Recent calls for corporations to leave Delaware following a preliminary injunction in a Cloudflare case are misguided, according to The Harvard Law School Forum on Corporate Governance.
Delaware remains a welcome site of incorporation for publicly held corporations despite judicial friction, and moving requires a company-specific assessment of court efficiency, jurisprudence, and litigation exposure.
Vice Chancellor Laster granted a preliminary injunction against the recapitalization of Cloudflare, which prompted some calls for corporations to consider moving from Delaware to other states. The opinion addressed legal issues under Delaware statutory protections for controlling stockholder conflict transactions enacted in 2025 under SB 21.
The holdings largely comported with the protective purpose of the amendment by rejecting stockholder plaintiffs’ efforts to circumvent the safe harbor regime and by according strong deference to determinations that special committee directors were disinterested.
The decision built on earlier Chancery decisions by Vice Chancellor Will. However, Vice Chancellor Laster concluded in the preliminary relief context that plaintiffs showed a reasonable probability of proving at trial that the special committee did not satisfy the statutory requirement of approving the recapitalization in good faith. The Cloudflare opinion is currently on interlocutory appeal to the Delaware Supreme Court.
Considerations for moving include the efficiency and predictability of a jurisdiction’s court system and whether a company wishes to become subject to suit in a new home jurisdiction for consumer, customer, and other claims. According to a ranking published by the U.S. Chamber Institute for Legal Reform in its 2019 Survey of the Fairness and Reasonableness of State Liability Systems, Delaware ranked #1, while Nevada and Texas ranked #29 and #38, respectively.
