension, IPO-bound companies.
Delaware's Response and Ongoing Preeminence
After some uncertainty in 2024 and 2025, Delaware remains one of the premier states for business formations.[5] The state's legislature has demonstrated a capacity for rapid statutory response when judicial decisions have created market uncertainty, passing amendments to the Delaware General Corporation Law designed to clarify rules and restore confidence among corporate practitioners.
Delaware's Division of Corporations continues to process a substantial volume of new entity formations each year, and the state's revenue from corporate franchise taxes and filing fees remains a significant component of its annual budget. This financial stake gives Delaware an institutional incentive to maintain and improve its corporate legal environment, ensuring that the legislature and the courts remain attentive to the concerns of the corporate community.
For companies preparing for an IPO, the practical calculus has not shifted dramatically despite the DExit discourse. The depth of Delaware case law, the sophistication of the Court of Chancery, and the familiarity of capital market participants with Delaware governance structures continue to make the state the path of least resistance for most IPO candidates. Reincorporating away from Delaware carries its own costs and risks, including the need to re-educate investors and counsel and the uncertainty associated with less-developed bodies of corporate case law in alternative jurisdictions.
Significance for Delaware's Economy
The concentration of corporate chartering activity in Delaware has material economic consequences for the state. Revenue generated through corporate franchise taxes and entity formation fees constitutes a meaningful share of state government income, funding public services for Delaware residents. The presence of a large registered agent industry and the attendant legal services sector also supports employment in the state, even though many of the companies incorporated in Delaware operate their principal businesses elsewhere.
Delaware's reputation as a corporate domicile also has intangible value: it reinforces the state's brand as a center of commercial law and governance expertise, attracting legal talent, academic scholarship, and policy attention. Law schools across the country teach Delaware corporate law as a primary component of business law curricula, and Delaware Supreme Court decisions are studied and cited by courts and practitioners in states with far less developed corporate law traditions.
Conclusion
Delaware's dominance of IPO incorporations is the product of accumulated institutional advantages, legal expertise, network effects, and ongoing legislative responsiveness. While the emergence of the DExit movement and the development of competing state court systems represent genuine challenges, Delaware's position as the default jurisdiction for IPO-bound companies remains intact. The state's ability to maintain this position in the years ahead will depend on its continued capacity to balance the interests of shareholders, directors, and the broader capital markets community within a legal framework that is both stable and adaptable.