By Liz Dunshee
For decades, Delaware has been the default choice for incorporation – either at formation or in anticipation of an initial public offering (IPO). As we noted in this June 2025 CapitalXchange article, recent developments have made the decision more complex. Today’s blog recaps why the incorporation decision matters, highlights Nevada’s rise as one of the leading disruptors, and points out a common pitfall that can be avoided with careful planning.
The ‘late-stage’ use case
Through June 2025, 18 public companies had proposed to reincorporate out of Delaware versus 10 moving into Delaware from other states. According to this ISS blog post, 12 of the reincorporation proposals recommended a move to the Silver State.
Controlled companies have been especially interested in reincorporating to Nevada because its statute clearly defines a controller’s fiduciary duties and provides a safe harbor for controlled transactions. While every situation is unique, established public companies operating outside the “controlling stockholder” context have been less likely to determine that the advantages of reincorporating justify the logistical effort.
In contrast, late-stage private companies may have a compelling use case, as founders tend to own a significant portion of shares through the IPO. Historically, startups defaulted to Delaware to attract VC funding. But that’s changing. Nevada is increasingly seen as a viable – and cost-effective – option, especially for companies that want to avoid the hassle of reincorporating later. With one of the most prominent VC leaders recently signaling comfort with Nevada, the stigma of being a “first mover” is fading. However, for the reasons described below, any company that is considering reincorporating out of Delaware needs to plan ahead and act carefully throughout the process.
Why your state of incorporation matters
With real-world consequences at stake, founders and boards need to understand their options so they can select the best path for their company’s circumstances. Consider these nine key issues:
- Predictability and certainty: When boards and advisors have clear indications that their processes, deal terms and corporate structures comply with state corporate law, they can make decisions with greater confidence. Some take comfort in Delaware’s well-established body of case law, but others prefer to rely on a statute-focused framework, which is available in Nevada.
- Specialization and speed: Specialized business courts help resolve corporate disputes quickly and with deep expertise. The Delaware Court of Chancery is well-known and respected, even though recent high-profile decisions undermined some founders’ trust. In Nevada, there is a business court division at the trial level, but judges are elected. There is momentum for a constitutional amendment to create a statewide business law court with appointed judges, but with Nevada’s emphasis on its statute-based framework, lawmakers will likely look to retain limitations on the court’s role.
- Familiarity: The comfort level of board candidates, investors and regulators with the rules governing a company may affect how readily they give a nod of approval. Boards and founders want assurances of deference and liability protection, and minority stockholders want guardrails to protect their interests. In some cases, industry forms are calibrated to Delaware law, so bespoke efforts may be required for other states.
- Responsiveness: State legislatures that are attuned to business issues can ensure that the state’s corporations code remains usable as business practices and litigation threats evolve. This year, both Delaware and Nevada lawmakers acted quickly to meet corporate needs.
- Board duties and processes: The statutes and case law of the state of incorporation set the required standard of conduct for boards in various scenarios and explain steps for board actions. In Delaware, directors have fiduciary duties of care and loyalty. Nevada offers stronger statutory protections for directors and officers, with liability generally only arising from intentional misconduct, fraud or knowing violation of law.
- Controlling stockholders: State law defines who is considered to have a controlling interest, the standard of review that applies to transactions with controlling stockholders and safe harbors that may apply. By design, Nevada has emerged as an especially friendly jurisdiction for founders, and it followed Delaware in adopting amendments that clarify how to “cleanse” controlling stockholder transactions. Nevada’s statute generally tracks with the as-amended Delaware General Corporation Law (DGCL), but it defines “controlling stockholder” – and the situations in which they may be liable to the company – more narrowly.
- Stockholder rights and processes: State law can also differ on stockholder rights – for example, it dictates situations that require stockholder approval, triggers for appraisal rights, stockholder procedures for acting, and stockholder rights to corporate records and director communications. For books and records demands, which often serve as a precursor to stockholder litigation, Nevada sets high ownership thresholds for requesting stockholders and narrowly defines the scope of available records. As detailed in this Securities Litigation + Enforcement blog post, Delaware recently amended the corresponding section of the DGCL, but the Delaware provision remains more stockholder-friendly than Nevada’s and also remains subject to judicial interpretation.
- Litigation risks: State codes spell out directors’ and officers’ indemnification and advancement rights and the situations in which they will be liable for missteps. Unlike Delaware, Nevada does not impose mandatory liability for a breach of the duty of loyalty or care. Differing fiduciary duties and higher standards of proof also affect whether plaintiffs can move forward with litigation claims.
- Expenses: State franchise fees can vary significantly. Delaware offers “assumed par value” as an alternative calculation method, but Nevada’s fees may still be lower, and even incremental differences can move the needle for pre-revenue and low-margin companies.
We outline the differences between Delaware, Nevada and Texas corporate laws in more detail in this Cooley GO chart, Delaware Versus Nevada Versus Texas: A Comparison of Corporate Laws.
Nevada rising: Recent updates are a leap forward
Actions this year by the Nevada Legislature and courts have shown that the state is making a serious bid to disrupt the incorporation landscape. Although we expect Nevada courts to continue to defer to the plain meaning of the Nevada Revised Statutes, a July 2025 decision showed that Nevada courts are willing to reach well-reasoned conclusions when the statutory framework is unclear. In that case, the trial court applied the business judgment rule to a limited liability company that had specified fiduciary duties in its operating agreement.
Additionally, Nevada lawmakers recently passed AB 239, a sweeping business entities bill that made significant changes to the state’s corporate law. These updates are designed to make Nevada more attractive to companies seeking clarity, flexibility and cost efficiency.
This Governance Beat blog post summarized the Nevada legislation shortly after it was adopted. Here’s a reminder about what’s new – and why it matters.
Modernizing fiduciary duty for controlling stockholders
Nevada now defines a controlling stockholder based on actual voting power (enough to elect a board majority) and limits their fiduciary duty to refraining from undue influence that induces a director’s breach for personal gain, bringing more predictability and clarity to M&A and governance scenarios.
Safe harbor for controller transactions
The law provides a presumption of no breach if a controller transaction is approved or recommended by a committee of disinterested directors, raising the bar for plaintiffs challenging conflict transactions involving controlling stockholders.
While Delaware law now also provides safe harbors for conflicted transactions – as described in more detail in this Cooley M&A blog post – some founders continue to harbor doubts that Delaware courts will interpret these provisions in a favorable way.
Bench trials over jury trials – by design
Nevada companies may now require internal corporate disputes – e.g., fiduciary duty and derivative claims – to be resolved via bench trials. This aligns Nevada more closely with Delaware’s Court of Chancery, known for its bench trials and business law expertise. Nevada’s Supreme Court is also reviewing a proposed rule to create a specialized business court in the state’s two largest judicial districts.
Board authority over draft documents clarified
Similar to a recently amended Delaware law, Nevada boards may formally act on preliminary versions of merger and transaction documents, at their discretion, without risking claims over technical finality, reinforcing Nevada’s strong business judgment rule and addressing practical challenges in fast-moving transactions.
Appraisal rights = sole remedy
Where appraisal rights exist for private companies in Nevada, the new law makes them the exclusive remedy, limiting the risk of parallel or follow-on litigation and promoting transactional certainty.
Keep your options open: Anticipate appraisal rights
With so many decisions required of late-stage private companies, it can be tempting to rush into choosing a state of incorporation. To arrive at the best long-term outcome, it is important to understand not only where you want to end up, but also how to get there.
In addition to keeping a clear record of board considerations and reviewing contractual consent requirements, late-stage private companies considering a conversion from Delaware to another state, such as Nevada, should be aware of the implications of statutory appraisal rights under DGCL Section 262. For some companies, this may be the biggest hurdle to reincorporating.
In the public company context, appraisal rights are often waived due to the “market exception,” which exempts listed securities or those held by more than 2,000 stockholders. However, this exception does not apply to private companies. That means stockholders in a private Delaware corporation will likely have appraisal rights in connection with a conversion, giving them the ability to demand a judicial determination of the fair value of their shares.
These rights can be waived – but obtaining waivers requires careful planning and clear communication. With the right legal guidance, companies can structure their conversion in a way that minimizes risk, ensures compliance and avoids surprises. Legal advisors can assess who is eligible for appraisal rights, determine how to mitigate risks and guide companies through the procedural steps that a reincorporation requires. For late-stage companies looking to keep their options open, understanding and addressing appraisal rights early in the process is key to a smooth and efficient reincorporation.
Looking ahead
For late-stage private companies, especially those frustrated with Delaware’s complexity or looking to cut costs, Nevada is worth a serious look. A lack of familiarity with Nevada law has created a barrier to change for some companies, but it doesn’t need to be that way. Cooley actively advises private and public companies on reincorporation decisions – and, as applicable, guides them through the reincorporation process. Whichever outcome is best for the company’s circumstances, our experienced team is ready to provide knowledgeable advice and ongoing support.
